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Antwerp
By Marc Goldstein
Bank financing has become one of the most preeminent issues for the global diamond trade. While it is far from an Antwerp-centered matter, several local diamantaires expressed their concerns on whether a banking dilemma in fact exists. (See Rapaport Magazine, June 2016, “The Banking Dilemma,” page 60). Shashin Choksi of Swati Gems commented, “I was categorically told that the Antwerp banks are committed to the trade. Accounts are being opened in several banks as we speak. One even requested that I bring new clients to them. Of course with time, their credit policies may have changed. That does not mean that they are exiting.”
The global impact of banks leaving the industry was confirmed by Pierre De Bosscher, director of De Bosscher Consulting, and former CEO of the Antwerp Diamond Bank (ADB). “Banks are reviewing their strategy regularly based on the continuously changing world. Disruption, customer and industry focus, the regulatory environment and shareholder exigencies are some of the drivers for such strategy exercises. Companies with a lower risk profile, meaning companies with a defined corporate structure, that adhere to international financial reporting standards (IFRS) and maintain a transparent way of doing business will always find financing, be it bank or nonbank funding. The stringent regulations and stress test for banks in Basel III and Basel IV need banks to permanently focus on their solvency, their capital adequacy, their profitability and risk/reward return. However, many in our global worldwide industry haven’t reached that required level.” Erik Jens, head of Diamond & Jewelry Clients, ABN AMRO, concurred. “I cannot speak about the strategy for other banks. But in general, as in other industries, banks regularly review their strategies, certainly in times of capital scarcity and higher standards of regulations and make risk-adjusted return trade-offs to allocate capital. As for the diamond industry, we know that reputation and transparency still play a role in those trade-offs despite the many initiatives of the industry to improve its image. In our opinion, and we have noted this many times before, for well-structured companies with a healthy transparency, business plan and profitability, there is enough liquidity from several banks active in the sector, even to the point of attracting newcomers, including investors in Europe, Asia, U.S. and the Middle East.”
The issues of transparency, compliance and knowing your client, among others, have been influencing the shape of a new banking model since 2008. While some banks may still be extending credit, the happiest days of the marriage between traditional banking and diamond manufacturing are behind us, unless diamond companies’ business models change drastically. De Bosscher continued, “The only way forward for diamond companies to attract affordable funding — given the current slim margins — is that companies acting in the so-called midstream become more corporate. Financial experts like CFOs, operational managers and compliance officers have to be hired to strengthen the organizational and financial structures to make these companies more attractive to external funding. Nonbank funding, such as securitization programs for receivables and/or inventory will be able to attract institutional investors like hedge funds, pension funds and insurers. Diamond companies that are not willing or able to reach these higher corporate standards have, in my opinion, not many options other than to either bring in more capital or bring their turnover down. Another, more drastic alternative is to go for mergers. Ultimately and inevitably, some will end up closing down. I know this may seem a little harsh, but the truth is there: the pie isn’t growing; it’s even shrinking, and there are still too many players active in this industry.” Unfortunately, the situation isn’t an easy one. Yes, banks active in the trade are and will keep looking for new customers. But the vast majority of diamantaires aren’t the customers they want. It may even be worse, since those who will be able to rely on nonbanking structured funding won’t be a majority, either. De Bosscher concluded, “I believe in our worldwide industry today, only 25 to 30 companies would be able, with the necessary support, to set up such programs to attract nonbank funding.”Article from the Rapaport Magazine - July 2016. To subscribe click here.
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