Rapaport Magazine


By Marc Goldstein
Woeful Dilemma

As the KBC Group began to wind down the loan portfolio of its Antwerp Diamond Bank (ADB), in preparation for closing the bank, the city’s diamond industry was considering the devastating impact of the loss of its primary lender. An estimated one-third of Antwerp’s diamantaires were financed by ADB, which was the only lender solely dedicated to the diamond industry. The concern was heightened by the fact that the closing is coming at a time of tightened liquidity, reduced capital availability and tougher lending terms within the banking community at large.
   “People are very worried. Some already have been notified by letters from ADB” that their loans were being called “while others know for sure that their letters are on their way,” said a medium-sized diamond manufacturer who insisted on remaining anonymous, as did most of those commenting on the bank’s close.
   “Apart from the industry problem of how we are going to replace almost 12 percent of global diamond financing, medium and smaller players will inevitably be faced with a supply issue,” the manufacturer continued. “One of our major fears is that, even though some of us may not be ADB clients, some big players who are ADB clients may not find the alternative credit they need to buy goods. If they have less access to cash, there will be less goods available and that’s where our difficulties in finding stones will begin.”

Clients Worldwide Affected
   The unofficial word was that ADB had contacted its clients all over the world to arrange repayment of outstanding loans. Earlier, it had announced it was granting no new loans and soliciting no new business for the bank. “Now that the oldest bank in the industry is leaving, we sense that the other financial institutions — even those abroad — are showing signs of nervousness,” said another manufacturer. “Even though ADB’s problems were well-known and the closing was totally expected, we hope that this is not going to turn into any panic chain reaction.”
   KBC made the announcement in September 2014 that it was closing the bank. At the time, it said the process would be carried out “with respect for its clients and the contractual arrangements with them.” The closure came after numerous attempts over a period of several years to sell the bank, most recently to Shanghai-based Yinren Group, fell though.

Finding a New Banker
   “They made it very clear that they were going to close, but we were informed that they were giving us some time to find another banker,” complained another diamond dealer. But, with everyone scrambling to find a new lender, other banks are experiencing backlogs. The same dealer said he had heard that “ABN Amro is taking two months to reply to new business clients. It takes a miracle just to get a simple account opened.”
   ADB customers also have complained that their old lender is not being much help in arranging new financing, even in providing reference letters. “Basically, what they do is give you a letter stating that you’re a customer, that your turnover is X and that Y percent of your turnover has been processed through them,” one former customer said. “But they don’t give any details as to how you behave, or recommend you as a customer, explain how timely your payments are honored, etc.”

Could ADB Revive?
   Margaux Donckier, spokesperson of Antwerp World Diamond Centre (AWDC), insisted that it was too early to dismiss the possibility that ADB could still survive. “Talks are currently going on to find investors or other bankers who could take over the complete bank or at least some of ADB’s activities,” she said. “Our meetings also involve Antwerp Mayor Bart De Wever and newly elected Flemish President Geert Bourgeois. Both have pledged to help find a workable solution. Our contacts have extended as far as Shanghai. One thing is certain: Should anyone take over, the conditions that must be met to be eligible for loans are going to be stricter than ever.”
   The long-term implications may not be that less money will be available to the diamond industry in Antwerp. But the certainty is that, without a lender that specializes in the industry, the standard conditions of loans will no longer be dictated by industry-specific requirements.
   Rather, they will be determined by the more structured standards that have been applied to banking as a whole. In other words, as Shashin Choksi of Swati Gems concluded, “Diamond firms will have to adapt and acquire almost overnight a sense of discipline and of self-regulation. This is imperative and will not be negotiable.”

Article from the Rapaport Magazine - November 2014. To subscribe click here.

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