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Bank Executives Tell Diamond Industry That Risk Hinders Financing

Apr 23, 2015 6:09 AM   By Ronen Shnidman
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RAPAPORT... An incomplete understanding of risk across the diamond industry, rather than a lack of a business transparency, is the main reason behind the difficulty in securing bank financing in the diamond industry today, industry bankers said Wednesday at the final day of the second Dubai Diamond Conference.

"There are some myths surround the diamond industry and one of the larger ones is that the banks have been balking at allocating more credit to the industry because they are worried about a lack of transparency," said George Abraham, the general manager of strategic growth sectors of Emirates NBD. The bank is headquartered in Dubai and was responsible for spearheading the entry of  U.A.E.'s banks into the diamond lending business.

Representatives of  ABN Amro, Standard Chartered, National Bank of Fujairah, NBD Bank and Mashreq Bank participated in a panel discussion on diamond industry financing that was moderated by former Antwerp Diamond Bank's CEO, Pierre de Bosscher.

Panel members agreed that when compared with other industries, the diamond industry's atypical corporate structures make it more difficult for banks to assess client risk.
"It is really about having the right risk perspective and information," said Kishore Lall, the global head of diamond and jewelry at Standard Chartered Bank. "In business schools, they would teach you to evaluate a company's creditworthiness by assessing the balance sheet of a group subsidiary company on an independent, standalone basis and then as a part of the consolidated group balance sheet. In [the diamond] industry, a bank really needs to understand the cash flow of a group's subsidiary companies, or at least the cash flow of the subsidiaries in the major geographic markets."

The U.A.E.-based banks that are interested in lending to diamond firms, would have to find ways to develop their own networks beyond their own geographical market, acknowledged Davy Blommaert, NBF Fujairah's unit head of diamonds and precious metals. Blommaert was recently hired by NBF after spending five years as the head of the Antwerp Diamond Bank's representative office in Dubai. He stated that NBF would seek to overcome its current lack of geographical representation in all major diamond centers by leveraging his own personal network of contacts built over the years.
Rajiv Jain, the head at ABN Amro's diamond and jewelry clients division in the Gulf Cooperation Council Countries (GCCC), acknowledged that the lack of consistent and transparent financial reporting by some diamond companies may have hindered their ability to receive credit in the past. However, he said that it had become less of an issue as many in the diamond industry have been gradually adopting International Financial Reporting Standards (IFRS) after De Beers demanded that its sightholders do so.

NBF along with Emirates NBD and Mashreq Bank publicly announced their entries into the diamond trade in recent months. All three banks noted that they were intent on increasing the size of their loan books to credit worthy diamantaires to allow their diamond business to reach critical mass. However, they were determined to allocate credit on a case-by-case basis and did not intend to fight established banks in the industry for market share.

"The National Bank of Fujairah has long had exposure to the gold bullion and jewelry industry and decided to enter the diamond financing industry following the requests of some of its clients," Blommaert told Rapaport News. "We at NBF view our entry into the diamond financing business as the natural extension of our established lines of business."

Jain stressed that his bank would continue to grow its operations selectively in Dubai. He dismissed rumors that ABN Amro was closing its Dubai branch following the sale of the bank's Indian operations, which he said had been influenced in part by regulatory hurdles to operating in India. He added that ABN Amro was ready to provide credit to reputable and profitable companies.

Correction: The original article has been changed to reflect an unintentional reporting error that misattributed a quote from Kishore Lall, the global head of diamond and jewelry at Standard Chartered Bank, to Rajiv Jain, G.C.C. the head of the diamond and jewelry clients division at ABN Amro Bank.

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Tags: ADB, bank finance, Banks, Dubai, Emirates NBD, lending, Mashreq Bank, National Bank of Fujairah, Ronen Shnidman
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