Barclays renews appetite to finance diamond traders

Bullish: Van der Merwe
Bullish: Van der Merwe

At a time when most financers are trimming exposure in the diamond sector, Barclays Bank Botswana has expressed a fresh appetite to finance rough purchases by local diamond cutting and polishing firms.

Local diamond manufacturers bought diamonds worth $500 million from De Beers last year, which was a 46 percent decline from the 2014 supply.

At least 22 sightholder firms are licensed to buy diamonds from De Beers in Gaborone for cutting and polishing before export.

Addressing a diamond sightholders networking dinner on Tuesday, head of corporate and investment banking, Kgotso Bannalotlhe said after studying the market in the last few years the bank is now ready to do business with the industry, which is the backbone of the economy.

“We know the industry has been going through some challenging times but studies have shown that it is the nature of the business. It’s cyclical. We are looking to build solid partnerships with clients that have a long reputation in the business. We need clients that can weather any cyclical volatility and build long term partnerships not just transactions that last 30 or 60 days,” he said.

The local cutting and polishing industry which is heavily dependent on loans to purchase rough diamonds was hit by a wave of challenges in 2015 including liquidity challenges as well as indigestion in the pipeline which forced the sector to shed about 1,500 jobs. But Barclays and other financiers will be encouraged by De Beers’ first three sights of the year, which have shown signs of a market in recovery with increased demand from sightholders.

Barclays’ move could also benefit from the void left by other financiers which have of late either cut off or reduced exposure in the diamond cutting and polishing industry.

According to Bannalotlhe, Barclays’ refreshed interest in financing diamantaires is part of their strategy of boosting their corporate and investment banking loan book. “We will just stick to corporate and investment financing. We won’t be expanding into funding junior miners,” he said.

After increasing focus in corporate banking two years ago, Barclays has steadily grown its asset market share and increased the transactional activity through various product solutions. In the year ended December 2015, corporate business assets grew significantly to P2.8 billion.

According to managing director, Reinette van der Merwe the manufacturing portfolio now constitutes over 20 percent of their total asset book.

Barclays’ revived interest in financing diamantaires comes at a time fellow competitor, Standard Chartered Bank Botswana, suffered a huge impairment charge of P100 million which market insiders said was largely attributable to an exposure to one client in the local diamond polishing and cutting industry.

On the international markets, other banks are also trimming down their exposure to the sector and asking for more loan protection through upfront collateral instead of the diamond parcels.

Last month Bloomberg reported that after lending about $2 billion to the industry, the London-based Standard Chartered Bank is asking diamond-processing clients to get payment insurance or provide 100 percent collateral.

Rough diamond prices fell 18 percent last year. Consulting firm Bain&Co. has estimated the average cutting and polishing firm had no profit margin last year, compared with profitability of as much as four percent in 2013. Bain said the diamond midstream’s debts are likely to total $13 billion in 2016.

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