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ING Switzerland announced in February a reshuffle of its trade and commodity finance (TCF) business, splitting its portfolio into two distinct groups. Its global merchants group serves global commodity traders with a multi-location and multi-product strategy, while its transactional commodity finance unit targets smaller and mid-sized specialist traders. 

In this GTR Trade Leaders Interview, Gregory Lambillon (pictured), chief executive and country manager at ING Switzerland, discusses the changes in the commodity trading and finance landscape that led to that decision, and how the sector is expected to evolve over the coming months and years. He is joined by trade heads Patrick Arnaud and François Broussard, who lead the global merchants group and transactional commodity finance group respectively. 

The interview has been edited for length and clarity. 

 

GTR: How would you characterise the commodity trading market today, and what does that mean for a bank specialising in commodity finance lending? 

Lambillon: We see a lot of uncertainty, and it’s linked to geopolitical factors. For example, we see tensions coming back between China and Taiwan, Russia and Ukraine, the Red Sea and the Middle East – and even the threat of a trade war resulting from the US elections. The markets can also be prone to huge swings based on trade or logistics disruptions, or structural issues with the physical supply of commodities like we’ve seen with the short squeeze on cocoa. 

To address such challenges, we need sector-specialised bankers, and technical experts who can provide added-value support and liquidity across all client segments. Over the past years, we have been working with clients to prepare them for these black swan events, stress testing and contingency planning for potential crises. The experience developed through the cycles allows us to come up with various options and solutions they can use to ensure continued access to liquidity while protecting the value of their longer-term contracts.  

 

GTR: Could you tell us how you have reshuffled your TCF business in Switzerland, starting with the global merchants group, or larger trader clients? 

Lambillon: Our clients’ needs and expectations are evolving, and that is why we are redesigning – fine-tuning – our coverage. We have seen many larger traders benefiting from the consolidation in the market. The stresses and unprecedented volatility observed during the 2022 energy crisis have ultimately led to windfall profits in the last two years. That has meant a lot of cash and less need for financing, but also an evolution towards more advisory-type services to support targeted acquisitions, notably in the green economy. That’s where we can make a difference: engaging on the optimal capital and funding structure, or facilitating further integration in the value chain.  

Our core product is still embedded in transactional lending. However, we have seen an increasing number of transactions in the last two or three years in the equity and debt capital markets. Traders are also moving towards renewable assets, logistics and shipping, as well as further integration with utilities in the power markets, and companies are expecting a lot more from us there as well. 

Arnaud: This is a natural evolution. Large traders have benefited from the volatility. They’ve increased their share in the gas and power markets, and that has resulted in massive profits. Their balance sheets have grown and they are sitting on significant piles of cash. They need to keep a higher buffer in terms of liquidity because, of course, the geopolitical tensions are still present.  

There is currently low utilisation of the bank lines, but on the other hand, there is a lot of activity on the M&A side. Traders are looking opportunistically at different types of assets, with traditional investments that might subsidise their investments in the energy transition, which currently carry a lower return on equity. That all means you need to have this type of advisory capability, which requires a different type of skill set from the coverage and the relationship managers, for example in mapping out their transition plans. 

 

GTR: How does the bank’s approach differ when it comes to the transactional commodity finance unit, which focuses more on smaller or niche traders? 

Broussard: We are still reinforcing the focus on the mid-sized and smaller trader segment. We see this as very important. We like to emphasise that this is the majority of our business and income base. We are coming from a TCF specialised lending position, and strongly believe that if we want to be successful in this sector we need to run it at scale, which we can only achieve by effectively covering mid-sized and niche traders, for whom the structuring expertise and commodity sector knowledge are of utmost importance.  

It is also interesting to note that some of the names in this segment have grown to become substantial in equity size. Whilst these names stay predominantly transactional in their profile due to the region or commodity-specific nature of their business, their level of sophistication has increased over time, and they need an end-to-end service, including borrowing bases or even capital advisory, for which we can leverage on our institutional expertise.  

TCF is operationally intensive and comes with a cost base that you need to cover, so it’s important for us in terms of critical mass, or economies of scale, that we serve all segments. By covering all segments of the market, we are also much stronger in terms of the intelligence we are using to run the business. Information is key to everything. There has been a lot of talk about consolidation in the market, and that the survivors will be those big names with a global presence, but we see a lot of clients in the mid-sized and smaller segments that are thriving because they have niche expertise. That could be a specific geography, a specific commodity or a specific trade flow. 

Finally, this allows us to maintain a certain level of diversification, which is welcomed by international counterparties in the supply chain. 

 

GTR: Looking ahead, do you think these dynamics – and ING Switzerland’s strategy – are here to stay? 

Lambillon: We have been in Switzerland for 23 years with a sharper focus on sector know-how. We see a trend towards greater specialisation on both sides. To put it in simple terms, today it is more about technical expertise for mid-sized and niche traders, and more advisory services on the larger side. Yet we are fully committed across all clients’ segments.  

It’s important to keep in mind that cash is not permanent. At this stage, traders have a large liquidity buffer – but this depends on price levels, volumes and the longer-term curve structure as they manage their investment portfolios. Also, a higher equity buffer is becoming essential on the back of past market disruptions. That’s why merchants are continuously keeping those bank relationships alive, refinancing and beefing up their main backbone facilities, because it gives them the flexibility to react to volatility and opportunities in the market. 

One other message is that the green transition will happen, but it will take time. It will require a lot more investment and more capex. It will also continue to push demand for commodities, and that will push prices too. For example, the electrification of the economy and further digitalisation through AI and data centres are undoubtedly driving up demand for commodities. This is a very important message: inflationary pressures are here to stay.