ADB and ABN Amro Reducing Credit as Rough Prices Rise

(IDEX Online) – Two major banks providing financing to the diamond industry are reducing credit to clients die to concerns that rough diamond prices are rising too fast.

Antwerp Diamond Bank and ABN Amro Group NV, two of the biggest lenders to the industry, have reduced the amount to 70 percent of rough diamond purchases from 100 percent, demanding that buyers of the stones front up more of their own cash, according to a report in Bloomberg.

“It relates to concerns that we have about the industry,” Bruno Nelemans, executive vice president for strategy and communication at Antwerp Diamond Bank, said. “The bank was not feeling happy about the pricing of rough diamonds compared to polished prices and diamond jewelry.”

Rough prices have risen strongly in the first quarter of this year as producers such as de Beers have identified robust demand for polished stones.

“Speculation hurts us as much as anyone,” said Howard Davies, commercial head for De Beers’ global sales. “The banks have played a good role this year by not providing surplus liquidity.”

Rough diamond prices rose in2012 on the back of a continuing U.S. economic recovery and demand in China.

“They’ve pushed up prices to unreasonable levels,” Nelemans said. “The manufacturing and trading industry is less profitable than it used to be and we feel it is affecting the quality of our lending, the quality of our assets and the quality of our balance sheet.”

ABN Amro said it reduced the ratio of its loans to better spread the risk between the bank and diamantaires to try to entice new lenders to the industry.

“Clients should have more skin in the game themselves,” said Erik Jens, CEO of the International Diamonds and Jewelry Group at ABN Amro. “We want to balance the risk and reward for all stakeholders in the industry.”

ABN Amro say that while they’ve slightly reduced the size of their total loan book to the industry, that wasn’t the objective of their new terms. Antwerp Diamond Bank have reduced the ratio of funding for individual transactions while their total loan book has remained about the same size, the report said.

“The stronger companies that have responded to these changes will survive,” Jens said. “If margins are eroding there will be companies that won’t be able to step up to these standards, and some companies will indeed go bust. Others will leave the business.”