In recent years, ICBC has been moving aggressively to extend short-term loans pledged under bulk commodities as commodity finance solution to small-and-medium enterprises (SME). The service aims to assist some SME who wish to get bank loan but unable to provide immovable property as the collateral since large amount of working capital is occupied by the inventory during production. Commodity finance effectively addresses the financing need for this category of SME, turning the inventory from "dead money" to "live money".
The growth of ICBC's commodity finance business has been consistent and impressive since the launch of the service in 2006, doubling every year in recent 4 years. During this period, ICBC has extended more than RMB 150 billion in commodity trade facility where a majority is for SME. Balance surpassed RMB 50 billion by the end of October this year. In this area of business, risk control is a high priority. The non-performing rate kept at around 0.1% from 2006 to 2010 echoes a good standard in the industry. In the "Best Bank in China" run by Economic Observer earlier, ICBC was named "Best Commodity Finance Bank of the Year" in recognition of its excellent performance in commodity finance business.
An ICBC executive said that conscious efforts has been spent in the innovation on the business model using a full range of products designed for the production enterprises, traders and companies in different industry chains. ICBC employs a team of professionals to deliver professional and highly efficient financing services to the customers.
Meanwhile, ICBC works in close cooperation with many logistic companies well-known in China to set up a comprehensive platform for the monitoring of logistics flow, and an all-inclusive information and technical support platform for the commodity finance business. Worthy of note is that in an effort to better serve the SME and push ahead the service, ICBC relaxes the rules on the credit rating of the borrowers, introduces debt facility granting, includes more commodities in the solution and improves the price monitoring mechanism.
As related, commodity finance is a short-term finance facility using bulk commodities as pledge. The low threshold and wide coverage make the solution well-suited to companies unable to get bank loans because of the working capital occupied by the raw material or inventory, and lack of immovable property for mortgage.
To the borrowing companies, "dead" inventory can be turned to "live" money since the bulk commodities in the warehouse or the cargo rights can be pledged to the bank, meaning less capital occupied in current inventory, more funds available for production and business. Commodity finance is a solution effectively addressing the issues of the small-and-medium enterprises (low general credit standing, insufficient line of credit, few immovable property), and also helping them to get professional financial services from the bank.
Industry insiders commented that trading bulk commodities is now very active amid the booming commodity trade in China. There is a lot of potential in commodity finance market. Besides, the complex relationships between commodity production, logistic chain, transaction chain and funds chain in trade add impetus for the demand of professional financial services from banks.
Under this background, ICBC steps up the marketing efforts in the delivery of commodity finance solution to meet the funding needs of the companies and support growth of entity economy. Commodity finance is also a new growth point in ICBC's trade finance business and plays a significant role for ICBC to adjust its credit structure and improve the financial services offered to companies.
