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Citigroup Inc. Struggles in Commodity Trade Finance

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Published on : Jun 16, 2015

Decline in oil prices and sanctions on Russia is affecting Citigroup Inc. and its competitors in the commodity trade finance sector by eating up their revenue. The U.S. based bank ventured into commodity trade finance sector three years ago. Sluggish Chinese economy has compelled the bank to look at Africa and Latin America. According to Kris van Broekhoven, the global head of commodity trade finance at Citigroup, China is a tough market with low pricing and high competition. This has lead the bank to look at other markets. 

In the commodity trade finance sector, Citi started with oil and later included metals. It is expected to add agricultural commodities by the year end. Most of the bank’s business in the sector has come from financing deals with large trading houses and the bank has extended to include mid-level traders as well. However, sharp drop in oil prices has led to the decrease in value of business in the sector. This has led Citi as well as other banks in the sector to struggle to get their credit lines utilized, thereby decreasing their fees. Due to the Ukraine crisis, sanctions have been imposed on Russia which has directly affected Citi’s business as it is a big player in the region.

Costs are also increasing, owing to stringent compliance and regulations. This has restrained Citi from entering into certain businesses where the returns are not enough. Broekhoven has mentioned that due to the increasing costs, the bank has stopped itself from doing business at certain points where chances of profits are negligible. However, he is hopeful that the situation would change for good in the next one year. Citi is among the top three banks in the U.S. in terms of assets and it is looking to expand in commodity trade finance sector even in the face of challenges.