Amsterdam-based bank ABN Amro sent a letter to some of its diamond clients stating that it will no longer finance rough purchases where there is not “sufficient profitability,” JCK has learned.
“We do not consider it appropriate to support new drawings under your current ‘rough purchase sub-limit’ where there is no current case for profitable trading or manufacturing of rough,” says the letter, a copy of which was obtained by JCK, as well as Idexonline. “We recommend you to show constraint and only consider purchasing rough when there is sufficient profitability. Please contact us in advance in case part access to your rough sub-limit is still required which can be discussed on a case-by-case basis.”
The letter, which was signed by “ABN AMRO Bank N.V.,” begins, “For some time, we and the industry in general have been flagging concerns regarding the current lack of profitability across a wide range of goods across the midstream pipeline.… [W]e want our clients to conduct profitable business and refrain from purchases just with an aim to hold on to existing allocations with the mining companies or just to remain fixed to sources with the hope for better times to come. In our view profitability is and should be determined on the basis of real sales margins for goods sold as soon as possible after the purchase of rough, without considering credit terms.”
It adds, “Regrettably, despite making our views known to the industry, we do not witness the necessary change in the current situation.”
ABN Amro spokesperson Brigitte Seegers tells JCK that the letter should “be read in the context of rough purchasing that is in general currently lacking for a prolonged period of time which is much longer than the typical seasonal cycles (which would include positive months and less positive months). Therefore we request our clients to show constraint when purchasing rough till the markets start to improve again. On the back of this letter we are not reducing the overall credit limit but will for the time being be more restrictive in allowing drawings under the rough purchase sub-limit.”
She says that it should not be looked as a signal that ABN Amro is exiting the sector.
ABN Amro, traditionally the industry’s largest financier, has in the past indicated it is scaling back its exposure to the diamond business. Last year, it shut its diamond and jewelry lending offices in New York City and Dubai, United Arab Emirates.
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