Citigroup’s Commodity Trade Finance to Expand in Latin America

A variety of unfavorable factors such as the sanctions imposed on Russia, tough competition, and weakening oil prices are forcing commodity trade finance firms, including Citigroup Inc, to make some quick changes in plans.

Citigroup Inc., which had started a commodity trade finance firm three years back, is now exploring opportunities in Latin American and Africa. According to Kris Van Broekhoven, the international head of commodity trade finance for Citigroup Inc., the firm is now losing interest in China, where the fees are too weak.

Telling Reuters about the situation in China, Broekhoven said:

It’s still a tough environment. China is not an easy market. It’s very competitive and pricing is low. We want growth, but not at any cost.

Citi started trading in oil, but introduced metals the previous year. The firm plans to introduce agricultural commodities by the end of this year. Most of Citi’s business comes from financing deals with major trading companies, and the firm has expanded this to include mid-sized traders too. However, the fall in price of oil indicates that business is bound to decline in this sector.

Broekhoven explained:

For the same number of barrels, for the same cargos that move from one place to another, the value is half of what it was before. That means that banks have to fight to get their credit lines utilized, which drives pricing down.

Simultaneously, costs are on the rise owing to regulatory and compliance burdens, forcing Citi to refrain from business that does not promise much. Broekhoven said:

At a certain point it no longer makes sense to do something at the price the client is paying.

The third largest bank in the US by assets, Citi is continuing to expand in the commodities trade finance sector and generating more revenue in spite of the various challenges facing it. A Financial Times report of 2012 says that Citi had aimed to generate net income of over $200 million from its commodities trade finance firm in three years. However, Broekhoven has refused to reveal the exact revenue figures. He has not made any comment on the $200 million target either.

Citi’s business has suffered because of sanctions imposed on Russia following the Ukraine crisis. In order to deal with the situation, Citigroup has plans to take its business into Latin America and recruit employees in that country. The firm also plans to hire a qualified individual to operate its global agriculture trade finance business.