Banks are seeing a pick up in interest for trade finance from Middle East oil companies, especially in Egypt, they said, as cashflows dry up due to lower oil prices.
Oil trade finance appetite in parts of the region is proving a bright spot as bank revenues in the sector globally remain generally under pressure from weak crude prices.
Trade finance can be used to provide working capital to producers and traders, or to allow them to borrow against the value of future output.
“In the Middle East, previous liquidity is no more and if you’re a refinery or oil company you have debt on your balance sheet and can refinance that using this (trade finance),” said Emre Karter, Citigroup’s head of treasury and trade solutions for Middle East, North Africa, Pakistan and Turkey.
Interest in trade finance was particularly strong in Egypt and Iraq, Karter said.
On Thursday, National Bank of Abu Dhabi (NBAD) agreed the latest of two large finance deals with Egyptian energy companies it has struck in the past year, both of which could include trade finance.
NBAD and National Bank of Egypt were appointed as joint financial advisers by Middle East Oil Refining Company for its $1.4 billion project to increase refining capacity from 100,000 to 160,000 barrels of crude oil per day.
Jean-Christophe Desaintfuscien, executive director and global head of energy and commodities traders at NBAD, said the bank had seen a pick-up in demand from Egypt for oil trade and structured trade since expanding its energy and resources business 18 months ago.
Egypt has said it plans to invest $14.5 billion in developing its refining and petrochemicals sectors over the next five years.
Still, the level of interest is not consistent throughout the region.
Volumes of oil being financed were roughly stable, but because prices were down companies needed less cash, therefore fees earned by banks on such trades were expected to be flat year on year, said Kwabena Ayirebi, regional head of global trade and receivables finance for HSBC in the Middle East and North Africa.
Oil prices have dropped to multi-year lows this year, while financial system liquidity in the region is drying up as reflected in rising money market rates in Saudi Arabia and UAE, for example. (Reporting By Tom Arnold; editing by Susan Thomas)