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Chinese banks won’t provide competition to the dominant western banks in the commodity finance space for “three to five years”.

A panel at Exporta’s Europe Trade & Supply Chain Finance Conference in Hamburg said the banks are currently interested in supporting the flow of commodities into China, but are not yet serious competition to the likes of Deutsche Bank, ING and Société Générale.

Simon Tyler, head of corporate banking at China Construction Bank told the audience and GTR: “We will be big in the space in five years. We’re now interested in importing base commodities and I don’t see many Asian banks [excluding Japanese banks] on large commodity deals.”

Deutsche Bank’s global head of structured commodity trade finance John MacNamara predicted that the banks will be unable to compete consistently until they have the requisite back office in place, saying: “Will they spend money on their back office? That’s why Deutsche ran its office out of Amsterdam for so many years – the quality of the back office. How many [Chinese banks] can take on the agency role and do a good job of it? You only have to be in a deal where the agent does a bad job to see how it goes wrong.”

The panel also discussed the emergence of “alternative financiers” in the marketplace. There has been much speculation about the emergence of commodity traders as direct lenders, but there was widespread agreement that such arrangements are “nothing new”.

MacNamara spoke of a time when western banks were unwilling to deal directly with large Russian companies and therefore lent to trading houses, who then on-lent to the Russians. Traders’ have become more important in recent years thanks to the downsizing of banks that were partly-nationalised during the financial crisis. The first to go in budget cuts were often foreign nationals – the very people often charged with regional origination. Banks are now going to commodity traders, who have maintained strong regional presences, for origination services.

Speaking of the potential regulation of such companies, Philip Prowse, a partner at law firm Clyde & Co, warned that the current climate of distrust means they are “in the sweet spot of politicians trying to raise revenue”. Sanctions, he said, are clearly on the horizon.