Despite the massive drop in trade finance volumes in H1 this year, revolving credit facilities (RCFs) for commodity traders continue to provide banks with big-ticket deals. Senior industry figures, though, have told GTR that the banks participate on RCFs out of necessity, rather than real desire.

Bloomberg reports that this year, trading houses have raised over US$35bn through RCFs. Meanwhile Dealogic statistics, released this week, show that overall trade finance volumes were down 43% year-on-year to US$55.2bn in H1. Export credit agency (ECA)-backed financing is down by 50% to US$32.9bn.

While Dealogic’s figures don’t include many of the RCFs (the deals are classed as ‘refinancing’ rather than, say, structured commodity finance), the statistical comparisons are telling: commodity trader RCFs are worth approximately 63.4% of Dealogic’s total H1 figures. The correlation suggests that the market has come to rely on RCFs to keep buoyant.

Leading the way was the debut loan of the freshly merged Glencore Xstrata, which raised US$17bn in June. Gunvor has tapped the market on numerous occasions, refinancing a US$650mn facility in Singapore in April and opening a new one in the same location in June, worth US$850mn.

Amajaro Trading signed a US$117.5mn facility, also in June. Trafigura subsidiary Puma Energy renewed a US$449mn RCF in the same month while Mercuria opened US$1.8bn worth of RCFs in July. Also in July, BB Energy opened an RCF of US$125mn.

Notably, the French banks have been visible on almost all of these transactions.

After being accused of vacating the market after the financial crisis, the French banks have often defended themselves by claiming that their trade finance volumes remained consistent, with some saying they have consolidated their lending to fewer high-volume transactions.

However, our source – a senior figure at a French bank who doesn’t wish to be named, denied that RCFs had become the bread and butter of his and other banks, saying that the return on equity is low, compared with transactional business.

He explains: “We do the RCF because when a client launches it and we’re strategic bank we have two choices: being on the RCF and arranging it as we’re the strategic banker or trying not to participate, but as we’re strategic banker the client will usually force us to be in as a participant anyway. For me, it’s not my cup of tea. It’s something we have to do. At the end you see that even if we are bookrunner, MLA [mandated lead arranger] on all these facilities, the final take is usually very similar to the participants.”

His sentiment is confirmed by Jacques Béglé, former head of trade finance at BNP Paribas and co-founder of Commodity Trade Invest (CTI), a Geneva-based commodity finance provider, who tells GTR: “I guess it’s something that you have to take, you’re not really keen to do so but you have to take it because of all that goes with it. If there was only that, I don’t think you’d do it, it’s simply because the possibility of doing other business which are bigger cash cows than this.”

Béglé describes the RCF trade as a “you scratch my back, I’ll scratch yours” business. Banks participate on each other’s RCFs almost as a favour – “it’s easier to pass credit committees saying that all the other banks are also in it than taking it all for you, which you can’t for various reasons”. Sometimes, you’ll find up to 70 banks on a single ticket – a fact that’s emphasised by Dealogic’s finding that syndicated trade finance reached US$11.3bn in H1, the highest level since H2 2011.

The anonymous banker estimates that RCFs make up between 15% and 25% of a commodity trader’s global lines – a figure that has been rising as trading houses look to increase their flexibility in accessing finance. However, our source claims that the bank’s transactional business with these lenders has been growing more quickly than the RCF business. “The transactional business, our business in trading houses, has grown constantly, even during the crisis,” he says. “We never really stopped: it’s mainly unfunded, short-term and even if we had to slow down a little bit at the end of 2011, we very quickly decided to restart and accelerate as we consider this an easy business to develop in a difficult environment.”

The difficulty of the environment is emphatically highlighted by further Dealogic calculations: H1 2013 returned the lowest half year volumes since H1 2007, before the financial crisis hit. There were just 146 deals in the market, compared with 400 last year. Structured commodity finance volumes fell to US$615mn from US$2.5bn.