We expect more consolidation happening and certain companies go out of business – it’s a healthy development, where only strong and modern companies can survive – Erik A. Jens, AMRO BANK N.V.
Erik Jens comes with professional experience in banking, financing and investments. He has specialised in private wealth management solutions, investments in hedge funds, private equity and real estate industry.
Erik Jens has also held various senior executive positions at Fortis Meespierson in banking and investment services in the Netherlands, Belgium, Switzerland, Netherlands Antilles, Ireland, United Kingdom, USA and Asia. And also served as director/advisor to various hedge funds and private equity funds at Fortis, which later became ABN AMRO. Erik Jens is currently the Global Head – Diamond & Jewellery clients – AMRO BANK N.V.
In an interview with Rough&Polished, Erik Jens speaks about ABN AMRO’s operation pattern; and also suggests few changes that the gem and jewellery industry could make to strengthen its bankability.
Is ABN Amro still the largest lender for the diamond and jewelry industry globally? How successful has the bank’s initiative, “Borrowing Base Verification Program” been till now; and how effective has it been on industry credit? Has underwriting any credit extended by a client company to its customers provide sufficient protection for the bank’s monies?
ABN AMRO does not disclose any information on the size of specific business line portfolios, but it is safe to say we are amongst the top three providers of finance to the diamond and jewelry industry world-wide. We are often recognized by our thought leadership to taking interest in improving overall market perception, bankability, transparency and sustainability matters. Amongst that we have implemented the Know Your Transaction principle, next to our Know Your Client principle. In other words, we do not only want to understand everything about the client and its ownership structure for instance, but also understand our clients’ transactions and their counterparts. On the one hand to be able to conduct our business with the highest compliance standards and to understand operational risks, but on the other hand also to have a better understanding of our clients’ needs. Our Borrowing Base Verification program over the last few years made us learn more about the market and our clients. For instance, we can short cut basically all our clients’ transactions worldwide, have all checks and balances in place and quickly discover anomalies.
Is ABN selective about this ‘know your clients’ transaction or is it a standard part of the lending process which is followed irrespective of the client?
As mentioned above the Know Your Transaction approach is a standard part of our risk and operational management for a client. It is important to mitigate risks and create transparency, like in normal trade financing or factoring business in other sectors. In the diamond industry, we apply standards we see in other industries as well.
What, according you, are the loop holes that companies misuse and abuse, just to build up their bank credit? How do you think this should be tackled by the lending banks?
Fortunately, the diamond industry itself is taking more and more measures in terms of self-regulation, look at for instance the efforts of the World Diamond Council vs Kimberly Process, or the World Federation of Diamond Bourses vs fair and orderly transparent trade, but also think of CIBJO and RJC for instance when it concerns sustainability and corporate social responsibility. We also see companies like Signet and Tiffany’s working hard on implementing and monitoring sourcing protocols for a sustainable consumer confidence in the end product by understanding and reviewing the whole value chain. We as ABN AMRO support these initiatives which creates for us more insight in the value chain, its key players, and engage with the right side of the market and exclude areas which show less transparency or no willingness to learn and improve. We see other banks doing the same more and more. In the end there will only be credit lines available for companies with good corporate standards and track record, whether they are small or big, that doesn’t count.
How difficult is it to select a genuine company to service? If found that the loaned money has been deviated, how does the bank react and retrieve its money? Are such companies pulled up legally for their fraudulent acts?
It’s in our opinion really understanding what a client does and what not. The way they structure the business, their strategy, reporting, their transactions, ownership, etc. If a company gets into cash flow problems, we want to know about it. In the past we saw that in such a situation money and goods were rerouted, inventory disappearing, and that the market was paid and the banks got stuck. That practice is changing clearly fortunately. However, we deal with fraud rigorously and will pursue the wrongdoers. But again, these situations are exceptions fortunately.
In comparison to other industries, how severe or large are such defaults/frauds by borrowers in G&J industry? Will a more professional (corporatized), transparent industry strengthen its bankability. Any suggestions to the industry players on how to change their ways of doing business to match the banking sector’s ways?
I don’t think the diamond and jewelry industry is so much different than any other industry or mineral industry in particular. Fact is that the structural change from a supply side (miners) to a demand side driven market created pressure on cash flows and profitability. The market is going through that change and that creates casualties along the way. We expect more consolidation happening and certain companies go out of business. It’s a healthy development, where only strong and modern companies can survive, certainly those who look at innovation and diversification.
What are the bank’s financial services offered currently to support diamond and jewellery global businesses? In which countries do you operate at present? And what about profiles of your clients… are they across the industry pipeline, including SMEs? What collateral does the bank ask for lending to the clients?
We offer current accounts, payment, foreign exchange transactions, but mostly lending activities out of Hong Kong and UAE, Belgium and New York. A large part of our clients are to be found in the mid segment of the diamond industry, i.e. Traders and Manufacturers, but also Wholesalers and larger Retailers. For the latter group we particularly provide working capital and for the mid segment financing of trade receivables.
How many clients are you servicing at present globally in the diamond and jewellery sector? The business being unique, how do you monitor your clients’ business progress?
We do not disclose financial data as mentioned but we have a low load factor, i.e. the ratio of number of clients per relationship manager. That keeps our service at the required high level. And to understand clients’ needs and their business progress, we, as mentioned earlier, map the clients’ potential vs its performance and for instance help when we see the potential being underdeveloped.
With many erstwhile lending banks leaving the industry, does ABN see this as an opportunity to move into the other countries where G&J industry is growing massively and expand its customer base?
We are happy with the portfolio we have now but of course are open for new business in order to continuously improve our overall portfolio. We particularly look forward in cooperating with the other banks entering the industry and share our global knowledge. After all the industry doesn’t need more finance, it needs more banks and we are quite actively promoting for instance club deals and syndications.
And how can the ‘Brexit’ be a major concern for ABN Amro? How does the bank plan to tackle impending problems, if any?
From a diamonds and jewelry perspective we do not see a big impact from Brexit. Europe is not a big diamond market anyway. Plus it is expected that effects will be long term and mostly felt in the UK.
Loan defaults by borrowers from diamond and jewellery sector is not new. But, how rampant is it in recent times? Are collaterals enough to keep control on such companies who fail to service their debts? What steps does ABN Amro take to safeguard itself from such eventualities?
We don’t generally see a worsening trend in default with the exception for India at the moment. The market over there is shaken up after too much money flew too easily into the industry. But that will pass as well, and might push consolidation forward even faster and make the Indian banks become more risk aware.
Does ABN Amro serve diamond and jewellery clients as part of a consortium of banks or does it operate stand-alone? If so, what is the philosophy behind it; and how does it make more business sense for the bank?
We do service our larger clients with club deals and syndicated loans. Always good for a client not to be dependent on one bank and for the banks it’s good to share know-how and expertise.