Bank of China goes tough on iron ore credits

Author: Paul Ploumis09 Jun 2014 Last updated at 03:57:29 GMT

BEIJING (Scrap Monster):  Bank of China- the largest provider of import credits for iron ore in the country has issued fresh set of guidelines, making life miserable for ore importers in the country. This follows the tough government regulations on imports of iron ore as collateral for loan financing.

According to the bank, the credit lending has been tightened by centralizing the lending quotas to the provincial level. The quotas for local branches will be set by provincial headquarters. The Bank however indicates that the quotas will be much lower when compared to previous levels. The proposed system regulates the opening of letter of credits for iron ore importers, making it extremely difficult for iron ore importers to open new Letter of Credits.

Also, the China Banking Regulatory Commission has instructed all banks to step up the risk control mechanisms. The commission noted that many steel mills and traders use iron ore imports as a means of ‘shadow financing’.

In an attempt to cut down iron ore stockpiles, the Bank of China has also instructed all local branches not to process the letter of credit from importers in case the importers have not yet identified buyers for the imported ore. The Bank firmly believes that this move will limit ore stockpiling to a great extent.