SAF-CACAO Liquidation, Shocks On The International Cocoa Market And The Ivoirian Banking Sector. Traders Or Commodity Finance Banks XIXGuest Post
Pirrong (2015) argues that historically, the financial distress of a commodity trader does not mean that the supply of commodity transformation services will decline and that mining firms will fail and go through insolvency or bankruptcy without larger systemic effects for the economy and “little knock-on effects”. (the de-facto null hypothesis H0).
The contention, we fear, is challenged in the case of a small economy where a commodity is largely tributary to the economic ouput Y, BoP and credit supply.
The liquidation of CI’s second-largest cocoa trader/exporter has triggered a solvency crisis and will necessitate a re-capitalization of the Ivorian banking sector.
A Banking Sector in Crisis
Social Capital of 6 Banks vs their losses on trader SAF-CACAO.
West African Central Bank BCEAO 2018
BNP Paribas- via BICICI eats $ 13M in the bankruptcy of the trader SAF cacao. 23% of its profits. The subsidiary however can take some heat.
What can I say:
1-The financing of cocoa exports represents an essential part of the credits made by the banks in CI (first cocoa producer, more than 1.3 million tons / year).
2– These are short-term credits, the main campaign lasts 3 to 4 months after which credits are reimbursed, normally. If these campaign credits are the windfall of the banks because profitable, they involve however important risks (Buyers edge field and Exporters in particular) to know to be constantly monitored.
3-Three actors hold control of operations:
the Cocoa-Coffee Council, the dismemberment of the State, the Exporters, the Banks.
Jacques S. and Simondet (2016) explores with stylistic examples how risk is baked into Traders (Trafigura*) and then embedded into the commodity markets.
Are commodity traders systemically risky ? The recent events unfolding the default of a cocoa trader in the french-legacy Côte d’Ivoire will test the assertion !
Article by Simon Jacques