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“Only do business with clients who have impeccable integrity,” suggests Davy Blommaert, banker

18 march 2019

davy_blommaert_xx.pngDavy Blommaert heads the Diamond Business at National Bank of Fujairah, which falls under the bank’s corporate and institutional banking division. With nearly 10 years of experience in the diamond industry, he was tasked to establish a unit within NBF that is focused on providing working capital and trade finance services specific to the diamond sector.

Prior to joining NBF, Davy Blommaert spent six years at Antwerp Diamond Bank, where he supported the development of its Antwerp and Hong Kong businesses before moving on to oversee its Dubai office. His two-year stint at International Diamond Laboratories DMCC (IDL) as its finance manager and legal counsel saw him play a key role in helping IDL set up its operations in locations from Mumbai and Jeddah to Istanbul and Antwerp.

In an Interview with Rough & Polished, Davy Blommaert talks about NBF’s methodology, systems and policies, which protects the bank from losses.

Below are the excerpts:

For the benefit of our readers who are spread across the globe, can you please take us through the National Bank of Fujairah’s (NBF) history… from the time it was established to date?

With its strategic location and proximity to major trade centers around the world, the UAE has long maintained a high ranking in the ease of doing business attracting investors and stakeholders across the supply chain and enabling them to benefit from this unique growth environment.

With this in mind, National Bank of Fujairah emerged as the partner for businesses leveraging its segmented and multi-disciplinary sectorial approach with twelve business segments namely, Business Financing, Trading and Diversified, Energy and Marine, Government and Large Corporate, Contracting, Services and Manufacturing, Financial Institutions and Liability Management, Equipment Finance, Global Transaction Services, Corporate Finance and Precious Metals and Diamond.

NBF’s journey with bullion banking commenced with gold financing in 2002, when the bank first established its relationship with a prominent European bank to supply bullion. Currently the Bank is one of the leading financier of the Gold and Diamond Jewellery industry in the UAE. As such, the bank expanded its portfolio by venturing into diamonds financing in 2015, at a time when ADB had decided to exit the UAE market, which proved to be an excellent time for NBF to set up its division and commence its services.

Boasting a growing team, NBF’s dedicated precious metals and diamond unit has been focused to providing personalised services to UAE-based clients in the jewellery and diamond industry. The bank’s specialised team has also been focused on serving the jewellery and diamond industries covering major verticals namely, gold and diamond jewellery, rough and polished diamonds. Based in Dubai’s Almas Tower, in the heart of one of the world’s biggest diamond trading centres, NBF’s diamond financing team focuses on by providing short-term trade finance products to established rough and polished diamond traders and manufacturers. With its vaulting facilities, both in-house and with Transguard in Deira Gold Souk Dubai, the bank’s services entail facilitating trades in gold, platinum and silver.

Testament to its leading status, the bank structured Shari’a-compliant bullion financing solution for Malabar Gold making the first-ever transaction of its kind in accordance with the Accounting and Auditing Organisation for Islamic Institutions (AAOIFI) standards in the precious metals industry in the UAE.

With unmatched sector-specific knowledge, NBF is ideally positioned as the financial partner for stakeholders across the supply chain. With in-depth understanding of the industry, the NBF team can uniquely identify growth opportunities for partners both within the UAE and beyond as to help them succeed and grow their business.

Currently, the global gem and jewellery industry seems to be plagued with debt defaults and liquidity issues, with the financial crisis adversely affecting the industry’s growth. While some business leaders say the problem is overrated, what’s your take?

We do not fully agree that there is a huge debt default and liquidity issue; there are still a lot of good, financially stable diamond companies in the market, and they do not have any issues in attracting finance.

We all heard about the small bankruptcies which took place in India and we understand this could be a main topic of discussion for people. However, it is important to note that this is a phenomenon which we see happening every year.

Due to the lack of generic advertisement over the last few decades, there has not been a big pull from consumers for the diamond jewellery business to grow; as such, the manufacturing margins are under pressure, which leads to stress especially with the smaller manufacturers who do not have a strong capital base or any other competitive advantage. I strongly believe that this midstream manufacturing base will need to further consolidate before profitability returns, and these bankruptcies in India are a part of this consolidation phase.

As a bank servicing multiple industries, when did NBF decide to get into financing the gem and jewellery industry? How difficult is it to select a genuine company to service? Can you give more details on NBF’s products, especially those designed for servicing the gem and jewellery industry?

NBF has a long history in servicing gold and Jewellery clients and we have been supporting the jewellery industry stakeholders with bullion financing since 2002. Our expansion into diamond financing is a result of market need in addition to this being a natural progression to our expertise. In 2015, NBF launched its diamond financing unit to provide financial support to both traders and manufacturers out of its office in Almas Tower, also known as the center of diamond trade and located in the Dubai Multi Commodities Center (DMCC).

Employing seasoned experts in the industry, the bank taps into their knowledge when it comes to selecting companies to work with. The diamond community is a very small community, as such, once you are integrated into the community, it is not too difficult to select a genuine company.

With diamond being an underlying commodity, it is probably one of the easiest products to use for any fraudulent transactions such as accommodation or round-tripping. As such, one has to be always careful to do business with the right parties, as balance sheets can be easily manipulated by people of bad intent. Another challenge is the fact that balance sheets can be easily manipulated so it all goes back to relationships, reputation and trust. Therefore, it is very important for any new bank entering this business to on-board someone who knows this industry, and who is integrated into the community, to guide to bank to the correct clients.

In terms of products, we provide purchase finance for purchases from primary sources (DTC, ALROSA among others) as well as sales finance via invoice discounting.

As of today, what is NBF’s ‘Know Your Client’ program regarding verifying your clients’ credit-worthiness; and how effective has it been till now? How does your bank monitor your clients’ business progress? If the loaned money has deviated, how does NBF react and retrieve its money?

We have a very thorough and stringent enhanced KYC/compliance policy in place before onboarding a client. As such, we also have a dedicated compliance person for the diamond desk to ensure proper due diligence. Deviation of funds is best avoided by onboarding only trustworthy clients with impeccable integrity and a long-lasting, good track record. Hence, the importance to be well integrated within the community.

It is also a standard practice that before issuing credit facilities to a client to do a stringent financial analysis – this does not only cover their local operations but also extends to looking into their global consolidated business.

As we try to position ourselves as partners to our clients, we will maintain a very close relationship with them which should enable us to always keep the pulse on their business progress. In addition, we do a formal thorough annual review of the client’s KYC/compliance profile and their business model coupled with a financial analysis of their global operations. Testament to the effectiveness of this approach, we are happy to say we have not had any losses in the diamond industry to date.

Borrowing companies find loopholes to misuse but as a Banker of many years standing, what precautions should lending banks take? What’s your opinion on underwriting any credit extended by a client company to its customer? At times it does not provide sufficient protection for the bank’s monies? Your thoughts?

We have of course implemented certain systems and policies to avoid any misuse. However, I am very much convinced that if a client really wants to defraud the bank, they will find some way ‘to play the system’, irrespective of how many safeguards and policies the banks implement. Therefore, we have taken the approach of working with clients who boast stellar reputation and impeccable integrity.

It is the market norm that clients sell to their customers providing credit terms up to 120 days. As a bank active in this industry, we provide trade finance for our clients which means that we will have to discount these invoices. Normally, most of the professional companies have strict credit limits for their customers as well, which means that if one counterparty does not pay, the client himself will be able to cover this loss.

Throughout my career, I have never seen a client go bankrupt because one of his customers could not make the payment. However, what we have noticed in the past is that companies try to make quick returns by diverting funds towards investments in the stock market, or in real estate, etc. When this completely fails, the client then tries to cover the losses by doing accommodation business or round-tripping. As such, everything again boils down to the same thing, only do business with clients who have an impeccable integrity.

How often have you faced loan defaulters in your past and present position as a banker? What steps does NBF take to safeguard itself. And are collaterals sufficient to keep control of borrowers? Does NBF operate alone or part of a consortium while financing the gem and jewellery industry? If either one of them, why so?

As mentioned above, NBF has been vigilant enough since entering the diamond financing space and this has been rewarded by not having to incur losses. We try to safeguard ourselves by putting a lot of time and effort in hopefully selecting the right clients to do business with.

In line with market practice for banks outside of India, we mainly give bi-lateral facilities.

With lending banks pulling out of the diamond business the world over, do private lending firms/institutions have a better chance to capitalize on the situation and enter the gem and jewellery industry?

We still very much believe that the diamond business is a very good business to be in; of course, this subject to doing your homework and working with clients known to be trustworthy.

We do not believe that there is currently a shortage of liquidity in the market especially with all good companies being able to attract finance. It is mainly the smaller companies which have limited capital and competitive advantages that are not finding any finance. If these smaller companies were to exit the business, we would see a continued consolidation phase that would increase manufacturing margins.

Both banks and/or private lending firms/institutions look at the same parameters before providing loans, as such, we do not see them entering the market and providing loans to these smaller companies with limited capital; larger companies in any case have no shortage of finance. However, we are already seeing private lending firms/institutions increase their share of trade finance in different industries globally which could extend to the diamond industry.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough & Polished