Kuala Lumpur, Dec 3 - Banking giant HSBC's decision to curb lending to oil palm projects in Malaysia is misguided and will hurt the bank more than it will hurt Malaysia's palm industry, the country's commodities minister said.
HSBC, under pressure from environmental groups to brush up its green credentials, said on Tuesday it would cut ties with a third of forestry clients such as palm oil, soy and timber companies.
It said that this would include companies in Malaysia and Indonesia, the two largest producers of palm oil in the world, citing them as countries where illegal logging is a problem.
"My immediate reaction to that is I think that banks like HSBC should look at individual clients that they are doing business with rather than saying we will cut 30 percent just like that," Plantation Industries and Commodities Minister Peter Chin told Reuters.
Chin said that HSBC Malaysia had told him the bank had 30 clients in the country.
Malaysia's palm oil industry has struggled to establish its environmental credibility at a time when it has been pushing hard for Europe to use more biodiesel, a major new source of demand for an industry coping with a two-thirds fall in prices since they hit a record high in early March.
The local industry says that it does not destroy forests and is socially responsible, but still faces resistance in Europe where critics say the massive expansion of plantation land has come at the cost of vital virgin rainforest that would otherwise help absorb some of the world's carbon dioxide emissions.
Chin said that Malaysia is expected to export palm oil worth nearly 60 billion ringgit ($16.50 billion) this year against 42 billion last year, but saw a decline in revenues next year.
"2009 will be slightly down, not only because of lower prices, (but) there is some dampening of demand especially in Europe," he said.
Palm oil prices have fallen by 67 percent from a March high of 4,486 ringgit per tonne to about 1,500 ringgit currently, due to the financial crisis and the falling price of crude oil.