Standard Chartered finds diamonds no longer a bank's best friend

LONDON (Reuters) - Standard Chartered (STAN.L) said it will stop providing financing to parts of the diamond and jewellery industries as part of a review of its exposure to risky sectors.

The business, which comprises around $2 billion in loans to so called midstream diamond and jewellery companies which trade and polish the precious commodities, would be shut down, the bank confirmed on Tuesday.

"Continuing to provide financing to the midstream diamond and jewellery segment falls outside of the bank's tightened risk tolerances. We are working with clients to ensure a smooth exit," said a spokesman for the bank.

Banks in some of the biggest diamond and jewellery markets such as India have reined in lending in the last two years, fearing defaults amid greater regulatory scrutiny of the sector, which has led to a broad credit crunch.

Industry sources told Reuters in January that banks including Standard Chartered, State Bank of India, IDBI Bank Ltd and ABN Amro had become cautious over their exposure to the jewellery sector.

(Reporting by Lawrence White; Editing by Alexander Smith)