AfDB, Commerzbank set up $100m trade finance facility

21st June 2013

  

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The African Development Bank (AfDB) has signed a $100-million unfunded risk-participation agreement (RPA) with Germany-based international bank Commerzbank, ahead of the forty-eighth AfDB yearly meetings.

The agreement, signed on May 29 in Marrakech, Morocco, stipulates that the two banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and confirmed by Commerzbank.

This facility will help manage critical market demand for trade finance in Africa by providing support for trade in vital economic sectors, such as agribusiness and manufacturing. It will also foster financial- sector development, regional integration and increase government revenue generation, ultimately improving Africa’s sustainable economic growth.

Most African banks have small capital bases, which often constrain their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant developmental impact.

Moreover, despite the growth in trade risk distribution worldwide, banks in Africa have not significantly benefited from this growth. AfDB’s additionality lies in the use of its AAA rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.

“Trade is a growth enabler and catalyst for development and this partnership with Commerzbank is yet another step by AfDB to increase the availability of trade finance and help remove a major barrier to trade in Africa, especially for small and medium- sized enterprises (SMEs) in low-income countries,” stated AfDB private-sector operations director Tim Turner during the signing ceremony in Marrakech.

Signing on behalf of the Frankfurt-based Commerzbank, executive management board member Christof Gabriel Maetze mentioned that the facility was greatly relevant to boosting Commerzbank’s business in Africa.

“With the funding, we are going to strengthen our business on the continent, where we are dealing with 51 countries,” he said.

This three-year RPA is a 50:50 risk-sharing arrangement that will enable Commerzbank to match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $200-million.

The facility will also result in providing significant support for African banks and SMEs. Counting roll-overs, it is expected to facilitate about $1.2-billion of trade in equipment, raw materials and intermediate and finished goods over the three-year period.

The facility aligns with the priorities of AfDB regional member countries to promote trade, as was reaffirmed by the African Union at its eighteenth Ordinary Session in January 2012.

It is also in line with the AfDB’s long-term and regional integration strategies, which seek to consolidate its engagement in trade finance in Africa.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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