Photo by: Duane Daws
To support issuing banks in Africa in expanding their trade finance operations, the African Development Bank (AfDB) has entered into a $40-million risk participation agreement (RPA) with Spanish banking group Banco Santander.
The facility would tackle critical market demand for trade finance in Africa by providing support for trade in vital economic sectors, including agriculture and manufacturing. It would also foster financial sector development and regional integration, and contribute to government revenue generation.
Through this risk sharing facility, Santander would match AfDB’s undertaking in every transaction, thereby creating a trade finance portfolio of at least $80-million. The facility was expected to support trade in Africa worth more than $480-million over a three-year period.
“Most African banks are small and, therefore, find it difficult to obtain adequate trade finance facilities from international confirming banks to support African importers and exporters,” AfDB said in a statement.
AfDB advised that its additionality lay in the use of its AAA rating, improving Santander’s comfort to take on greater risk associated with local banks in Africa and provide them increased trade finance facilities.
This agreement marked AfDB’s first RPA with a Spanish bank.