AfDB Approves a USD 100 million Risk Participation Agreement with Commerzbank AG to Boost Trade Finance in Africa
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| Emblem of the African Union (Photo credit: Wikipedia) |
The Board of Directors of the African Development Bank (AfDB) (http://www.afdb.org)
approved on Tuesday, May 22, a USD 100 million unfunded Risk
Participation Agreement (RPA) between the AfDB and Commerzbank AG under
which the two banks will share the default risk on a portfolio of
qualifying trade transactions originated by issuing banks in Africa and
confirmed by Commerzbank AG. This facility will help address critical
market demand for trade finance in Africa by providing support for trade
in vital economic sectors such as agribusiness and manufacturing. It
will foster financial sector development, regional integration, and
increase government revenue generation ultimately improving Africa’s
sustainable economic growth.
The
majority of African banks have small capital bases which constrain
their ability to obtain adequate trade limits from international
confirming banks and to undertake sizeable transactions that have
significant development impact. Moreover, despite the growth in trade
risk distribution globally, local banks in Africa have not significantly
benefitted 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.
This
RPA facility, running over a 3-year period, is 50/50 risk sharing
arrangement that will enable Commerzbank AG to match AfDB’s undertaking
in every transaction, thereby creating a maximum portfolio of up to USD
200 million. The facility will also result in the provision of
significant support to African banks and SMEs. Counting roll-overs, it
is expected to facilitate about USD 1.2 billion of trade in equipment,
raw materials, intermediate and finished goods over the 3-year period.
Moreover,
the proposed facility aligns with AfDB’s Regional Member Countries’
priorities to promote trade as was reaffirmed by the African Union at
its 18th Ordinary Session in January 2012. It is also in line with the
Bank’s Ten-year Strategy and Regional Integration Strategies which seek
to consolidate its engagement in trade finance in Africa.
