- Nigerian Banks to Benefit from AfDB’s $50m Trade Risk Guarantees
The African Development Bank on Thursday said it had approved a $50m Risk Participation Agreement for Commerzbank AG to address the continent’s trade finance market demand.
The fund will enable banks operating in Nigeria and other African countries to provide credit to their customers, including Small and Medium Enterprises that are involved in trade within the region.
A statement by the AfDB said that the Board of Directors of the lender approved the $50m unfunded Risk Participation Agreement for Commerzbank AG on March 27, 2018.
According to the bank, the risk participation will leverage Commerzbank’s support to African issuing banks seeking to expand their trade finance operations.
“The facility will help address trade finance market demand in key economic sectors such as agriculture and manufacturing. It will also foster financial sector development, regional integration and boost government revenue generation,” the bank stated.
The Financial Sector Development Director, AfDB, Stefan Nalletamby, was quoted as saying, “Commerzbank is a strategic partner for implementing the bank’s development mandate. This intervention will improve market access by African issuing banks, corporates and SMEs.”
Most African banks are small and struggle to obtain adequate trade finance facilities from international confirming banks to support the continent’s importers and exporters. The AfDB’s additionality lies in the use of its ‘AAA’ credit rating to provide comfort to Commerzbank to increase its trade finance exposure to local banks, the statement said.
The portfolio of supported trade transactions will represent various economic sectors. The facility is aligned with the bank’s strategic priorities that are aimed at transforming Africa, it added.
The RPA will run for three years as a 50/50 risk-sharing arrangement. Counting rollovers, it is expected that the facility will support approximately $700m of trade in Africa over the period, according to the bank.
The effort is AfDB’s second Risk Participation Agreement with Commerzbank, a major player in the global trade finance market with a significant Africa footprint and headquarters in Frankfurt, Germany.