The Board of Directors of the African Development Bank on Thursday announced the approval of a US $50-million unfunded Risk Participation Agreement for Commerzbank AG to support African issuing banks seeking to expand their trade finance operations.
A statement by the bank on the facility indicated that the Risk Participation would help address trade finance market demand in key economic sectors such as agriculture and manufacturing.
Also, the facility will also foster financial sector development, regional integration and boost government revenue generation.
Commenting on the initiative, the Bank’s Financial Sector Development Director, Stefan Nalletamby, explained: “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.”
The bank noted that most African banks remained small and continued to struggle to source adequate trade finance facilities from international confirming banks to support African importers and exporters.
The bank’s additionality lies in the use of its “AAA” credit rating to provide comfort to Commerzbank to increase its trade finance exposure to local African banks.
According to the statement, the portfolio of trade transactions supported will represent various economic sectors, adding that the facility is thus well aligned with the Bank’s strategic priorities – the “High 5s” that are aimed at transforming Africa.
The Risk Participation Agreement is expected to run for three years as a 50/50 risk sharing arrangement. Counting rollovers, it is expected that the facility will support approximately US $700 million of trade in Africa over the period.
The latest facility is the bank’s second of such initiative with Commerzbank, a major player in the global trade finance market with a significant Africa footprint.