The African Development Bank’s (ADB) board of directors announced late Thursday the approval of “an unfunded $50m” Risk Participation Agreement (RPA) with the Commercial International Bank (CIB) to “to support trade transactions originated by issuing banks in Africa”.
According to ADB, this is the first exclusive export-oriented and intra-Africa trade finance facility.
In March, ADB announced its intention to continue its support of the Egyptian government by expanding its lending programme in 2015. The bank said it aimed to finance projects in the water, irrigation and energy sectors along with small and medium enterprises (SMEs).
The bank noted in an official statement that the new agreement will help address critical market demand for trade finance in Africa. It added that this will occur by providing trade support in vital economic sectors, such as agribusiness and manufacturing. ADB also stated that the agreement will foster financial sector development in the region and aid in government revenue generation.
“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,” the bank said. “Despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth”.
ADB pointed out that it will rely on its “AAA” rating “to share trade risk and expand the trade finance capacity of CIB to take on more risk from other local banks in Africa”. The bank mentioned that through the use of a 50-50 risk-sharing structure, the RPA will expand the availability of trade finance over a three-year period for clients across Africa.
“CIB will match ADB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $100m,” the bank’s statement read.
On its upcoming role in Africa and Egypt, the bank stated that it intends to support African financial institutions and Egyptian exporters, who engage in agriculture, construction and light manufacturing sectors.
“Ultimately, this agreement between ADB and CIB will result in the provision of significant support to African banks in the COMESA region and local corporates and small and medium-sized enterprises in Egypt and it trading partner countries in Africa,” the bank added.
The bank clarified that the agreement will facilitate some $600m of trade in intermediate and finished goods, raw materials and equipment to support Egypt’s growth along with its African economic trading partners.
CIB’s net revenues jumped 35% during in 2013, reaching EGP 3bn, compared to EGP 2.2bn the preceding year.