VENTURES AFRICA – The Board of Directors of the African Development Bank (AfDB) on Tuesday approved a $100 million unfunded Risk Participation Agreement (RPA) with Germany’s Commerzbank AG.
Under the agreement, both banks will share the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa and confirmed by the German bank.
The RPA facility, which runs over a 3-year period, is a 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 $200 million. Counting roll-overs, it is expected to facilitate about $1.2 billion of trade in equipment, raw materials, intermediate and finished goods over the 3-year period.
The 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.
Majority of African banks have limited 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.
The African lender said in an official statement that the deal is expected to “foster financial sector development, regional integration, and increase government revenue generation ultimately improving Africa’s sustainable economic growth.”
Commerzbank AG is a leading international bank headquartered in Frankfurt, Germany. It is a leading provider of trade finance in Africa with a trade portfolio of approximately of $6 billion and an active network of over 500 correspondent banks on the continent.
Commerzbank captures significant trade flows in Africa and it is one of the leading European banks in terms of LC issuance and reimbursement in Africa. It has six representative offices in Africa located in Cairo, Tripoli, Addis Ababa, Lagos, Luanda, and Johannesburg.
