A number of leading African banks have over the past few months entered long-term loan agreements with international financiers to shore up their lending business. This has mostly been focused on financing small and medium-sized enterprises in their respective countries.
Nigeria’s Zenith Bank, the country’s largest by total equity and second-largest by asset size, in June secured a loan of up to $100 million under the International Finance Corporation’s $8 billion COVID-19 fast-track financing package, which was set up in March to support business activity and preserve jobs amid the pandemic.
The funding, in addition to extending support to the bank’s clients and companies affected by the pandemic, was meant to help Zenith overcome challenges resulting from limited access to foreign currency and working capital. “IFC’s support is essential and will help us respond to challenges resulting from the COVID-19 pandemic,” Group Managing Director and chief executive Ebenezer Onyeagwu said at the time.
Other top Nigerian lenders First City Monument Bank Plc and Access Bank Plc have also secured loans under the IFC scheme, $70 million and $50 million respectively, to help them increase liquidity, trade financing and working capital to thousands of SMEs struggling with the impacts of the pandemic in Nigeria.
The deals are part of IFC’s ongoing strategy to support the banking sector in Nigeria and across emerging markets in the aftermath of recent market turmoil, by providing long-term financing to help banks achieve growth objectives and improve their reach to underserved segments.
Outside Africa’s largest economy, several banks across the continent are either on the IFC or European Investment Bank funding program to help businesses stay afloat during and after the crisis.
Early July, the World Bank’s private sector financing arm announced an investment of $100 million in Egypt’s largest private lender, the Commercial International Bank. The loan, the IFC’s first in the Middle East and North Africa through the COVID-19 facility, was also for onward lending to corporations and businesses facing liquidity challenges.
Kenya-based Equity Bank also got a $50 million loan to increase working capital and trade-related lending to its SME clients, especially those facing COVID-19-related challenges. “IFC’s loan is part of our business continuity management plan, will help Equity Bank extend much-needed support to our clients, particularly to SMEs in sectors hit hard by Covid-19,” chief executive James Mwangi said.
While the surge in lending from international institutions has been accelerated by the coronavirus pandemic, multiple reports indicate the trend has been on for a few years. Equity last year received a $100 million subordinated loan from IFC to grow its lending operations in Kenya.
In 2017, the EIB offered three lines of credit worth $126 million to three East African banks – African Banking Corporation, NIC Bank (now part of NCBA bank), and CRDB – for investment by SMEs across the region. A year later, the European bank provided a $40 million financing facility to I&M Bank in Kenya while the IFC signed a $10 million subordinated loan and $500,000 advisory project with the bank’s Rwandan unit to strengthen its capital base and help it increase lending to small businesses.
The shift in attention – from local lenders to global financiers – is reportedly down to the unavailability of long-term funds in domestic markets. This comes as a result of investors’ growing preference for risk-free government debt instruments over the corporate bond market due to reported uncertainties surrounding debt repayment.