adminof qualifying trade transactions originated by issuing banks in Africa and confirmed by Commerzbank AG.
This 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.
It will also foster financial sector development, regional integration, and increase government revenue generation and ultimately, improving Africa’s sustainable economic growth.
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.
A confirming bank is a bank in an exporter’s country which guarantees that the letter of credit established by the importer (for the benefit of the exporter) will be honoured once the conditions therein are fully met.
The confirming bank, also called the advising bank undertakes this responsibility on an arrangement called confirmation with the importer’s bank which issued the letter of credit also called the issuing bank.
Despite the growth in trade risk distribution globally, some banks in Africa have not significantly benefited from this growth. The AfDD/Commerzbank RPA facility, running over a three-year period, is 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 US$200 million.
The facility will also result in the provision of significant support to African banks and SMEs. Counting roll-overs, it is expected to facilitate about US$1,2 billion of trade in equipment, raw materials, intermediate and finished goods over the three-year period.
In addition, the proposed facility aligns with AfDB’s regional member countries’ priorities to promote trade as was reaffirmed by the African Union at its 18th Ordinary Session in January 2012.
It is also in line with the bank’s 10-year Strategy and Regional Integration Strategies which seek to consolidate its engagement in trade finance in Africa.
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 US$6 billion and an active network of over 500 correspondent banks on the continent. Commerzbank AG 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.
Online Reporter