JUST IN: Covid-19 induced shocks strain African banking sector

Business Reporter

MASSIVE capital outflows due to tightening of global financial conditions linked to the outbreak of the Covid-19 pandemic have strained African banks, most of which have suffered a drop in net foreign assets, according to a latest report.

The African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and Making Finance Work for Africa Partnership (MFW4A) released the new “African Trade Finance Survey Report”, which highlights the impact of the global Covid-19 pandemic on African trade finance.

The report is the first of its kind, surveying 185 banks from across Africa, representing more than 58 percent of total assets held by African banks. It sought to unpack the trade finance landscape across Africa and how it has evolved during the Covid-19 pandemic.

The report further highlights the role trade finance can play in overcoming the social and economic fallout of the Covid-19 pandemic to quicken the process of economic recovery through trade and investment growth.

Due to the Covid-19 pandemic and inherent tightening financing conditions, heightening balance of payment pressures and liquidity constraints, the report notes that supply of trade finance was adversely affected.

Similarly, the number of correspondent banking relationships dropped across the region, and the rejection of L/C (letters of credit) requests increased, with about 38 percent of local/privately-owned banks and 30 percent of foreign banks reporting an increase in rejection rates, respectively, says the report.