The Board of Directors of the African Development Bank has approved $400 million trade facilities for Standard Chartered Bank and Ecobank Transnational Incorporated.
The facilities under the term ‘Risk Participation Agreement (RPA)’ will enable the two banks help address critical market demand for trade finance in Africa by providing support for trade in vital economic sectors such as agribusiness and manufacturing.
The agreement provides $200 million to Standard Chartered Bank and the balance of $200 million to Ecobank Transnational Incorporated.
A statement from the AfDB said the deal will foster financial sector development, regional integration, and contribute to government revenue generation.
The statement said that the RPA between the banks will allow them to share the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa.
As a 50/50 risk sharing arrangement, Standard Chartered Bank will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $400 million. “The Risk Participation Agreement will be for a period of three years,” the statement said.
For the Ecobank, the first facility is a three-year unfunded Risk Participation Agreement (RPA) of $100 million where the AfDB will share with Ecobank, through its subsidiary EBI S.A based in Paris, France, the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa and confirmed by EBI S.A.
As a 50/50 risk-sharing arrangement, ETI will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $200 million.
The second facility is a three and half year trade facilitation loan of $100 million, which will be used by ETI subsidiaries to provide trade finance support to local corporates and SMEs in Africa.
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.
Secondly, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth.