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The Board of Directors of the African Development Bank (AfDB), on Wednesday, November 18, 2015 in Abidjan, approved an unfunded US $100-million Risk Participation Agreement (RPA) for Sumitomo Mitsui Banking Corporation Europe Limited (SMBCE) to support issuing banks in Africa expand their trade finance operations.
The facility will help address critical market demand for trade finance on the continent by providing support for trade in vital economic sectors such as agriculture and manufacturing. It will also foster financial sector development and regional integration, and contribute to government revenue generation.
Presenting the project to the Board, the Bank’s Financial Sector Development Director, Stefan Nalletamby, said, “We consider SMBCE to be a natural strategic partner for supporting the AfDB’s development mandate, initially starting with this intervention within the trade finance space. Going forward, we foresee a huge opportunity to build on this solid foundation by extending our partnership with SMBCE to other sector operations of the Bank in areas such as energy, agribusiness and infrastructure in the medium term.”
Most African banks are small and therefore find it difficult to obtain adequate trade finance facilities from international confirming banks to support African importers and exporters. AfDB’s additionality lies in the use of its “AAA” credit rating to give greater comfort to SMBCE to take more risk on local banks in Africa and provide them increased trade finance facilities.
The RPA facility is expected to run over three years, as a 50/50 risk sharing arrangement where SMBCE will match AfDB’s undertaking in each transaction, and will create a maximum trade finance portfolio of up to US $200 million at any one time. Counting rollovers, it is expected that the facility will support more than US $1.2 billion of trade in Africa over the 3-year tenor.
This will be the AfDB’s first RPA with a major Japanese financial institution, which in itself is a strategic milestone in the history of the Trade Finance Programme. SMBCE is a major player in the global trade finance market with significant presence in many emerging markets and is well positioned to support South-South trade involving Africa.
For further information on SMBCE, please visit: https://www.smbcgroup.com/emea/index