AfDB approves US $100-million Risk Participation Facility for FirstRand Bank S.A. to boost trade finance in Africa
The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, April 1, 2015 a US $100-million unfunded Risk Participation Agreement (RPA) for FirstRand Bank Limited South Africa (FRB), under which the two banks will share the default risk on a portfolio of trade transactions originated by issuing banks in Africa and confirmed by FRB. This facility will help address critical market demand for trade finance in Africa by working through financial institutions to provide support across vital economic sectors such as industry, services, agribusiness and manufacturing. It will foster financial sector development and deepen regional integration.
The facility will help enhance FRB’s risk-bearing capacity and hence its ability to provide risk mitigation support for trade-related transactions originated by issuing banks across Africa. The RPA will enable FRB to increase its visibility as a established confirming bank for trade transactions originated by African issuing banks. This 3-year facility is a 50/50 risk sharing arrangement that will enable FRB to match AfDB’s undertaking in every transaction and at its peak, will have a portfolio size of US $200 million. At full utilization and counting roll-overs the facility is expected to support over US $1 billion of trade in equipment, raw materials, intermediate and finished goods over the 3-year period.
Most African banks confront major hurdles in obtaining credit support from international confirming banks to undertake sizeable transactions largely due to their relatively small capital bases. AfDB’s additionality lies in the use of its “AAA” rating to share trade risk and enhance the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.
This project is fully aligned with the African Development Bank’s Ten Year Strategy and core operational priorities of regional integration, financial and private sector development as well as its Regional Member Countries’ priorities to promote trade as was reaffirmed by the African Union at its 18th Ordinary Session in January 2012. It will boost intra-Africa trade and promote regional integration, thereby contributing to the reduction of the trade finance gap in Africa. Given FRB’s position as an active provider of trade finance in Africa and its commitment to supporting Africa’s economic diversification, export growth and deepening of trade value chains, this facility will support trade related activity in at least 35 countries and provide financing to more than 100 financial institutions, supporting over US $1 billion of trade in Africa over a 3-year period, thereby helping to deepen the financial sector and promote private sector development.
FRB is a wholly-owned subsidiary of FirstRand Limited, the largest financial institution in Africa by market capitalization. Through its portfolio of leading financial services franchises; First National Bank (FNB), the retail and commercial bank; Rand Merchant Bank (RMB), the corporate and investment bank; WesBank, an instalment finance provider; and Ashburton Investments, the Group’s recently-established investment management business, the group provides banking, insurance and investment products and services to retail, commercial, corporate and public sector customers. In addition to South Africa, the group operates in eight key African territories, namely, Botswana, Namibia, Swaziland, Lesotho, Zambia, Mozambique, Tanzania and Nigeria. FirstRand Bank has branches in London and India.