AfDB approves $50 million facility for Commerzbank to support African banks

The African Development Bank, AfDB, has approved a US $50 million unfunded Risk Participation Agreement for Commerzbank AG (Commerzbank) to support African banks on trade finance operations.

Commerzbank AG is a German banking and financial services company based in Frankfurt, Hesse, Germany with presence in more than 50 countries around the world.

The Risk Participation, which was approved by the AfDB's Board of Directors, on Tuesday, March 27, 2018, is expected to leverage Commerzbank support to African issuing banks seeking to expand their trade finance operations.

Stefan Nalletamby, the Bank’s Financial Sector Development Director, while commenting on the facility said, “Commerzbank is a strategic partner for implementing the Bank’s development mandate. This intervention will improve market access by African issuing banks, corporates and SMEs.”

Olivia Ndong Obiang, Principal Communication Officer in a statement emailed to Business Insider Sub Sahara Africa on Thursday, April 5, 2018, said the facility will help address trade finance market demand in key economic sectors such as agriculture and manufacturing. It will also foster financial sector development, regional integration and boost government revenue generation.

"Most African banks are small and struggle to obtain adequate trade finance facilities from international confirming banks to support African importers and exporters. The African Development Bank’s additionality lies in the use of its “AAA” credit rating to provide comfort to Commerzbank to increase its trade finance exposure to local African banks.

"The portfolio of trade transactions supported will represent various economic sectors. The facility is thus well aligned with the Bank’s strategic priorities – the “High 5s” that are aimed at transforming Africa."

"The Risk Participation Agreement will run for three years as a 50/50 risk sharing arrangement. Counting rollovers, it is expected that the facility will support approximately US $700 million of trade in Africa over the period," the statement concluded.

This will be the African Development Bank’s second Risk Participation Agreement with Commerzbank, a major player in the global trade finance market with a significant Africa footprint.

The first was in 2003 when the Development Bank signed a $100 million unfunded Risk Participation Agreement (RPA) with Commerzbank AG on a 3-year 50/50 risk sharing arrangement.