Banks in Africa seek 1bn from ADB’s trade initiative

The African Development Bank (ADB) has received applications from regional financial institutions for about 1bn of trade finance since launching its new facility a year ago to stimulate African trade flows after the global financial crisis.

“By providing liquidity and sharing risk with African financial institutions, the trade finance initiative will facilitate Africa’s exports and imports at a time when the global financial crisis is cutting off critical funding,” it said recently, in response to questions about take-up on the 1bn multiphase trade finance initiative it announced last March.

Credit Guarantee senior manager of investments and economic services Luke Doig said it was too early to tell whether improved global growth was being reflected in demand for South African goods. “We have seen a marginal increase in demand for cover by exporters, but would need to wait for the first quarter to play itself out before we are prepared to say that the trend has become entrenched.”

Reuters reported last month that Swift, a co-operative of 8300 banks in 209 countries that banks use to exchange financial messages, said trade finance flows had been rising since early last year but there had been significant ups and downs, such as a drop from June to September.

Data on international trade finance have been unavailable since 2004, when the Bank for International Settlements stopped compiling statistics to curtail cost. Swift can collate data on the number of trade data deals, based on messages going through its system, but not their value.

There were 41,8-million messages on trade last year, 8,6% below 2008’s figure, adjusted for business days. The World Trade Organisation forecast global trade would contract by 10%.

After the sharp collapse in markets in September 2008, the price of credit rose and banks shortened their lending periods, reflecting reduced appetite for risk, the ADB said.

Availability of import finance was constrained by a lack of liquidity in international markets.The ADB said it was processing several requests for its trade finance facility. It had signed letters of credit for 100m for United Bank of Africa, which the bank would use to advance credit to corporate customers on the continent after the retreat of non- African lending institutions.

ADB has also arranged a 1,2bn short-term loan to the Ghana Cocoa Board to buy the imminent cocoa crop, and has advanced 100m to Standard Bank of SA as part of the global liquidity trade programme. The global liquidity trade programme aimed to leverage about 50bn of global trade from 5bn of commitments from public-sector sources.

Source: www.businessday.co.za, 20100224

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