Risk Participation Agreement

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African Development Bank signs a $100 million risk participation agreement with Commerzbank AG to support trade finance in Africa

|  By Maureen Chigbo  |  Jun. 24, 2013 @ 01:00 GMT

THE African Development Bank, AfDB, on May 29, formally signed a $100 million unfunded risk participation agreement, RPA, with Commerzbank AG. Under the agreement formalised in Marrakech, Morocco, the two banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and confirmed by Commerzbank AG. This facility will help to address critical market demand for trade finance in Africa by providing support for trade in vital economic sectors such as agribusiness and manufacturing. It will also foster financial sector development, regional integration, and increase government revenue generation and ultimately improving Africa’s sustainable economic growth.

The majority of African banks have small capital bases which often constrain their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact. Moreover, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from it. AfDB’s ability lies in the use of its “AAA” rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration.

Christof Maetze
Maetze

The RPA, spanning over a three-year period, is 50/50 risk sharing arrangement that will enable Commerzbank AG to match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to $200 million. The facility will also result in the provision of significant support to African banks and Small and Medium Enterprises. The agreement is expected to facilitate about $1.2 billion of trade in equipment, raw materials, intermediate and finished goods over the three-year period.

The facility aligns with AfDB’s regional member countries’ priorities to promote trade as was reaffirmed by the African Union at its 18th Ordinary Session in January 2012. It is also in line with AfDB’s long-term and regional integration strategies which seek to consolidate its engagement in trade finance in Africa.

During the signing ceremony in Marrakech, Tim Turner, AfDB Private Sector Operations director, said: “Trade is a growth enabler and catalyst for development and this partnership with Commerzbank is yet another step by the Bank to increase the availability of trade finance and help remove a major barrier to trade in Africa, especially for Small and Medium Enterprises in low income countries.”

Signing for the Germany-based Commerzbank, Christof Gabriel Maetze, member of the executive management board, said: “This facility is greatly relevant for boosting our business in Africa; with the funding, we are going to strengthen our business on the continent where we already deal with 51 countries. Commerzbank AG is a leading international bank headquartered in Frankfurt, Germany. It is a leading provider of trade finance in Africa with a trade portfolio of approximately $6 billion and an active network of more than 500 correspondent banks on the continent.

Commerzbank AG captures significant trade flows in Africa and it is one of the leading European banks in terms of  letters of credit, LC, issuance and reimbursement in Africa. It has six representative offices in Africa located in Cairo, Tripoli, Addis Ababa, Lagos, Luanda, and Johannesburg. Commerzbank AG’s long term ratings are A2/P-1 (Moody’s), A/A-1 (S&P) and A+/F1+ (Fitch)

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