AfDB releases second Trade Finance in Africa Survey Report

The African Development Bank (AfDB) has released its second Trade Finance in Africa Survey Report tiled; “Trade Finance in Africa: Overcoming Challenges”.

Building on the findings of the maiden 2013 survey, this new report, covering the period 2013–2014, goes further to gauge other aspects of bank-intermediated trade finance such as the challenges encountered by SMEs and first time trade finance clients.

The report is, therefore, based on the combined data from the 2013 and 2015 surveys.

It said the value of bank-intermediated trade finance in Africa in 2013 and 2014 was estimated at $430 billion and $362 billion respectively. Put differently, banks support about one third of total trade in Africa.

“The share of bank-intermediated trade finance devoted to intra-African trade is still modest. In 2014, only 20 per cent of bank-intermediated trade finance was devoted to intra-African trade.

This compares favourably to the estimated 18 per cent in 2011. Banks in East and Southern Africa reported the highest share (25 per cent) while those in North and Central Africa reported the lowest, around five per cent and four per cent respectively,” it said.

The report noted that the value of the bank-intermediated trade finance gap in Africa remained significant at an estimated $91 billion in 2014, although it had nudged down slightly from an estimated $94 billion in 2013.

Trade Finance continues to be a relatively low-risk activity for commercial banks in Africa, with estimated default rate transactions in 2011 and 2014 being four and five per cent respectively, compared to nine and 12 per cent Non-Performing Loan (NPL) ratios for all bank asset classes.

The default rates are lower for banks in Southern Africa (two per cent), Eastern (three per cent), and Northern (four per cent) compared to banks in Central (nine per cent) and Western (seven per cent).

SMEs account for only 28 per cent of the banks’ total trade finance portfolio, which could be attributed to the higher risk perception associated with this client segment.

It said first time applicants faced significant challenges in accessing trade finance facilities from the banks adding only 15 per cent of banks’ trade finance portfolio was composed of new applicants, although the default rate attributed to those clients was only three per cent in 2014.

The report revealed that the major reasons why banks reject trade finance demands include poor creditworthiness and lack of adequate collateral.

The report recommended that a win-win partnership and a collaborative approach involving development partners was needed to overcome the challenges of access to trade finance faced by financial institutions and the private sector in Africa.

Mr Stefan Nalletamby, the AfDB Director of Financial Sector Development Department, explained that the Bank’s Trade Finance Programme (TFP) was set up in 2013 to help address some of the challenges.

The African Development Bank has, so far, supported more than $5 billion of trade involving 90 banks in 25 African countries.

The key sectors supported are agriculture (22 per cent), manufacturing (25 per cent), Intra-African trade (20 per cent).

He said: “These achievements are clear indications that trade finance can be an effective vehicle for driving the Bank’s high five priority goals such as Feed Africa, Industrialise Africa and Integrate Africa.”

Source: GNA

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