JP Morgan and Commerzbank have pledged a total of US$2.25bn in funding to the IFC’s global trade liquidity programme (GTLP).
Under the terms, JP Morgan will support US$1bn and Commerzbank US$1.25bn of trade flows, with some 40% of those being sold to a consortium of investors, including the IFC. Both banks join Citi, which committed US$1.25bn to the trade finance programme in June this year.
Commerzbank will receive US$500mn from the programme and commit an additional US$750mn for its own account to provide the US$1.25bn for trade finance activities in developing countries. These funds are expected to support up to US$7.5bn in trade finance in emerging markets over a three-year period. According to the bank, roughly half of the amount will be used in Sub-Saharan Africa, a region where the impact of the financial crisis has been felt severely and where Commerzbank plans to focus a significant part of its efforts.
“The global trade liquidity programme helps strengthen our clients’ position on global import and export markets, and specifically boost exchange with developing countries,” says Markus Beumer, the board member responsible for the Mittelstandsbank segment at Commerzbank. “On account of the short term of trade financing transactions, the funds can even be deployed several times in the course of the programme. In other words, the positive effects are actually a multiple of the programme volume.”
The JP Morgan facility is expected to support estimated trade flows of up to US$6bn annually. As per the agreement, the bank will provide 60% or US$600mn, and GTLP programme partners including development finance institutions and governments will purchase participations for the other 40%, or US$400mn in the aggregate, for trade assets averaging a tenor of 270 days.
The initiative is expected to have significant development impact by increasing funding for trade of consumer goods, intermediate goods, small machinery and commodities demanded by emerging market enterprises.
"We are pleased to further expand our partnership with World Bank by joining development finance institutions and governments to help bolster trade flows in the regions most affected by recent market instability,” says Daniel Cotti, global trade executive, JP Morgan treasury services. "Trade finance has been a core business at JP Morgan for more than 100 years. As an international bank offering trade solutions in nearly 40 countries, we have a strong history of supporting our client banks no matter the market conditions. We look forward to collaborating with partners in the GTLP on this important initiative.”
The GTLP mobilises funds from international finance and development institutions and governments, and leverage through global and regional banks to extend trade finance to importers and exporters in developing countries.
Programme partners include IFC – a member of the World Bank Group, the African Development Bank, the United Kingdom Department for International Development and the CDC Group, the Department of Finance, Canada and the Ministry for Foreign Affairs, Netherlands, the OPEC Fund for International Development, and the Saudi Fund for Development.
Launched in April 2009, the programme has raised US$2.5bn to date from donor governments and development finance institutions and US$3.6bn from commercial banks. The Japan Bank for International Cooperation agreed to provide US$1.5bn through a parallel arrangement with IFC and China has supported GTLP and other trade initiatives through a US$1.5bn private placement with IFC. The GTLP is expected to support up to US$50bn of trade in emerging markets over three years.
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