While Zimbabwean trade finance banks will soon be able to access much-needed liquidity via a new facility introduced by Afreximbank, the attempt may be just a drop in the ocean when it comes to kick starting bank lending.
Afreximbank trade debt-backed securities (Aftrades) will be provided to banks as debt securities that could be used as collateral for interbank fund placements in order to promote lending among trade finance banks. Afreximbank is expected to collateralise 80% of the utilised amount, the development bank tells GTR.
Zimbabwe-based Omen Muza, managing director of TFC Capital, tells GTR that Aftrades will likely not be enough because many local lenders do not have good enough credit profiles through which to secure their positions and so they cannot borrow.
However, Muza tells GTR that the facility is much-needed and if it does well, the banks would be encouraged to increase the level of support in the future. For now, only solvent banks which are not facing fundamental problems of viability will be eligible for the facility.
Afreximbank tells GTR: “We expect no less than 10 banks to participate. These include both local and subsidiaries of international banks, with the latter to be suppliers of liquidity in the scheme.” The banks says the immediate restart to interbank lending will in turn improve commerce and trade in the market.
“This is meant to kick start overnight lending and we need to start somewhere. The need for this in the Zimbabwean economy is huge,” Muza tells GTR.
Aftrades will be structured as a collateral swap involving the issuance of securities by Afreximbank to participating banks in exchange for trade-related collateral or securities presented by those banks. The Zimbabwean Ministry of Finance and Economic Development, will serve as the facility’s guarantor and liquidity support contributor and the Reserve Bank of Zimbabwe will grant the regulatory approvals required by the participating banks.
“Our objective is to use this facility to enable trade finance banks in Zimbabwe to access liquidity from cash-surplus banks in the country, thereby increasing their capacity to deepen their trade finance activities,” says Jean-Louis Ekra, president of Afreximbank. Ekra says the facility was introduced to mitigate the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding.
Afreximbank, the Zimbabwe Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe signed a memorandum of understanding in Cairo on February 11.