CDC Group, the UK’s development finance institution (DFI), is providing Absa Group with a US$75mn funded and unfunded facility which will be used for onlending to other banks across Africa and to expand Absa’s network of local banks.
It is hoped that the risk-sharing facility – one of CDC’s largest trade finance commitments in Africa to date – will go some way in plugging the continent’s trade finance gap, which experts estimate to be between US$90bn and US$120bn.
“Many international banks have been though a derisking process. This has decreased the flow of hard currency to African banks that onlend to local businesses to facilitate trade of their goods and services. In addition, this has negatively impacted the number of corresponding banking relationships across Africa, weakening the ecosystem on which trade can exist,” CDC says in a release.
Absa Group is one of Africa’s largest financial services group, with offices in 12 countries on the continent.
According to Charles Russon the CEO of Absa Bank, a wholly-owned subsidiary of the group, the facility will make a “a valuable contribution” to alleviating the challenge of managing trade finance risk appetite in Africa.
This time last year Absa Group opened an office in London to help UK and European businesses expand into Africa.
“The UK is a key source of foreign direct investment and a critical trade partner for Africa,” David Renwick, Absa’s head of global finance and trade, said at the time. “London has a wealth of investment managers and financial institutions who have a long and successful track record of investing in Africa. They make ideal partners for our trade ambition across the continent.”
Earlier this year Absa Bank secured a US$500mn term loan from a syndicate of 19 banks to be used for general corporate purposes, including trade finance. It was the first syndicated loan that the bank had concluded in more than a decade.
CDC partners with both local and international banks to boost levels of trade finance to their clients, with a focus on countries where raising capital is a challenge.
The DFI provides facilities on an unfunded and funded basis to support its partner banks’ trade confirmation services. It currently has master risk participation agreements worth US$775mn in place with four partner banks and shares risk on 50 local issuing banks. Through these facilities CDC has supported over 1,500 transactions across Africa and South Asia since 2015.