The International Trade and Forfaiting Association (ITFA) has branded 2017/18 “the year of Africa” and established a regional committee dedicated to setting an African agenda for the association.
Newly-appointed ITFA board member, Duarte Pedreira of Crown Agents Bank, will chair the committee. Voting members include Afreximbank; Christian Karam of Africa Trade Finance; Ian Henderson of Gulf International Bank’s UK branch; Alastair McLeod of JLT; Louis du Plessis of Rand Merchant Bank (RMB); Simon Cook of Sullivan and Worcester; and Marieme Niang Camara of Wilben Trade.
“The beauty of this mix of members is that you have every possible angle of people intervening in Africa trade finance coming together to set the agenda for ITFA to materialise this ‘year of Africa’,” says Pedreira.
“It’s about empowerment – it’s about getting Africans to tell us what they want and ITFA to react to this by giving them the tools,” he says. “We can’t be imposing an agenda on new and existing members from Africa – that wouldn’t work.”
He tells GTR that the committee has already set itself four “strategic pillars”.
The four areas of focus are: firstly, increasing the number of members – the committee has targeted an additional 30 new members from Africa within the next year; secondly, networking opportunities, whereby ITFA will be investing in gatherings to familiarise the market with ITFA and its offerings; thirdly, engagement with the regulators; and, finally, education – which Pedreira says will really cater specifically for the needs and requirements of African banks.
“Anybody who has travelled around this market will know that basic education around, for example, Incoterms or the UCP rules, is not going to capture interest,” he says. Instead, ITFA’s focus will be on a next-level remit and “what actually works” in Africa. Pedreira explains that this could include structuring solutions for trade finance deals; active trade finance portfolio management and the use of credit insurance to enhance capital; and ways of overcoming single obligor limits of constraints and how the master risk participation agreement can achieve that.
And the education goes both ways: speaking at ITFA’s annual conference in Edinburgh earlier this year, du Plessis from RMB told delegates that African banks don’t realise the interest there is globally in African assets. “I think there’s still very much a fear of banks in Africa – that they cannot share their risks with other banks,” he said.
Managing African risk
In addition to the four identified pillars, there is, Pedreira says, a potential fifth area of focus currently under discussion among committee members. “We want to undertake a structural project in Africa,” he explains. “We haven’t yet chosen where we want to zoom in, but one of the topics is that of derisking.”
The problem with derisking, as ITFA’s Africa-focused panel in Edinburgh discussed, is that activity in Africa has become driven by revenue, rather than risk.
“The fundamentals are around scale, profitability and business volumes,” explains Pedreira, who has vast anecdotal evidence about smaller banks across the continent which – despite their vast investments in state-of-the-art compliance systems – are grappling to maintain their correspondent banking relationships. “These guys don’t generate enough from a payments volume point of view to justify the relationships,” he says.
Yet, he says, the willingness among these smaller African banks to improve their systems and become bankable is phenomenal, a point Pedreira also emphasised at the panel in Edinburgh. “For example, within months we saw the vast majority of banks in Sierra Leone go from being virtually unbankable to being at the forefront of compliance, KYC, etc,” he told the conference.
“The willingness is there,” he continued. “So when we say ‘it’s a risk issue’, has anyone asked themselves why we’re not giving them the possibility to come up with the standards that we want them to? Because if you ask a bank if they’d mind paying a minimal fee to become bankable, when the opposite side of the spectrum would be that they would simply not have access to international markets, then you would not be surprised to hear that they would jump at the chance.”
In September, an International Finance Corporation (IFC) poll found that, globally, 27% of banks have noted declines in their correspondent banking relationships – financial institutions that provide services on behalf of other institutions – forcing them to decline vital services. In Sub-Saharan Africa, as many as 35% of banks have reported a decline in these relationships.
“We are concerned,” said IFC CEO Philippe Le Houérou, commenting on the findings. “In emerging markets, the business environment has often been challenging for banks and their customers, but a decline in correspondent banking disrupts the financial connections that countries and businesses need.”
Survey participants identified three solutions that could help address the issue, including greater harmonisation of regulatory requirements, a centralised registry for due diligence data, and assistance with understanding and adapting the new standards. “A solution will require multiple stakeholders across the international community to formulate a comprehensive response,” the IFC said.