The Asian Development Bank (ADB) will provide up to US$100mn to bolster Citi’s loans to Asian exporters and importers under a new risk-sharing agreement.
While the ADB has provided guarantees to Citi on a non-funded basis in the past, this is the first time the development bank contributes its own financing to Citi deals.
The agreement represents an “enhanced” relationship between the two banks, according to Santosh Pokharel, a relationship manager in ADB’s trade finance programme, of which Citi has been a member since 2009.
Under the new arrangement, when Citi provides funded trade finance to banks in Asia Pacific countries which are part of the ADB’s trade finance programme, then the ADB can lend up to 50% of the amount. The agreement is aimed specifically at helping SMEs in emerging Asia.
“With the ADB coming in and providing funded support, this will help Citi to do more trade finance transactions,” Pokharel tells GTR, saying the development bank can help Citi to leverage its existing limit with local banks. It will do so in countries including Bangladesh, Pakistan and Vietnam.
Steven Beck, the ADB’s head of trade and supply chain finance says the arrangement will “address the increasing trade finance gap”. Hit by de-risking since the financial crisis, global correspondent bank relationships have dwindled by a quarter between 2009 and 2016 – with banks wary of AML, KYC, and the possibility of fines for non-compliance. The ADB’s own research reveals that Asia shouldered a 40% of the global trade finance gap in 2017, with a vastly disproportionate rejection rate for small businesses in particular.
Beck says: “This continuing partnership with Citi hopes to address the funded trade finance needs of SMEs, to stir more growth and jobs that underpin more stable economies in Asia.”
Manila-based ADB supported approximately US$4.5bn in trade through 3,505 transactions via its trade finance programme last year.