The International Finance Corporation (IFC) is to open a US$500mn trade finance facility to Standard Chartered to allow it to continue to bank emerging market trade.

Standard Chartered has been actively trying to reduce the risk of its lending portfolio and, earlier this year, a number of exposures were identified for liquidation in order to bring it to within the new tolerance level, a senior source at the bank told GTR.

However, the bank is keen to maintain the core of its business, which is banking trade in emerging markets. 90% of its business is in Asia, Africa and the Middle East. The bank has been looking at a number of different ways of doing that within its new risk profile.

One strategy was to continue to originate loans and then “churn our books as appropriate”. This was explained to GTR by Michael Vrontamitis, head of trade and product management, in Hong Kong.

“Pretty publicly we did the collateralised loan obligation (CLO) transactions where we hold about 90% of what we distributed, but that’s about capital relief and improving our capital position around portfolio. That enables us to support commercial banking clients where the capital requirements might be too high otherwise,” he said.

He added: “We have a number of programmes which are both bilateral in nature, where we sell down financial institution (FI) risk to other FIs, for examples insurers, or participate in insurance-backed receivables transactions, where we use insurance to mitigate our capital requirements.”

The bank has been working on such a model with the likes of the IFC, the Asian Development Bank (ADB), and the African Development Bank (AfDB) since the financial crisis of 2008.

The latest news, first reported, by Deal Street Asia, falls under the IFC’s Global Trade Liquidity Programme (GTLP). Through this, the IFC and Standard Chartered will be able to collaborate on a risk-sharing facility worth up to US$1bn. The IFC will invest up to US$500mn in a portfolio of trade finance assets.

As banks’ lending appetite diminish amid increased regulation and uncertainty about the economic picture in many emerging parts of the world, many have retrenched to core markets. It’s led to huge concerns about where the requisite trade finance will come from.

The role of development institutions such as the IFC and ADB, as well as risk-assuming entities on transactions, such as export credit agencies and guarantee-providing insurers, is set to increase in this environment.

After a tough few years, Standard Chartered this month announced a return to profit, banking almost US$1bn over the first half of 2016. The bank had been left beleaguered by a book full of bad loans, which led to a US$1.5bn loss last year.

With profits still 46% lower than the first half of 2015, new CEO Bill Winters has been pointing to the economic slowdowns in key markets.

“The economies in which we operate have slowed for the most part, certainly India, China, Hong Kong, Singapore and the US have slowed, and we note that the regulatory uncertainty that we observed back in November is still very much present,” he said last week.