Related News

Olam bags US$625mn shariah-compliant facility

DBS and IFC sign global trade deal for emerging markets

ECAs and banks forge US$2.5bn deal for Chile copper mine

IFC joins Taulia as supply chain finance funder

GTR Leaders in Trade: The shortlist

The IFC and Crédit Agricole have entered what they call an “innovative and impactful” transaction that will allow the French bank to expand its trade finance activities in emerging markets.

The deal is expected to free up US$510mn that the bank will provide as so-called ‘social loans’ in emerging markets, to support health, education, infrastructure and other key sectors.

Specifically, the two institutions have closed a synthetic risk transfer (SRT) transaction, in which the IFC will make an US$85mn investment in credit risk protection on a portfolio of Crédit Agricole’s emerging market trade finance and corporate loans worth US$2bn.

Banks typically use these credit risk transfer transactions to lower risk on existing asset exposures, thus alleviating the pressure from high regulatory capital requirements that are forcing many banks to scale back.

Unlike a conventional securitisation in which assets are sold to investors, in a credit risk transfer, the bank’s assets remain on its balance sheet while third-party investors, in this case the IFC, assume some of the risk associated with these assets. The transaction in turn frees up regulatory capital that Crédit Agricole can use to generate new lending.

In a statement, Stephanie von Friedeburg, the IFC’s COO, calls the transaction “innovative and impactful” as it provides the bank with more capital resources to support lending in emerging markets.

Olivier Belorgey, CFO at Crédit Agricole, adds that the SRT will “specifically redeploy freed-up capital towards – and have a multiplier effect on – socially relevant lending”, a business segment where the bank sees “considerable growth potential”.

The social lending will follow the Social Bond Principles 2017, according to which proceeds of the social bond will be exclusively applied to finance or re-finance projects with clear social benefits.

Crédit Agricole says it will grant pricing reductions to potential borrowers if it does not achieve its target of US$510mn additional social lending within two years.

The IFC previously entered such an agreement with Crédit Agricole in 2014. The transaction involved a US$90mn guarantee, which according to the IFC has supported US$6bn of emerging markets-related trade finance, while also playing “an important role in highlighting to other banks as well as investors the relevance and practicability of emerging markets-related SRTs”.

“IFC expects this just-closed SRT will be no less impactful,” it notes.

The market volume of SRTs undertaken globally has grown from about US$5bn in 2010 to over US$100bn per year at present, according to the IFC. The majority of them currently involve credit exposures in developed countries, but a transaction like this illustrates that emerging markets-related capital optimisation transactions are gaining increased attention from both banks and investors.