The World Bank’s IFC has agreed to guarantee part of a US$2bn portfolio of emerging market loans owned by Crédit Agricole CIB.

IFC is providing US$90mn worth of credit risk protection on a range of assets related to emerging markets. The portfolio contains a variety of asset classes, such as trade and commodity finance for both corporate and financial borrowers.

The deal is the largest structured finance transaction ever created by IFC. It is also the first of its kind by any bank globally to mitigate credit risk across a variety of asset classes and borrower groups related to emerging markets.

Commenting on the deal, Naeem Khan, global head of trade finance at Crédit Agricole CIB, says: ‘This transaction is a good reflection of Crédit Agricole CIB lead in this matured trade finance market place which can offer not only alternative risk solutions but also addresses the capital adequacy challenges faced by financial institutions. The successful closing of the deal further reinforces Crédit Agricole CIB’s ability and capacity to offer innovative financing structure using diversified asset class including trade finance portfolio. We look forward to enhance our partnership and cooperation with IFC in other segments of trade finance market.’

The deal will help expand access to finance and increase business opportunities in emerging markets. At a time when banks need to comply with significantly higher requirements, this programme will also benefit Crédit Agricole CIB by lowering risk weightage on existing exposures and freeing up regulatory capital and enhancing its lending capacities. The deal has been signed off by the French regulator.

Banks use credit-risk-transfer transactions to lower risk weights on existing asset exposures. Unlike a conventional securitisation in which assets are sold to investors, in credit-risk-transfer transactions they remain on a bank’s balance sheet and third-party investors such as IFC assume some risk associated with these assets to free up regulatory capital.

Georgina Baker, director of IFC’s trade and supply chain department, says: ‘Prudently structured credit-risk-transfer transactions are an efficient way for IFC and other investors to enable more bank lending across a variety of economic sectors and help boost growth in emerging markets.’

‘This is especially important at a time when banks need alternative solutions to meet higher regulatory capital requirements which allow them to expand credit and opportunities for businesses where they are needed most.’

‘This transaction offers a clear sign of our commitment to our clients’ activities in emerging markets. The participation of IFC in this transaction, which supports the real economy, is of great value to us,’ adds Régis Monfront, deputy chief executive officer at Crédit Agricole CIB.