SMBC and the IFC have invested a combined US$1bn in the IFC’s global trade liquidity programme (GTLP), which helps boost trade finance in emerging markets.
This is the second time the pair have combined, with an earlier tranche signed in 2016. Now, the pair will contribute US$1bn into the GTLP which can be used to partner with local banks on trade deals. The IFC says that it expects the US$1bn to galvanise US$7bn in trade finance transactions.
John McNally, an IFC spokesperson, explains that the origination of these deals happens on two levels. He tells GTR: “Emerging market banks issue letters of credit, for example, where some underlying trade is being financed for an emerging market client, which are then confirmed, discounted and, or funded by partner banks, such as SMBC.”
For SMBC, this allows them exposure to regions they may not have the appetite to fund without IFC guarantees and support. It also pairs them up with IFC partner banks with which they may not have existing relationships.
The deal will fund deals in more than 20 countries and will be across the board, sector wise, including food, energy, machinery and consumer goods.
The GTLP has become a vital development financing tool since the global financial crisis. With banks under pressure to carry out more checks on banking and financing partners around the world, the cost associated with lending in emerging markets has skyrocketed, with many banks returning their focus to their core markets.
Masakazu Hasegawa, general manager of the global trade finance department at SMBC, says: “We are very delighted to close this agreement with the IFC. Strengthening origination and distribution is a key to serving our global customers’ trade finance requirements sustainably. Through working with the IFC we aim to enhance our trade finance business to support the growing needs in the emerging market. ”
Hyung Ahn, global head of trade and commodity finance at the IFC, adds: “Trade is essential to achieve economic growth, a key driver of job creation and poverty reduction in the emerging markets. Along with this initiative, we’re working with SMBC on other aspects in trade finance space and look to cement our collaboration to deepen trade financing into some of the world’s poorest countries.”