Trade Finance in Africa: Overcoming Challenges Trade Finance Workshop Lamin M Drammeh www.afdb.org/trade-finance-program/
Trade Finance in Africa Outli line 1. AfDB Trade Finance Survey 2. Main findings 3. Why SMEs are underserved 4. Intra-Africa Trade Finance 5. What we can do together – recommendations 6. Outlook
Trade Finance in Africa AfDB Trade Fin inance Survey • Questionnaire • 900+ banks in Africa (local and foreign) • Coverage – 49 countries • 27% response rate (246 banks) - role of AfDB country teams - using regional HQ of banking groups
Trade Finance in Africa AfD fDB Su Survey - Main in Fin indin ings • Total bank-intermediated Trade Finance • USD 400 billion (30% of Africa’s trade) • Gap USD 90 - 100 billion • TF is a relatively low risk asset class ✓ NPL of 5% vs 12% for all asset classes • SMEs < 30% of banks’ TF portfolio • Intra-Africa trade - 20% of trade finance • Regional disparities across all indicators
Confirming Banks in Africa Dominance of Global Banks Société Générale 2.4% Natixis 3.3% UBAF 4.6% Deutsche Bank 6.8% Standard Chartered Bank 8.0% Citibank 8.9% Commerzbank 10.2%
Constraints to TF Portfolio Growth Staff Capacity 7% Competition Regulatory 21% Restrictions 16% Forex Risk Capital Liquidity 21% 17% Correspondent Banks 18%
Why Banks reject TF requests 6% Client Credit Worthiness 8% Insufficient Collateral 36% 9% Single Obligor Limit Limited Forex Liquidity 11% Insufficient Limits with Correspondent Banks Bank Balance Sheet Constraint 30% Regulatory requirements 76% Low country credit rating 82% Low Issuing Bank credit rating 86% AML/KYC 90% Bottom chart - Source: ICC 2016 Global Trade Finance Survey: Significant/very significant impediments to TF
Transaction Rejection Rates 7% 11% 11% 17% 17% 18% 21% 93% 89% 89% 83% 83% 82% 79% Asia Middle Africa Central & Western Latin North Pacific East Eastern Europe America America Europe Approved Rejected Source: 2018 ICC Global Survey on Trade Finance
Rejection Rates – Client Segment Micro & SMEs 61% 39% Middle Market Corporates 68% 32% Multinational and Large Corporates 71% 29% Approved Rejected Source: 2018 ICC Global Survey on Trade Finance
African FIs’ TF Portfolio New Clients 14% SMEs 28% 58% Top 10 Clients
Is SMEs a risky segment - NPLs? 13% 11% 3% 2% 16% 11% Africa TF NPLs 31 % SMEs 14% All Bank Assets 9% All Trade Finance 11 % Assets 5% First Time TF Clients 3%
Intra-regional Trade Flows Positive correlation – intraregional trade and development 17.8% 68.5% 50.2% 52.3% 8.8% 17.7% 25.8% Source: WTO International Trade Statistics 2015
Intra-Africa Trade Finance Positive correlation - Intra-Africa trade finance and regional integration 4.5% 17.4% 25% Africa 3.6% ➢ 20% of banks’ financing ➢ Net oil exporting countries -10% ➢ Net oil importing countries - 21% 24.5%
What we can do together To unlock Africa’s huge potential and accelerate economic development and social progress we need to increase access to finance for SMEs and facilitate more trade: ❖ Explore other financing vehicles – Trade funds, insurance companies, Supply Chain Finance, receivables financing ❖ Restore correspondent banking lines – Manage risk perception of Africa – AML/KYC compliance ❖ Strengthen the capacity of local banks ❖ Enhance ecosystem collaboration – Embrace technology – Blockchain, Fintechs, Big Data, AI – Leverage trade facilitation programs of MDBs – Conduct more research and thematic studies – Advocate for conducive regulatory environment – Explore solutions to hard/soft infrastructure challenges
Outlook for Trade Finance Growth Africa 11% 89% All regions 5% 22% 73% Negative Neutral Positive Source: 2018 ICC Global Survey on Trade Finance
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