Earlier this week, the African Development Bank signed an unfunded $250-million Risk Participation Agreement (RPA) facility with ABSA – a pan-Africa financial institution with a solid presence in 12 African countries.
According to AfDB’s statement, the 3 year RPA facility was signed on November 12, on the sidelines of the Africa Investment Form through its trade finance operations.
Under this 3-year RPA facility, the Bank and ABSA will share the default risk on a portfolio of eligible trade transactions originated by African Issuing Banks (IBs) and confirmed by ABSA.
ABSA Group Limited is listed on the Johannesburg Stock Exchange and is one of Africa’s largest diversified financial services groups with solid human capital on the ground reaching around 42 000 employees.
Also, ABSA has majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, the Seychelles , South Africa (Absa Bank), Tanzania (Barclays Bank in Tanzania and National Bank of Commerce), Uganda and Zambia, with representative offices in Namibia and Nigeria, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia.
Further, the press release highlighted that, by leveraging the Bank’s AAA rating (which is the highest possible rating that may be assigned to an issuer’s bonds by any of the major credit rating agencies), ABSA will underwrite trade transactions issued by African issuing banks across key sectors like agriculture, energy, and light-manufacturing with a special focus on Small and Medium-Sized Enterprises (SME’s) in fragile and low-income African countries. The Bank’s commitment under the RPA is to assume up to 50% (and 75% in special cases) of every underlying transaction issued by the IBs, while ABSA will confirm such a transaction and bear not less than 50% of its underlying risk.
“Working with strategic partners like ABSA, the Bank’s trade finance operations aim to facilitate inter and intra Africa trade by reducing the trade financing gap on the continent. Since 2013, the Bank’s RPA program has supported over 16 issuing banks with about US$650 million limits in Southern Africa alone, with special focus on SMEs and local corporates in manufacturing, agribusiness, import/export, and energy sectors,” press release reads.
“The RPA facility is one of the tools employed by the African Development Bank to alleviate poverty and achieve robust economic growth and sustainable development on the continent through increased trade facilitation of import-export activities of African local corporates and SME’s; enhanced inter and intra-Africa trade; and regional integration,” said Pierre Guislain, Bank Vice President for Infrastructure, Private Sector and Industrialization,
“This is consistent with the Bank’s High 5s focus to Industrialize Africa, Light up Africa, Integrate Africa, Feed Africa and improve the living standards of Africans,” he added
Additionally, in the same period, the program supported over $4billion in trade volumes across Africa, with $938 million of that being intra-Africa trade.
Other trade finance instruments employed by the Bank include Trade Finance Line of Credit (TFLoC) – funded line provided to banks for the financing of exclusively trade-related transactions in Africa; and Soft Commodity Finance Facility (SCFF) – funded instrument meant to support the financing of exports of soft commodities across the continent.