Global Commodity Traders ask African banks to finance Trade Deals
International commodity traders are turning to African banks to finance trade transactions as the global economic slowdown, Eurozone debt crisis and tougher capital requirements force international banks to pull back their lending in Africa, Standard Bank admitted this week. Standard Bank’s Global Head of Structured Trade and Commodity Finance, Craig Polkinghorne, said the pull-back forced on global banks was happening at a time when Africa’s trade continued to grow across a broad front of geographies and sectors.
“The scale of trade finance opportunity is substantial when considering that Africa’s exports alone grew to $500 billion in 2012 from $445 billion in 2011,” Polkinghorne said in a statement.
“It is something of a phenomenon that the general tightening of global credit continues to curtail availability of commodity trade finance from the traditionally dominant players, even as African countries ramp up trade relations with the fastest-growing economies.”
A number of international banks have reviewed their risk appetite and have withdrawn from, or limited their exposure to trade finance in Africa.
A funding gap has consequently opened up, creating an opportunity for other players to fill that vacuum, said Polkinghorne.
“This has created great opportunities for African banks to be more active in trade finance because they have strong balance sheets, the necessary capital and liquidity, and risk appetite. For domestic currency transactions they also have competitive funding costs compared to global counterparts,” he said.
“More importantly, as European and US demand has continued to decline, the liquidity from African banks has helped to deepen intra-African trade and increase trade flows between the continent and other emerging market regions.”
China was increasingly accounting for a significant portion of Africa’s trade compared to its trade with the rest of the world. Trade with China had grown from 10 percent of overall trade in 2008 to 18 percent in 2011. China’s dominant African trading partners are Angola, South Africa, Sudan, Nigeria, Egypt and Algeria.
African countries are also importing goods to support infrastructure investment and consumer spending. Standard Bank Group research shows that imports of machinery, transport equipment and textiles remain buoyant
“So, we see strong trade and constrained competitors as an ideal growth environment for banks with local presence and technical banking expertise,” Polkinghorne said.
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Source: Ventures Africa