presentation outline - world trade organization · presentation outline • motivation for the...
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Presentation Outline• Motivation for the AfDB’s study on the
trade finance market in Africa
• Scope of the study
• Key findings
• Summary
Trade Finance in Africa
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Motivation for the Study• Paucity of information on trade finance in Africa
– Recent surveys had limited coverage of theAfrican market
• Establishment of AfDB Trade Finance Programin 2013
• Policy consideration: More up to dateinformation makes it easier to designinterventions to address constraints in themarket.
Trade Finance in Africa
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Design & Scope• Focus - bank-intermediated trade finance.
• More than 900 commercial banks contacted.
• Period covered: 2011 and 2012
• High response rate: 276 banks in 45 countries.• Many aspects of trade finance in Africa are
covered for the first time in this survey.
Trade Finance in Africa
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Most Banks in Africa Provide some form of Trade Finance
Trade Finance in Africa
8%
92%
2011
No tradefinanceactivity
Engaged intradefinance
7%
93%
2012
Notradefinanceactivity
Engaged intradefinance
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Size of Bank-intermediated Trade Finance
– USD 350 billion in 2011– USD 320 billion in 2012
• Banks financed about 1/3 of Africa’s total trade• 68% were off-balance sheet transactions (e.g.
letters of credit)• 32% were on-balance sheet transactions (e.g.
short-term loans).
Trade Finance in Africa
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Bank-intermediated trade finance for intra-African trade
% of bank trade finance for intra-African trade
By sub-region, the % of bank-intermediated trade
finance that is intra-African
Trade Finance in Africa
16.1%17.7% 16.9%
21.4% 21.0% 21.2%
2011 2012 Total
OffBalanceSheetOnBalanceSheet
4%
4%
10%
25%
29%
45%
8%
18%
28%
24%
0% 20% 40% 60%
Central Africa
North Africa
West Africa
Southern Africa
East Africa
On BalanceSheet
Off BalanceSheet
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Letters of Credit (LCs) still the most important instrument in bank-intermediated TF
Median value of LC increasing over time (USD million)
Average annual values of LC issued by banks in 2011 & 2012
Trade Finance in Africa
1.65
2.342.00
2011 2012 All Sample137
161
2,071
426
218
Central Africa
East Africa
North Africa
Southern Africa
West Africa
USD Millions
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Size of unmet Demand• Unmet demand is estimated at USD 110
billion compared to earlier estimates of USD 25 billion.
• Unmet demand is slightly higher for fragile and low-income countries relative to middle-income countries
Trade Finance in Africa
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High Unmet Demand :Bank rejection rates for issuing L/Cs
Trade Finance in Africa
89%
5% 4% 2%0%
10%20%30%40%50%60%70%80%90%
100%
Rejection ratebelow 10%
Rejection ratebetween 10%
and 19%
Rejection ratebetween 20%
and 29%
Rejection rategreater than
30%
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On Balance sheet Trade Finance (e.g. short-term pre-export & post-import
loans): Approval Rates
Over timeBy sub-region
Trade Finance in Africa
75% 76% 75%
2011 2012 Total
65%74% 74% 79% 80%
CentralAfrica
SouthernAfrica
WestAfrica
EastAfrica
NorthAfrica
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Trade Finance in Africa
Product or instrument limit
4%Other9%
Insufficient limits with your confirming/LC re-issuance
bank9%
Forex liquidity9%
Balance sheet constraint
13%
Single obligor limit
16%
Client credit worthiness
40%
Reasons for denying L/C requests
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Rejection of Trade Finance loan applications
Trade Finance in Africa
Product or instrument
limit6%
Forex liquidity
9%
Other12%
Balance sheet
constraint15%
Single obligor limit
16%
Client credit
worthiness42%
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Confirmation of L/Cs is a major constraint
• Virtually all L/Cs issued by African commercial banks require third party confirmation/guarantee
• Global confirming banks have limited risk appetite for African banks
• Sometimes cash collateral is required of African banks while LCs issued in other regions do not always require confirmation.
Trade Finance in Africa
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Major Confirming Banks in Africa
Trade Finance in Africa
Standard Chartered Bank, 9% Citibank, 9%
Deutsche Bank, 7%
Commerzbank, 7%
Standard Bank, 5%UBAF, 5%
HSBC, 4%BNP Paribas, 3%
Société Générale, 3%
Banque BIA, 2%
Other , 48%
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Risk Profile of Trade Finance
• Trade Finance is low-risk in general
• Average NPL in Africa is 4%
• This is much lower than the average NPL of all assets of banks.
• But higher than other regions of the world (<1%)
Trade Finance in Africa
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Average default rates Trend
Trade Finance in Africa
4% 4% 4%
2011 2012 Total
By sub-region
1.1%2.6%3.6%3.9%
6.3%
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Default Rates are much Lowercompared to other Lending Activities
Trade Finance in Africa
2.6%3.9%
6.3%
3.6%
1.1%
6.0%7.0%
12.0%
10.0%
4.0%
Eastern Africa Central Africa Western Africa Northern Africa Southern Africa
Trade finance assets
All assets
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Banks have positive outlook
All banks By sub-region
Trade Finance in Africa
No Answer
13%
No15%
Yes72%
50%
83%
50%68% 74%
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“Other” factors listed by banks include:
• Lack of centralized credit information in the economy.
• Higher competition.
Trade Finance in Africa
Other12%
Bank regulations
14%
Limited bank
capacity15%Capital
constraint17%
Forex liquidity
18%
Limited economic
growth24%
Constraints to Trade Finance Growth Perceived by Banks
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Summary• African banks finance at least 30% of Africa’s total
trade• Trade finance gap remains significant – USD 110 billion• Trade finance is relatively low risk and consumes less
capital• African banks face numerous constraints in meeting
the demand for trade finance• DFIs like the Bank can help to alleviate these
constraints• The Bank’s Trade Finance Program is very relevant and
well positioned to address some of these constraints
Trade Finance in Africa
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Thank you
Trade Finance in Africa