Overcoming Challenges Trade Finance Workshop Lamin M Drammeh - - PowerPoint PPT Presentation

Trade Finance in Africa: Overcoming Challenges

www.afdb.org/trade-finance-program/ Lamin M Drammeh

Trade Finance Workshop

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

Trade Finance in Africa

Dominance of Global Banks

Confirming Banks in Africa

10.2% 8.9% 8.0% 6.8% 4.6% 3.3% 2.4% Commerzbank Citibank Standard Chartered Bank Deutsche Bank UBAF Natixis Société Générale

Constraints to TF Portfolio Growth

Competition 21% Risk Capital 21% Correspondent Banks 18% Forex Liquidity 17% Regulatory Restrictions 16% Staff Capacity 7%

Why Banks reject TF requests

36% 30% 11% 9% 8% 6% Client Credit Worthiness Insufficient Collateral Single Obligor Limit Limited Forex Liquidity Insufficient Limits with Correspondent Banks Bank Balance Sheet Constraint

Bottom chart - Source: ICC 2016 Global Trade Finance Survey: Significant/very significant impediments to TF

90% 86% 82% 76% AML/KYC Low Issuing Bank credit rating Low country credit rating Regulatory requirements

Transaction Rejection Rates

79% 82% 83% 83% 89% 89% 93% 21% 18% 17% 17% 11% 11% 7% Asia Pacific Middle East Africa Central & Eastern Europe Western Europe Latin America North America

Approved Rejected

Source: 2018 ICC Global Survey on Trade Finance

Rejection Rates – Client Segment

Source: 2018 ICC Global Survey on Trade Finance

71% 68% 61% 29% 32% 39% Multinational and Large Corporates Middle Market Corporates Micro & SMEs

Approved Rejected

African FIs’ TF Portfolio

28% 58% 14% SMEs Top 10 Clients New Clients

Is SMEs a risky segment - NPLs?

3% 2% 11% 13% 16% 31% 11% 11%

Africa TF NPLs

All Bank Assets 9% All Trade Finance Assets 5% First Time TF Clients 3% SMEs 14%

Intra-regional Trade Flows

50.2% 25.8% 68.5% 52.3% 17.7% 8.8% 17.8% Positive correlation – intraregional trade and development

Source: WTO International Trade Statistics 2015

Intra-Africa Trade Finance

4.5% 24.5% 25% 3.6% 17.4% Africa ➢ 20% of banks’ financing ➢ Net oil exporting countries -10% ➢ Net oil importing countries - 21% Positive correlation - Intra-Africa trade finance and regional integration

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

What we can do together

Outlook for Trade Finance Growth

5% 22% 11% 73% 89% All regions Africa Negative Neutral Positive

Source: 2018 ICC Global Survey on Trade Finance