The African Development Bank(AfDB) has announced the approval of trade finance facilities valued at $25million for FSDH Merchant Bank in Nigeria.
Under the agreement, the bank will onlend the fund to local small and medium-sized enterprises (SMEs).
The package is comprised of $15million trade finance line of credit and a US$10mn transaction guarantee, which will cover up to 100 per cent of non-payment risks arising from letters of credit (LC) and similar financial instruments issued by FSDH.
According to the AfDB’s director for financial sector development, Stefan Nalletamby, the agreement is expected to catalyse more than US$200mn-worth of trade finance transactions across sectors such as agriculture, manufacturing and energy over the next three and a half years.
The AfDB’s director general for Nigeria, Lamin Barrow, said COVID-19 and other factors have led global banks to reduce or leave their correspondent banking relationships in Africa.
The AfDB and the African Export-Import Bank recorded a substantial rise in LC request rejections in the initial phase of the pandemic in Q1 2020 compared to the previous year, with 30 per cent of respondents to a continent-wide survey of commercial banks indicating an increase in rejection rates.
Lenders in Anglophone West Africa reported 50 per cent rejection rates – some of the highest on the continent. The occurrence of LC rejections in this period was most prolific for small banks, with 50 per cent reporting an increase in refusals compared to 20 per cent for larger lenders.
