December 3rd, 2013 by Tom Minney
Although trade finance continues to be dominated by US dollars (USD), China’s yuan currency, also known as Renminbi (RMB) became the second-most used currency in trade finance in October, according to a story on Reuters, citing global transaction services system SWIFT. This indicates the rising role of China in the world economy and it pushed out the euro (EUR) from second place.
The USD still has 81.08% of trade finance or Letters of Credit and Collection. The share of RMB rose to 8.66% in October, up from 1.89% in January 2012. The percentage of China’s total trade settled in RMB is up to nearly 20%, from 12% in 2012 However the RMB is till only the 12th payments currency of the world and its market share was 0.86% in September but fell to 0.84% in October.
Germany and Australia were among the top 5 countries using the yuan for trade finance in October, as well as the more expected China, Hong Kong, Singapore.
According to Franck de Praetere, SWIFT’s Asia Pacific head of payments and trade markets: “The RMB is clearly a top currency for trade finance globally and even more so in Asia”.
RMB payments increased in value by 1.5 percent in October, while growth for all payments currencies was at 4.6 percent.
China is the second biggest economy. It aims to lift the global role of the RMB currency and offer an alternative to world reliance on the USD. It is also hastening financial reform to promote its currency to international market participants.
June 9th, 2013 by Tom Minney
The African Development Bank (AfDB) has signed a USD 100 million agreement with Germany-based Commerzbank AG. The 2 banks will share the default risk on a portfolio of eligible trade transactions originated by African issuing banks and confirmed by Commerzbank.
According to the press release, this will help address critical market demand for African trade finance by supporting trade in vital economic sectors such as agribusiness and manufacturing. This help expands trade, strengthens regional integration and financial sector development, boosts African banks and small and medium enterprises (African SMEs) and also helps sustainable economic growth and government revenues.
The majority of African banks have small capital bases so sometimes they cannot get adequate trade limits from international confirming banks, blocking them from undertaking sizeable transactions. Although trade-risk distribution has grown worldwide, African trade finance banks have not benefitted significantly from this. AfDB can expand the capacity of African banks to back trade finance by using its “AAA” rating and sharing trade risk.
The unfunded Risk Participation Agreement (RPA) was signed on 29 May in Marrakech, Morocco, before the 48th AfDB Annual Meetings. It covers 3 years and is a 50/50 risk-sharing arrangement so that Commerzbank can match AfDB’s undertaking in every transaction, creating a maximum $200m portfolio. It is expected to facilitate about USD 1.2 billion of trade in equipment, raw materials, intermediate and finished goods over 3 years, including “roll-overs”.
Christof Gabriel Maetze, member of the Commerzbank Executive Management Board, said: “This facility is greatly relevant for boosting our business in Africa; with the funding, we are going to strengthen our business on the continent where we already deal with 51 countries.”
Tim Turner, AfDB Private Sector Operations Director, said: “Trade is a growth enabler and catalyst for development and this partnership with Commerzbank is yet another step by the Bank to increase the availability of trade finance and help remove a major barrier to trade in Africa, especially for small and medium enterprises (African SMEs) in low-income countries.”
The facility aligns with the African Union emphasis on promoting trade, as reaffirmed at the 18th summit in January 2012.
Commerzbank AG is a leading international bank and a leading provider of trade finance in Africa as a leading European bank in terms of issuing letters of credit (LC issuance and reimbursement) in Africa. Its headquarters are in Frankfurt, Germany and it has 6 representative offices in Africa: Cairo, Tripoli, Addis Ababa, Lagos, Luanda, and Johannesburg. It works with a network of over 500 African correspondent banks and its trade portfolio is approximately $6 billion. Commerzbank AG’s long-term ratings are A2/P-1 (Moody’s), A/A-1 (S&P) and A+/F1+ (Fitch).