Massive capital outflows strain African banks
MASSIVE capital outflows due to a tightening of global financial conditions linked to the outbreak of the Covid-19 pandemic have strained African banks, most of which have suffered a drop in net foreign assets, according to the latest report.
The African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and Making Finance Work for Africa Partnership (MFW4A) released the new “African Trade Finance Survey Report”, which highlights the impact of the global Covid-19 pandemic on African trade finance.
The report is the first of its kind, surveying 185 banks from across Africa, representing more than 58 percent of total assets held by African banks. It sought to unpack the trade finance landscape across Africa and how it has evolved during the Covid-19 pandemic.
The report further highlights the role trade finance can play in overcoming the social and economic fallout of the Covid-19 pandemic to quicken the process of economic recovery through trade and investment growth.
Due to the Covid-19 pandemic and inherent tightening financing conditions, heightening balance of payment pressures and liquidity constraints, the report notes that supply of trade finance was adversely affected.
Similarly, the number of correspondent banking relationships dropped across the region, and the rejection of L/C (letters of credit) requests increased, with about 38 percent of local/privately-owned banks and 30 percent of foreign banks reporting an increase in rejection rates, respectively, says the report.
AfreximBank president, Professor Benedict Oramah, in his remarks marking the official release of the report, said the tightening global financial conditions triggered massive capital outflows from Africa, exceeding $5 billion in the first quarter of 2020.
“These massive capital outflows strained African banks, many of which recorded a sharp drop in their net foreign assets. This further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade,” he said.
ECA executive secretary, Dr Vera Songwe, said the AfreximBank has played a positive role through its counter-cyclical measures, which helped countries deal with the economic and health impact of the Covid-19 pandemic.
“The bank has also played a major role in putting together a US$2 billion facility to help African member states purchase up to 400 million doses of the Covid-19 vaccines,” she said.
Deputy Governor of Bank of Namibia, Mr Ebson Uanguta, said the crisis was deep and called for bold governments interventions to help banks support businesses and limit insolvencies.
“Most sectors of the economies were severely impacted and we took several measures to support the broader economy and trade finance in particular, including easing of monetary policy, relaxation of regulatory requirements and institution of loan repayment moratoriums to the tune of $619 million,” said Mr Uanguta.
The report pointed out that African trade amounts to $1,077 billion but that banks intermediate $417 billion of this, approximately 40 percent while the global average is 80 percent.
Ms Bola Adesola, a senior vice chairman for Africa at Standard Chartered stressed the need to increase businesses on the continent to help drive trade both extra and intra-African trade and banks’ intermediation.
The African Continental Free Trade Agreement (AfCFTA), she added, can provide a platform to help drive greater businesses.-chronicle.cl.zw
