Afreximbank looking for more mature business
Trade catalyst
An optimistic annual report from the African Export-Import Bank (Afreximbank) has provided fresh evidence that African trade finance activity is on the upturn.
During January to December 2000, loans and advances outstanding to the Cairo-based agency rose by 10.1 per cent, from $296.8m to $326.7m. Given a 36 per cent rise in loan approvals during the year, Afreximbank expects this figure to grow to some $450m by the end of 2001, fuelled especially by new lending in the oil and telecommunications sectors. Average transaction size supported by the bank has also risen, from $9.1m in 1998 and $11.3m in 1999 to around $14.3m in 2000.
Longer tenors
Adopting the mode in which multilaterals such as the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have pushed their activities into areas where commercial lenders would otherwise fear to tread, Afreximbank lengthened its lending tenors to an average 437 days by the end of the year, up from about 272 days in 1999. This helped to drive average interest spreads for deals carrying Afreximbank participation from 2.2 per cent above Libor to 3.2 per cent during the year.
The bank's strategy "is to gradually shift a portion of its assets into longer maturing transactions, in order to move away from short-term transactions in which the international banks operating in Africa are focused," the report said. Afreximbank's bolder stance comes as an upturn in political risk cover for Africa is also emerging from the newly founded African Trade Insurance Agency (ITF 392/7).
The petroleum sector accounted for 49 per cent of loans outstanding, followed by financial institutions and agriculture (14 and 12 per cent). But an otherwise uncertain commodity sector environment - in which weak agriculture and metals prices continued from 1999 - reinforced Afreximbank's traditional route of mitigating its lending risks via local and international bank participation. Most of the bank's new commodities lending was backed by bank guarantees. Credit outstanding to banks rose 41 per cent to $240m, representing 73 per cent of the total loans portfolio, whereas credit to corporates and parastatals fell from 35 to 24 per cent. Governments accounted for just 3 per cent of credit outstanding.
Some 53 per cent of the bank's outstanding loans were housed under its Line of Credit Programme (LOCP), which grew by 67 per cent, from $103.9m to $173.3m. The programme allows small- to medium-sized enterprises (SMEs) to tap Afrexim funds via bank intermediaries.
Syndications dip
Loans outstanding under Afrexim's syndications programme - on which it built much of its initial reputation - fell from $144.3m to $111.9m. The bank attributed this a "reduction in the number and size of (African) syndicated commodity finance deals, as a result of the uncertainty in the sector arising from economic reforms" in markets such as Cote d'Ivoire and Nigeria, where government-run commodity boards have been scrapped.
However, Afreximbank did arrange or co-arrange 23 syndicated transactions totalling $1.97bn, up 5 per cent from 1999. For every dollar provided by Afreximbank in these deals, it was able to attract $10.90 from international banks, compared to $8.70 in 1999.
Larger syndicated deals that went through included $40m for a one-year equipment deal for Ghana Airways, $25m for Nigeria Airways over 3 years and $25m for Office Togolasie de Phosphate (OTP) over 660 days.
Afrexim also made its syndicated borrowing debut, raising $100m, as part of a $157m borrowing programme, up from $123m.
There was a burgeoning use of Afreximbank's guarantee programme for lenders who fund African entities. This attracted $157.8m into the continent, compared to $10m in 1999. Forfaiting's share of the bank's loan portfolio fell from 8 to 6 per cent.
Helping to drive net earnings up by 35 per cent to $13.6m, Afrexim launched an underwriting and advisory support service to its clients. Advisory mandates amounting to $225m were won during the period, covering work in the oil and gas, power and telecommunications sector.
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