Financial sector liquidity - To boost access to trade finance, the African Export-Import Bank (Afreximbank) has entered into an agreement with Zimbabwe to introduce a facility and associated instruments to alleviate the liquidity challenges confronting the financial sector in the southern African nation.
According to the terms of a memorandum of understanding (MoU), signed by Afreximbank, the Zimbabwe Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe, the Afreximbank Trade Debt-backed Securities (AFTRADES) will be provided to participating banks as debt securities that could be used as collateral for interbank funds placements in order to promote interbank dealings among Zimbabwean Banks active in trade finance.
“Our objective is to use this facility to enable trade finance banks in Zimbabwe to access much-needed liquidity from cash-surplus banks in the country, thereby increasing their capacity to deepen their trade finance activities,” said Jean-Louis Ekra, President of Afreximbank, after signing the memorandum of understanding in Cairo on 10 February.
Patrick Chinamasa, Minister of Finance and Economic Planning, and Dr. Charity L. Dhliwayo, Acting Governor of the Reserve Bank, had signed the agreement on 31 January on behalf of the Zimbabwean parties.
Mr. Ekra said that Afreximbank’s decision to introduce the facility was motivated by its recognition of the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding as a result of the liquidity challenge confronting the financial sector.
Under the terms of the memorandum of understanding, AFTRADES would be structured as a collateral swap involving the issuance of securities by Afreximbank to participating banks in exchange for trade–related collateral or securities presented by those banks.
The Government of Zimbabwe, through the Ministry of Finance and Economic Development, will serve as the facility’s guarantor and liquidity support contributor, up to agreed levels, while the Reserve Bank of Zimbabwe will grant the regulatory approvals required by the participating banks.
In addition, the Reserve Bank will provide the infrastructure required for the implementation and administration of the facility.
Only solvent banks, which are not facing fundamental problems of viability, will be eligible for the facility, according to the memorandum.
The African Export Import Bank was established in October 1993 by African governments, African private and institutional investors, and non-African investors to finance and promote intra- and extra-African trade.
Its two basic constitutive documents are the Establishment Agreement, which gives it the status of an international organization, and the Charter, which governs its corporate structure and operations.
Since 1994, the Bank has approved more than US$ 25 billion in credit facilities in support of African trade, including US$3.71 billion in 2012.