African banks are increasingly engaging with China to facilitate trade and investment, focusing on establishing operations in China and promoting yuan-denominated letters of credit (L/Cs) and other financial instruments.

These initiatives are part of broader efforts to strengthen Africa-China economic ties, streamline trade processes, and mitigate currency risks by diversifying currency usage in international trade, particularly by reducing the use of US dollars and increasingly using the Chinese yuan to finance cross-border trading.

African banks in China

Notable collaborations between African banks and Chinese partners include Standard Bank's Africa-China Banking Centre, offering services such as L/Cs and trade financing.

Standard Bank's strategic partnership with the world's largest bank, Industrial and Commercial Bank of China (ICBC), aims to enable seamless banking, international payments and cross-border trade between Africa and China.

Yuan-denominated L/Cs

Another African bank working with Chinese financial institutions to promote the use of the Chinese yuan in trade transactions is Stanbic Bank. It provides Africa-China trade solutions, including yuan-denominated L/Cs, to facilitate transactions between African importers and Chinese exporters.

Because clients involved in cross-border trade with China can denominate their transactions in the Chinese currency, they can reduce import/export and currency risks, potentially improving the competitiveness and stability of pricing.

Reducing currency risk

Other initiatives include NCBA Group's yuan-denominated accounts. The Kenyan group enables clients to open yuan-denominated accounts, facilitating trade with China by banking with correspondent banks in China.

The Bank of China's initiatives in Africa meanwhile include promoting the use of the yuan in African trade, encouraging yuan-denominated settlements to reduce reliance on the US dollar.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.