Zimbabwe's largest bank, CBZ Bank, says it already has customers lining up to take advantage of a new facility provided by the African Export-Import Bank (Afreximbank) that will provide them with improved access to letters of credit (L/Cs).

The L/Cs are to be provided under the Afreximbank Trade Finance Facility (AFTRAF) programme, which can be used to confirm L/Cs, issue guarantees and provide irrevocable reimbursement undertakings.

Dollarised economy

CBZ has signed two credit lines worth US$80 million with Afreximbank to support exporters.

The facilities aim to provide significant relief for Zimbabwean traders who have struggled with limited access to US dollars, the dominant currency in the country's highly dollarised economy. Around 85 per cent of all transactions in the country are conducted in US dollars.

Credit lines

The credit lines include a US$60 million line of credit and a US$20 million tranche under the AFTRAF. Both lines aim to support export earnings, according to CBZ Bank's acting CEO, Smangele Mandidi.

"Our ability to support our clients with dollar financing has been hampered by the dollarised environment," Mandidi says. "These lines of credit close that gap. The nature of export-backed facilities mitigates the risk."

Leveraging L/Cs

She explains that the AFTRAF tranche reduces risk by leveraging L/Cs for financing. "Our balance sheet growth has been restricted due to funding constraints...we have a ready pipeline of applicants for this facility," she said after signing on the deals on the sidelines of Afreximbank's annual meetings in Nassau.

The AFTRAF component has a term of up to 270 days, aligning with typical business cycles, while L/Cs can be refinanced for up to 120 days, Mandidi added.

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