A new report by the African Development Bank (AfDB) and the African Export-Import Bank (Afreximbank) reveals that between 2015 and 2019 that, on average, letters of credit (L/Cs) and documentary collections were associated with half of African banks' trade finance portfolios.

The report, the third in the Trade Finance in Africa research series, also concludes that the deficit of trade finance is a persistent issue that the coronavirus pandemic is likely to exacerbate.

Correspondent challenges

The survey shows that 60 per cent of trade finance assets of banks are unfunded transactions, such as L/Cs and documentary collections.

But African banks are accessing a shrinking pool of global financial institutions with which to write L/C business.

Global players

Citibank, Commerzbank, Deutsche Bank, Standard Chartered Bank, and UBAF continue to top the list of correspondent banks servicing issuing banks in Africa.

All but Citibank however had lower shares of correspondent relationships with African issuing banks during 2015-19 than in previous surveys, indicating a general retreat by global banks from correspondent relationships with African issuing banks.

Gap closing

Perhaps the survey's most significant finding is that unmet demand for trade finance declined significantly from its peak of US$120 billion in 2011 to US$81 billion in 2019.

But in addition to the unravelling impacts of the coronavirus crisis, the report warns that significant challenges remain and the trade finance gap, while contracting, remains unacceptably high, especially for small- and medium-sized enterprises.

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