A survey by the Africa Export-Import Bank (Afreximbank) has revealed that letter of credit (L/C) business and correspondent banking operations slumped at the start of 2020 as a result of the Covid-19 pandemic.

The bank's report, Survey of Impact of Covid-19 on African Trade Finance, also reveals that outflows from emerging market economies at the height of the pandemic accounted for more than US$100 billion.

Joint production

The survey covers the first four months of 2020, including the initial lockdown period in March.

The report is a joint production between Afreximbank, the African Development Bank, Making Finance Work for Africa and the United Nations Economic Commission for Africa.

L/C demand

While 27 per cent of banks surveyed saw an increase in demand for L/Cs, 39 per cent of banks indicated a decrease in demand for L/Cs, and 34 per cent indicated no change.

From a regional perspective, banks in North Africa reported the highest number of documentary credit applications on the continent, followed by banks in Anglophone West Africa.

Increased rejections

The survey showed a substantial increase in L/C request rejections in the first four months of 2020 compared with the first four months of 2019, with 30 per cent of respondents indicating an increase in rejection rates.

In correspondent banking relationships, major international banks and financiers cancelled or reduced their lines of credit limits for African banks, with Europe accounting for about 50 per cent of this development.

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