Africa Day provides an opportunity to assess the challenges and opportunities facing the African continent. Among these challenges are the obstacles encountered by banks in Sub-Saharan Africa, ranging from limited financial inclusion to economic volatility.
The recent publication entitled “FINANCE IN AFRICA – Uncertain times, resilient banks: the African financial sector at a crossroads” by the European Investment Bank (EIB) highlights a major challenge facing African banking sectors:
Concentration of government securities:
African banks often have a high concentration of government securities on their balance sheets, especially in the least solvent countries. This makes them vulnerable to any deterioration in global perception towards risks.
Asset quality:
Asset quality is a central issue for African banks, affecting their financial stability and their ability to lend effectively. In 2023, this concern was cited by 47% of banks surveyed in the EIB survey on the banking sector in Africa, underscoring its continued importance in the region’s banking landscape.
Availability of foreign currency financing:
The cost and availability of foreign currency financing have become a major concern. Banks find it more difficult and costly to issue bonds in strong currencies.
Perception of increased risk:
International investors often perceive African markets as riskier, especially in periods of global economic uncertainty. This increased risk perception results in higher risk premiums and higher financing costs for African banks.
Stricter credit granting criteria:
Credit granting criteria have tightened for the third consecutive year. In 2023, 45% of banks plan to tighten their criteria, indicating a further tightening.
Resource collection:
Resource collection could be a barrier for banks looking to expand their lending activity, especially in a context of unfavorable bond market conditions.
Structural problems for SMEs:
The absence of acceptable guarantees and poor credit histories are the main problems hindering access to credit for small and medium-sized enterprises (SMEs).
Digital transformation:
Although the provision of digital services has become fundamental, banks must invest heavily in their digital infrastructure and staff training. In addition, they are redefining their organizational structure and partnering with financial technology companies to adapt to this transformation.
These difficulties highlight the importance of close collaboration between financial institutions and organizations to develop strategies and policies to strengthen the banking sector in sub-Saharan Africa.
In this context, the solutions proposed by ETC – Export Trading Cooperation offer a promising opportunity to address these challenges and stimulate inclusive and sustainable economic growth in the region.
In response to the complex challenges faced by banks in Sub-Saharan Africa, ETC Export Trading Corporation offers a range of innovative solutions aimed at enhancing the stability and prosperity of the financial sector in the region.
ETC Export Trading Cooperation is a European institution specialized in providing technical and financial services for investment projects and international trade in Africa. It acts as a partner to businesses, banks, and institutions operating in the region to mitigate financial risks and support economic development.
ETC is a NOSU (Non-Supervised Entity active in the financial industry), classified among NBFI (Non-Banking Financial Institutions), following SWIFT resolutions 202 and 209, and registered under the BIC code ETCGIT2TXXX.
The institution is rated A3 (CSQ 2) by an OEEC (ModeFinance) in accordance with Regulation (EC) No 1060/2009. For this reason, ETC’s rating can be used for regulatory purposes within the European Union in compliance with CRR II and, by extension, in all banking systems that have ratified the Basel Committee guidelines.
ETC issues standalone or counter-guarantees in the form of SBLC transmitted via interbank financial message Swift MT760 according to the rules of the International Chamber of Commerce. For this purpose, the SBLC represents a direct claim on the Guarantor, it is irrevocable.
The Concentration Risk Bond (CRB) represents a solution to mitigate large risks associated with concentration in the banking sector in sub-Saharan Africa. This guarantee of individual or portfolio concentration risk aims to diversify risks by spreading exposures across different counterparties, sectors, or countries, thereby reducing excessive reliance on a single entity or category.
In practice, the CRB allows banks to comply with concentration risk ratios set by the Supervisory Authorities , thereby strengthening their financial stability and regulatory compliance. By limiting risks associated with large exposures, this guarantee provides protection against potential losses resulting from excessive concentration on specific counterparties or sectors sensitive to economic volatility.
In summary, the Concentration Risk Bond (CRB) represents a strategic tool for banks in sub-Saharan Africa in their efforts to comply with prudential ratios, particularly the Single Obligor Limit (SOL).
Learn more about the Concentration Risk Bond (CRB)
The Project Finance Bond Bank (PFB) represents a solution to support medium and long-term investments in sub-Saharan Africa. This individual investment guarantee provides coverage against the risks of payment default associated with loans granted for infrastructure, energy, construction projects, or other economic development projects.
The PFB helps attract investments and stimulate economic development by providing the necessary guarantee instrument for their realization. This contribution is essential for the sustainable growth of the region.
Learn more about the “Project Finance Bond (PFB)”
The Trade Finance Bond (TFB) addresses the short-term financing needs of businesses engaged in commercial transactions in Africa. It supports companies in various commercial operations, such as inventory financing, supplier payments, or goods exportation.
In practice, the TFB provides a guarantee in the form of Stand-by Letters of Credit (SBLC), in accordance with the rules of the International Chamber of Commerce (ICC). The SBLC ensures that beneficiaries receive payment of agreed-upon amounts in case of non-payment or default by the borrowing company.
Learn more about the Trade Finance Bond (TFB)
The Master Risk Participation Agreement (MRPA) addresses the challenges related to the shortage of correspondent banks willing to take on African risk, which hinders the development of these markets.
In practice, the MRPA enables correspondent banks to diversify their risks by participating in a portfolio of commercial transactions with African markets. By sharing the default risk among multiple financial institutions, this agreement reduces the burden of risk on each bank, making them more willing to engage in commercial transactions with African markets.
Learn more about the Master Risk Participation Agreement (MRPA)
The innovative solutions offered by ETC – Export Trading Cooperation provide a comprehensive response to the complex challenges facing banks in Sub-Saharan Africa. By emphasizing risk diversification, asset security, and improved access to financing, ETC helps banks overcome major obstacles such as concentration of government securities, asset quality, availability of foreign currency financing, heightened risk perception, stricter credit granting criteria, resource mobilization, structural issues for SMEs, and digital transformation.
On this World Africa Day, it is crucial to be aware of the challenges facing banks in Sub-Saharan Africa and the emerging solutions to overcome them. The efforts made by ETC to support the regional banking sector are of crucial importance in fostering economic growth, financial inclusion, and sustainable development. By closely collaborating with local stakeholders, ETC actively contributes to strengthening the resilience and prosperity of the banking sector in Sub-Saharan Africa.
