Business - Featured - Regional - Top Stories - April 22, 2021

African banking sector strained by Covid-19 pandemic induced challenges

Sakhile Phiri (Bulawayo Correspondent)

The African Trade Finance Survey Report has showed that the Covid-19 pandemic have strained African banks, most of which have suffered a drop in net foreign assets.

The latest report from the African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and Making Finance Work for Africa Partnership (MFW4A) provides a better understanding of the trade finance landscape across Africa and how it has evolved during the Covid-19 pandemic.

It is first of its kind, surveying 185 banks from across Africa, representing more than 58 percent of total assets held by African banks.

The report showed that massive capital outflows due to tightening of global financial conditions which were linked to the outbreak of the Covid-19 pandemic have strained African banks.
It also highlighted the role trade finance can play in overcoming the social and economic fallout of the Covid-19 pandemic to quicken the process of economic recovery through trade and investment growth.

Due to the Covid-19 pandemic and inherent tightening financing conditions, heightening balance of payment pressures and liquidity constraints, the report notes that supply of trade finance was adversely affected.

Similarly, the number of correspondent banking relationships dropped across the region, and the rejection of L/C (letters of credit) requests increased, with about 38 percent of local/privately-owned banks and 30 percent of foreign banks reporting an increase in rejection rates, respectively, says the report.

In his opening remarks, president of Afreximbank, professor Benedict Oramah, highlighted how the tightening global financial conditions triggered massive capital outflows from Africa, exceeding $5 billion in the first quarter of 2020.

“These massive capital outflows strained African banks, many of which recorded sharp drops in their net foreign assets. This further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade,” said Oramah.

As a result of the pandemic and inherent tightening financing conditions, heightening balance of payment pressures and liquidity constraints, the supply of trade finance was affected between January and April 2020, the period covered by the survey.

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