Business
European banks hesitant towards Africa trade
(Reuters) – Some European banks are now refusing to lend to firms trading with Africa, threatening growth on the African continent, a senior official of the African Development Bank (AfDB) said on Tuesday.
The AfDB is looking into ways of providing trade finance to firms doing business with Europe, where an interbank credit squeeze has driven up the cost of funding when it is available at all, chief economist Mthuli Ncube said on Tuesday.
The reluctance of some banks to make Africa-related loans as Europe’s own debt crisis turns them increasingly risk-averse is an ominous sign as it repeats one aspect of the 2008 credit crisis.
“With the crunch in Europe the cost is creeping up and the willingness of the banks to extend the credit in the first place is also an issue,” Ncube told Reuters in an interview.
In 2009, the Tunis-based AfDB clubbed together with the International Monetary Fund (IMF) and South Africa’s Standard Bank to provide commercial guarantees to keep imports and exports flowing smoothly.
Since then, the AfDB has received a massive US$100 billion capital injection, most of which has been earmarked for infrastructure investment rather than trade finance. Ncube said that emphasis was likely to shift.
“With the credit crunch in Europe we maybe need to look at providing credit more directly,” he said. “Trade finance is an area where we will intervene more visibly. It’s something that we have not done a lot in the past but that is going to change.”
