Multilateral banks warn against insolvency crisis post Covid-19

15Oct 2020
The Guardian Reporter
Dar es Salaam
The Guardian
Multilateral banks warn against insolvency crisis post Covid-19

MULTILATERAL development banks have warned that support to the private sector and smaller enterprises to survive a possible insolvency crisis in Sub Sahara Africa, is needed urgently.

East African Development Bank’s CEO, Vivienne Yeda Apopo.

The MDBs and Development Finance Institutions senior executives who met in Kampala last week said in a statement that said multilateral development banks’ responses need backing to uphold a well-functioning trade finance market.

The report, which brings together perspectives and insights from 70 trade finance executives from 20 countries, unanimously calls for an urgent switch in the focus of support programs towards private sector and smaller enterprises to avoid a ‘second wave insolvency crisis.’

“Demand for trade finance instruments in the first half of 2020 seems to have flattened compared to growth expectations, while banks, supplying those instruments, have typically flown to safety restricting their lending to existing clients,” the report said.

The bankers further noted that overall, the market has contracted from at least 10 percent on average from 2019 levels in volume and even greater in value because of furloughed projects and investments with full recovery only anticipated by end of 2021.

“Banking executives interviewed mentioned that their main constraints revolved around risk uncertainties and macro-prudential limitations to extend credit outside of their comfort zone, especially during a persisting pandemic,” the report noted.

The report makes several priority recommendations for MDBs to adopt including: a switch in focus to private sector support, increasing availability of risk-sharing instruments as well as a more granular funding offering.  There is need to emphasise pooling of efforts and resources across MDBs and DFIs operating in Africa to respond more effectively to the unfolding situation,” the multilateral banking chiefs added.

The MDBs and DFIs which took part at the conference included: African Development Bank, Arab Bank for Economic Development, Banque Ouest-Africaine de Développement, East African Development Bank, International Chamber of Commerce, International Trade Center, International Islamic Trade Finance Corporation and Trade and Development Bank.

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