The African Development Bank has approved a seven-year multi-currency line
of credit for an amount equivalent to USD 300 million to FirstRand Bank
Limited (FRB) of South Africa
The Board of Directors of the African
Development Bank (AfDB)has approved a seven-year
multi-currency line of credit for an amount equivalent to USD 300 million to
FirstRand Bank Limited (FRB) of South Africa to finance a wide range of
projects in local currencies and across Africa.
Most African countries are characterized by low discretionary rates of
domestic savings. As a result, the intermediation capacity of the financial
sectors is limited, leading to the gap currently being filled with
borrowings denominated in foreign currency. However, this introduces a
currency mismatch in the financial systems' balance sheets constituting a
potential source of instability. Thus, there is a clear need for providing
stable sources of local currency financing. The line of credit from the AfDB
will contribute to filling this gap by making available medium-term local
currency financing to sub-borrowers across Africa.
The line of credit will be drawn in multiple African currencies including
the Nigerian Naira, the Kenyan Shilling, the Zambian Kwacha, the Ghanaian
Cedi, the Mozambique Metical and the Tanzanian Shilling. Further, in line
with the AfDB's mandate to contribute to the development of local capital
markets, it is expected that the local currencies will be mobilized through
the establishment of bond issuance programs in the domestic capital markets
and the issuance of local currency denominated bonds to meet the specific
local currency requirements of FRB. These programs are expected to
complement existing efforts to develop Africa's local capital markets
thereby providing a strong catalytic and demonstrative effect.
The line of credit to FRB will contribute to mobilizing significant
financial resources in the countries where its proceeds will be deployed,
ultimately contributing to economic development and employment
opportunities. The line of credit is also expected to contribute to
government revenues, the development of local capital markets as well as
African regional integration.
Timothy Turner, Director of the AfDB's Private Sector Department said: "With
this line of credit, the AfDB is introducing a new and innovative form of
local currency financing. This structure can be replicated by other banks in
Africa to gain access to funding in African currencies thereby reducing
unnecessary currency mismatches and deepening the local capital markets."
Andries du Toit, FirstRand Group Treasurer said: "We are very pleased with
this loan facility as it further deepens our relationship with AfDB, and
provides FirstRand and our clients access to in-country local currency
throughout the African continent. This innovative solution will certainly
contribute to growth in corporate activity, which in turn supports our own
African expansion strategy."