DR Congo, ATI sign landmark capital relief deal

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DR Congo central bank

The central bank of the Democratic Republic of Congo (DRC) has signed an agreement with the African Trade Insurance Agency (ATI) under which local banks receive up to fifty percent capital relief on any transaction that is secured with a ATI credit risk guarantee.
In doing so, the country becomes the first in Africa to give its banks capital relief, thus providing them with a competitive advantage over other regional and international banks.
‘Banks in the DRC are not well capitalised, so it’s difficult for them to do big deals. I think our coming in will give them an opportunity to do bigger deals,’ ATI CEO George Otieno said on the sidelines of a conference in Zambia early June.
ATI has been in discussions with the Comesa central banks, including the DRC, for several years and this is the first significant outcome of those talks.
‘It’s a good start for us because we’ve been talking to central bank governors, but they’ve been slow in taking up the offer: they’ve been waiting for someone to kick-start it. Now that we have the DRC on board it will be easy for us to move this along,’ explains Otieno.
He added that Zambia is already providing capital relief on a case-by-case basis, but was hopeful that the country’s central bank will make it a policy. ATI is currently in discussion with the Zambian central bank on this decision.
Within most African countries, central banks require commercial banks to reserve a prescribed minimum capital in proportion to their loans and advances to cushion against default by their customers. This is known as the regulatory capital reserve ratio, which can be higher than 12 percent in some markets.
In the case of the DRC, the regulatory capital to risk-weighted assets is currently 24.5 percent. Under the new legislation and with ATI’s insurance cover, a bank will only be required to set aside 12.25 percent worth of capital reserve if the transaction meets all eligibility criteria.
In developed markets, central banks require lower ratios for transactions covered by strongly-rated credit insurance companies. This frees up banks’ capital, enabling them to lend more. In Africa, with the now recent exception of the DRC, central banks have not adopted this policy.
‘This restriction has historically placed African banks at a disadvantage when competing with international banks. Without capital relief, local banks face a tighter fiscal environment and cannot lend at the same levels as their better-capitalised international counterparts,’ notes Jef Vincent, ATI’s chief underwriting officer.
In the DRC, ATI is currently working on a multi-million dollar pipeline of transactions in various sectors that will benefit from this new capital relief guideline.

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