Risk Sharing Agreement to increase trade

The Asian Development Bank (ADB) and Wachovia Bank, a subsidiary of Wells Fargo & Company, have signed a risk-sharing agreement that should spur increased trade in developing Asia and lay the foundation for stronger trade and banking relationships in coming years.

“Trade will be a critical element of the world’s recovery from the worst financial crisis since World War II and we need to ensure that all countries are able to access the financing that makes trade possible,” said Philip Erquiaga, Director General of the Private Sector Operations Department at ADB.

“Furthermore, such agreements help to build trust between financing banks in developed and developing economies and result in more support to companies engaged in international trade.”

Following the onset of the global financial crisis, trade finance became hard to source, particularly in the smaller economies in Asia. That occurred as the large financial institutions shied away from emerging market risk and instead sought to bolster their capital base.

Demand for trade finance, however, remained high. The ADB-Wachovia agreement will help fill gaps in trade finance, particularly in the most challenging markets, stated the ADB sources.

The agreement, called a Risk Participation Agreement, is one of a number of trade financing initiatives under ADB’s $1 billion Trade Finance Facilitation Program (TFFP) that includes commercial and political risk guarantees as well as loans. Under the pact, ADB and Wachovia Bank will share the payment risk associated with trade.

“Wachovia has a rich history of serving the needs of our correspondent bank partners in Asia. Now, as part of Wells Fargo, we are pleased to work with the Asian Development Bank to further strengthen and expand our trade finance capabilities in these important markets,” said George Fowler, International Credit Products Manager for Wachovia Bank in Asia.

“Wachovia Bank was one of the ‘founding banks’ in ADB’s Trade Finance Facilitation Program and this new agreement builds on our ability to add value to our clients.”

ADB implemented the TFFP in 2004 but expanded it to the current size on 31 March this year in response to the urgent demand for trade finance support. An increasing number of Asian and international banks are signing on to the program and ADB expects the number of participating banks and countries covered to grow further during the course of this year.

The program’s volume of transactions soared by 570 per cent in 2008 versus 2007 after a 78 per cent increase in 2007. ADB, with a triple-A credit rating, has never incurred a loss on a TFFP transaction to date, the ADB said.

ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through inclusive economic growth, environmentally sustainable growth, and regional integration.

Established in 1966, it is owned by 67 members – 48 from the region. In 2008, it approved US$10.5 billion of loans, US$811.4 million of grant projects, and technical assistance amounting to US$274.5 million.
Source: Republica