Citi supports IFC trade plan
CITIGROUP will today unveil a $1.25bn (£760m) funding partnership with the International Finance Corporation (IFC) as it pledges to support attempts to unfreeze world trade flows.
The tie up is part of the $50bn initiative announced by the IFC, the private sector arm of the World Bank, in April.
It is understood that $750m of the funding will be channelled to banks in emerging markets in Asia, the Middle East and Latin America, with an additional $500m being invested by the IFC and other development groups.
These banks should then be in a position to lend to trade clients – importers and exporters – opening up trading flows and helping to fuel recovery in their local economies.
Citi’s commitment to pump money into short-term loans is a positive sign that banks are willing to re-enter developing markets and gives the bank the lead over competitors in capitalising on the credit crunch.
Up to 90 per cent of the $13-14 trillion in world merchandise trade is funded by trade finance – through letters of credit – traditionally one of the simplest and safest forms of credit. But during a credit crunch banks tend to reduce their exposure as a defensive measure, decreasing short-term trade lines.
As cash flow problems at exporters and importers become more severe, and they are less able to access cheap short-term finance to cover immediate needs, banks may be less willing to extend trade credit and reluctant to agree alternative forms of finance.
In times of crisis, imports are critical to a country and exports can generate supportive foreign exchange.