The African Development Bank (AfDB) has approved a $50 million trade finance guarantee for Awash Bank, Ethiopia’s largest private bank by paid-up capital. The facility aims to ease the strain of foreign currency shortages by covering up to 100% of the non-payment risk on letters of credit issued by the Bank.
This backstop reduces the need for cash collateral on trade transactions, allowing Awash Bank to reallocate hard currency toward critical imports for local manufacturers and agri-businesses—sectors hit hard by limited access to inputs such as fertilizers and spare parts.
“Trade finance plays a vital role in supporting cross-border trade and economic growth, especially in developing markets,” said Lamin Drammeh, AfDB’s Head of Trade Finance. He described Awash Bank as “a strong partner with deep roots in Ethiopia’s financial sector.”
Awash Bank, which operates nearly 950 branches and serves 6.8 million customers, already leads the private banking sector in profit and capitalization. President Tsehay Shiferaw stated the AfDB guarantee will reduce the cash burden for trade transactions and enhance the Bank’s support for both exporters and importers.
The transaction also targets Ethiopia’s significant SME financing gap—estimated at $3.9 billion—with only 11% of small firms currently able to access working-capital loans, far below the Sub-Saharan African average.
The move forms part of AfDB’s broader effort to narrow Africa’s annual trade-finance gap, which ranges between $90 billion and $120 billion. Similar initiatives include last year’s €70 million deal with Morocco’s Bank of Africa, expected to generate €300 million in trade over 3.5 years.
In Ethiopia, the Awash deal could unlock more than $350 million in trade over its four-year term, especially through high-turnover short-term LCs. It also aligns with the African Continental Free Trade Area’s (AfCFTA) vision of boosting intra-African trade by improving access to foreign exchange.
While the facility is expected to improve Awash Bank’s liquidity and fee income, experts caution that Ethiopia’s regulatory framework must evolve in step—especially as the country prepares to open its banking sector to foreign competitors and expand its trade finance tools.
Source: Addis Fortune
