Two Indonesian banks have signed trade-financing agreements with the Asian Development Bank (ADB) under the latter’s Trade Financing Facilitation Program (TFFP).
The agreements, inked Tuesday by PT Bank Mandiri and PT Bank Muamalat, should help provide crucial support for local exporters and importers in the form of loans and guarantees on commercial and political risks, ADB trade finance head Steven Beck told a press conference.
Indonesian financial institutions can access over US$700 million in trade financing from ADB’s $1 billion TFFP scheme, which is intended for its member countries in Asia. ADB is currently in talks with 10 other Indonesian banks over similar agreements. Loan costs are based on the Libor interest rates.
“Indonesia has fared relatively well throughout the [global] crisis but, nevertheless, concern about emerging market risks among international banks have also caused there to be a drop in the supply of trade finance,” Beck said.
He added that there had also been a concern about counterpart risks, which in turn contributed to the drying up of the supply of trade finance.
“With ADB guarantees and loans, international banks that may not have worked with the banks in our developing member countries in the past, can be introduced through ADB,” Beck said.
Bank Muamalat Treasury and International Banking director Farouk A. Alwyni said that he considered trade financing an important activity to help ramp up his company’s treasury and international banking.
Muamalat, he added, had at least ten export-import clients.
Thomas Arifin, director of Mandiri’s Treasury and International Banking Department said the ADB agreement would provide support for SME customers.
“We have a good market potential in Asia with 22 percent of [Indonesian] exports, [$109 billion as of August] destined for S.E.
Asian countries, while 47 percent went to the Asia Pacific region,” he added.
Thomas said, Mandiri took 17 to 20 percent of the Asian market share of letters of credit transactions.
Beck said with ADB involved “this can provide a great deal of leverage on the amount of trade that can be conducted in some of our developing member countries.”
“Over 80 percent of the TFFP portfolio supports [interregional trade], and over 60 percent of our portfolio provides support for trade between our member countries,” he added. (adh)
