Policy Paper

"Basel IV: “Is financing foreign trade with Africa going to become more difficult?"

Brussels, Wednesday 16 November 2022

The European Business Council for Africa (EBCAM) in association with its member Afrika-Verein der deutschen Wirtschaft (German-African Business Association), has adopted a new policy paper on "Basel IV: “Is financing foreign trade with Africa going to become more difficult?".

This policy paper, although it does not doubt the necessity of Basel IV, expresses some concerns about this new set of financial rules currently under negotiation. It points out specific provisions in Basel IV that, as an unintended side effect, may have a negative impact on the financing of international trade and thus also on trade with Africa.

This paper analyses these five proposals of Basel IV for the financial sector and concludes with some essential proposals:

  1. Provision of fixed Loss Given Default (LGD) rates
  2. Increased Credit Conversion Factors (CCFs) on foreign trade guarantees
  3. Maturity restrictions (imputation of a notional maturity of 2½ years) on short-term foreign trade financing
  4. Disadvantaging companies without external ratings
  5. Use of derivatives (e.g., currency hedging transactions) made more difficult

EBCAM and Afrika-Verein strongly believe that the proposals addressed in this paper will contribute to deepen African-European relations in the long term. For this reason, this policy paper “Basel IV: Is “Is financing foreign trade with Africa going to become more difficult?" has been addressed to the relevant institutions of the European Union and we expect that a special attention will be given to this crucial matter.

Read the full paper here.