CAF steps up private lending

21/03/2010 | Sid Verma

The Andean Development Corporation (CAF) will deploy its $2.5 billion capital boost to extend more credit to the private sector, its president Enrique Garcia has said

The Andean Development Corporation (CAF) will deploy its $2.5 billion capital boost to raise the volume of private sector loans and credit lines to up to 30% of total lending, Enrique Garcia, its president, has said.

The institution will prioritize trade and project finance, Garcia told Emerging Markets.

It will return to concentrating on “small and medium-sized companies, by providing credit lines for trade finance via commercial banks”, and ramp up long-term project financing to private companies directly – in addition to co-financing infrastructure projects with the public sector.

As the economic slump hit Andean economies last year, CAF’s ambitions to become a private sector financier were undermined. The public sector accounted for 81% of its loans as of September 2009. Now, CAF aims to increase private sector loan exposures while preserving its AA-/A+ credit rating.

Franklin Santarelli, credit analyst at Fitch, said: “A 10% hike in private sector lending would be a big increase, so [CAF] would have to cherry-pick the best borrowers, [or] else risk undermining their creditworthiness.”

In August 2009, CAF’s shareholders agreed on a $2.5 billion paid-in capital boost by 2017, which would bring its total paid-in capitalization to more than $6 billion, three times that of 2007. Panama became a full member of CAF earlier this month, following Brazil and Uruguay last year.

Garcia hopes that a capital boost and diversified country lending could provide a buffer to absorb any losses triggered by private sector loan defaults or impairments.

Santarelli said that CAF could lend to more highly-rated firms and banks in Brazil and Panama than the Andean region – but that loan demands from the Brazilian public sector, and chronic balance-of-payment dramas in the Andes, may derail CAF’s private-sector focus. Total loan approvals were $9.2 billion in 2009 and Garcia is eyeing $10 billion this year and a 10% year-on-year increase in lending over the next five years.

Garcia said Argentina would complete its bid to become a full member in the coming months. CAF is also in talks with El Salvador and Guatemala to join CAF as category “C” (i.e. non-shareholding) members.

Garcia said Italy will this year join CAF as the third shareholder outside Latin America, after Spain and Portugal, after Congress approved a $75 million paid-in capital commitment.

Garcia is mandated to restrict shareholding by non Latin American countries – and hence, capital from international donors – to 15%, in order to preserve CAF’s regional autonomy.

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