As Basel III regulations come into play, banks are looking to manage their bulk balance sheets by divesting their trade finance assets, creating a gap in the market.

Standard Bank's Global Head of Structured Trade and Commodity Finance, Mr Craig Polkinghorne, says the pull-back forced on global banks is happening at a time when Africa's trade continues to grow across a broad front of geographies and sectors. Standard Bank believes that many international banks have reviewed their risk appetite and have withdrawn from, or limited their exposure to trade finance in Africa. This has opened up a funding gap, creating an opportunity for other players to fill that vacuum.

General growth in LCs
China is increasingly accounting for a significant portion of Africa's trade compared to its trade with the rest of the world. Trade with China has grown from 10% of overall trade in 2008 to 18% in 2011. China's dominant African trading partners are Angola, South Africa, Sudan, Nigeria, Egypt and Algeria.

Standard Bank Group has experienced considerable growth in issuing letters of credit supporting the "Africa risk" portion of these transactions. This is confirmed by Australian treasurers and CFOs finding that their Chinese counterparts are requesting more LCs are part of their trade negotiations. The LCs are allowing the Chinese firms to line up better financing rates offshore.