2023-07-21 18:03:00
(AFRICAN DEVELOPMENT BANK) – The Board of Directors of the African Development Bank has approved a US$1 billion exposure swap with the Asian Development Bank. This transaction will support the Bank’s efforts to free up additional equity for sovereign lending. It will also reinforce ongoing efforts to create buffers in the African Development Bank’s capital adequacy parameters.
This new exhibition exchange agreement is the second of its kind executed by the African Development Bank following the success of the first agreement finalized in 2015 with the Inter-American Development Bank and the International Bank for Reconstruction and Development of the World Bank Group.
Exposure swaps between multilateral development banks involve a synthetic swap of sovereign exposures in a risk-neutral manner to help address constraints related to single obligor exposure limits and portfolio concentration.
This new exposure exchange allows the African Development Bank to continue supporting African countries, especially in the wake of the Covid-19 pandemic, combined with the repercussions of the war between Russia and Ukraine, which has affected most African countries.
The exposure exchange with the Asian Development Bank is another step in the implementation of the G20 action plan to optimize the balance sheets of multilateral development banks without substantially increasing risk or negatively affecting their credit ratings.
Although the African Development Bank’s current prudential ratios are within their statutory limits and its credit rating has been affirmed at triple A by S&P, this second exposure swap will allow it to provide additional financing to African countries, particularly those for which there is a need to increase countercyclical lending, while respecting its internal single obligor exposure limits and concentration ratios.
Max Ndiaye, Director of the Syndications, Co-financing and Client Solutions Department at the African Development Bank, commented on the deal as follows: “This operation demonstrates the relevance of the adherence of the African Development Bank and its sister institutions to the call launched by the G20 for the community of multilateral development banks to collaborate in the adoption of innovative approaches and initiatives. This includes risk transfers, to maximize equity to increase development lending. »
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