African Development Bank enters into new $1 billion exposure exchange with Asian Development Bank to boost development lending capacity | African Development Bank Group

The Board of Directors of the African Development Bank has approved a $1 billion exposure exchange with the Asian Development Bank. The transaction will support its efforts to free up more room for government bonds. It will also support continued efforts to create buffers within the African Development Bank’s capital adequacy measures.

This new exposure exchange agreement is the second transaction executed by the African Development Bank following the success of the first agreement completed in 2015 with the Inter-American Development Bank and the World Bank Group’s International Bank for Reconstruction and Development.

Exposure exchanges between multilateral development banks involve a synthetic exchange of government exposures in a risk-neutral manner to address the constraints of single obligors and portfolio concentration.

This new exposure exchange allows the African Development Bank to continue to support its regional member countries, especially after the Covid-19 pandemic, coupled with the spillover effects of the Russo-Ukrainian war, which affected most African countries.

The exposure exchange with the Asian Development Bank is a further step in the implementation of the G20 Action Plan to optimize the balance sheets of multilateral development banks without substantially increasing risk or negatively impacting their credit rating.

While the current prudential ratios of the African Development Bank meet their regulatory limits and S&P Global Ratings has confirmed its credit rating at AAA, this second exposure exchange will allow the bank to provide additional financing to African countries, particularly those where it is needed to increase countercyclical lending, while meeting its internal single debtor limits and concentration ratios.

Commenting on the transaction, Max Ndiaye, director of the Syndications, Co-financing and Client Solutions Division at the African Development Bank, said: “This operation demonstrates the relevance of the African Development Bank and its peer institutions in meeting the G20’s call for the multilateral development banking community to collaborate in adopting innovative approaches and initiatives. This includes risk transfers to maximize capital for increased development lending.”