The African Development Bank (AfDB) says its Board of Directors has approved a $1 billion exposure exchange with the Asian Development Bank.
The transaction will allow the Bank to provide African countries with additional financing, particularly those where it is necessary to increase countercyclical lending while complying with its internal single obligor limits and concentration ratio.
AfDB says the exposure exchange agreement will also support its efforts to unlock additional sovereign lending headroom.
This is the second exposure exchange agreement that the AfDB executed following the 2015 deal with the Inter-American Development Bank and the World Bank Group’s International Bank for Reconstruction and Development.
The agreement between multilateral development banks involves a synthetic exchange of sovereign exposures in a risk-neutral manner to help address single obligor constraints and portfolio concentration.
The bank says the latest exposure exchange is a continued step in implementing the G20 Action Plan to optimize the balance sheets of multilateral development banks without substantially increasing risk or adversely affecting their credit ratings.
“This operation demonstrates the relevance of the African Development Bank and its peer institutions in adhering to the G20 call on the multilateral development bank community to collaborate in adopting innovative approaches and initiatives,” Max Ndiaye, AfDB’s Director of the Syndications, Co-financing and Client Solutions Department.
“This includes risk transfers to maximize capital for increased development lending,” the Director added. AfDB’s current prudential ratios are compliant with their statutory limits and S&P Global Ratings has confirmed its credit rating at AAA.