The Inter-American Development Bank (IDB) and the Asian Development Bank (ADB) signed a sovereign exposure exchange agreement worth $1.5 billion. The operation is an innovative way to strengthen the multilateral development banks’ (MDB) capital adequacy and boost their lending capacity.
The exchange is the second agreement of this type between ADB and IDB. The first was a pilot exchange made in December 2020, after the ADB approved the policy framework for exposure exchanges with other MDBs.
“We are thrilled to continue partnering with ADB and finding ways to further optimize IDB’s balance sheet. These efforts strengthen our resilience against further stress and increase lending for development. IDB has been a pioneer on this front, meeting G20 mandates for greater financial efficiency, and we remain committed to continue rolling out financial innovation," said Gustavo De Rosa, IDB Vice President for Finance and Administration, and Chief Financial Officer.
“This agreement is an excellent example of innovation to make ADB’s capital management more efficient and increase its lending capacity, in line with the Group of Twenty Independent Review of MDBs’ Capital Adequacy Frameworks,” said ADB Vice-President for Finance and Risk Management Roberta Casali.
An exposure exchange is a tool that provides capital relief for sovereign-focused MDBs by exchanging concentrated loan exposures with exposure to countries where credit exposure is less or non-existent. They are a powerful and cost-effective way to improve the capital adequacy and creditworthiness of regional MDBs, whose portfolio diversification options can be otherwise limited.
The exchange will be “synthetic” as it does not entail the actual transfer or removal of loans from either MDB’s balance sheet and does not change the relationship between the original lender and the borrower.