AfDB Approves $1bn Exposure Exchange With Asian Bank

The African Development Bank, AfDB has approved a one billion dollar exposure exchange with the Asian Development Bank, ADB.

A statement on the AfDB’s website indicated that the transaction would support its efforts to unlock additional sovereign lending headroom.

“It will also bolster continued efforts to create buffers within the AfDB’s capital adequacy metrics.

“This new exposure exchange agreement is the second transaction that the Bank has executed following the success of the first agreement finalised in 2015.

“With the Inter-American Development Bank and the World Bank Group’s International Bank for Reconstruction and Development,” it said.

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

This new exposure exchange allows AfDB to continue supporting its regional member countries, following the Covid-19 pandemic, and the spillover effects of the Russian–Ukraine war, which affected most African countries.

According to the statement, the exposure exchange with the ADBs is a continued step in implementing the G20 Action Plan.

It said this would further optimise balance sheets of multilateral development banks without substantially increasing risk or adversely affecting their credit ratings.

“Although the AfDB’s current prudential ratios are compliant with their statutory limits and S and P Global Ratings has confirmed its credit rating at AAA.

“This second exposure exchange 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 ratios,” the statement read.

The Director of the Syndications, Co-financing and Client Solutions Department, AfDB, Max Ndiaye, said the operation demonstrates the relevance of the AfDB and its peer institutions.

Ndiaye said it would enable the institutions adhere to the G20 call on the multilateral development bank community to collaborate in adopting innovative approaches and initiatives.

“This includes risk transfers to maximize capital for increased development lending,” he added.

NAN/Confidence Okwuchi