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p. 1 of 8 BACK | NEXT I. Introduction II. Borrower's Demand for New Loan Products III. Proposed New Libor-Based Loan Products IV. Withdrawal and Conversion of Pool-Based Loans V. Funding Risk Management Strategy VI. Implementation and Resource Requirements VII. Conclusion and Recommendations Appendixes

Review of Asian Development Bank's Financial Loan Products

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I. Introduction

1. On February 22, the Board of Directors of the Asian Development Bank (ADB) discussed a working paper reviewing the ordinary capital resources (OCR) loan products.¹ There was broad consensus among directors on the imperative for ADB to respond to the needs of borrowers by offering a new menu of loan products that was suitable for their emerging requirements. However, some directors expressed concern about the preparedness of both ADB and the borrowers to handle the new loan products under consideration. Other comments and questions pertained to some of the features of the new loan products and to the budgetary and income impacts. To address the concerns expressed and the clarifications requested by directors, the President circulated an issues paper in a questions and answers format on 25 April 2001. While the present paper will be built on the working paper (footnote 1) and the issues paper, repetition will be minimized. Against the perspective of ADB’s evolving financial intermediation role, the paper will focus on the critical factors associated with the design of new loan products, the associated risk management requirements, and implementation. The purpose of the paper is to receive Board approval for the recommendations related to the introduction of new loan products.

2. The paper begins with a brief summary of the context for borrowers’ demand for new loan products. Chapter III describes the technical features of the new loan products based on the London interbank offered rate (LIBOR) and the proposed timetable for their introduction. Chapter IV presents Management’s proposal to withdraw ADB’s existing pool-based loan products from its product menu and to offer borrowers the flexibility to convert the undisbursed loan balances of their pool-based single currency loans in United States (US) dollars to LIBORbased loans. In Chapter V, the implications of the new loan products on ADB’s financial risk management strategy are analyzed. Chapter VI deals with the implementation procedures and budgetary implications. Chapter VII provides the conclusions and recommendations for approval by the Board of Directors.

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