MANILA, PHILIPPINES (12 December 2022) — The Asian Development Bank (ADB) and the Inter-American Development Bank (IDB) today signed a sovereign exposure exchange agreement worth $1.5 billion.
The exchange, which will strengthen each of the multilateral development banks’ (MDB) capital adequacy and boost their lending capacity, is the second agreement between ADB and IDB. The first was a pilot exchange made in December 2020, after ADB approved the policy framework for exposure exchanges with other MDBs.
“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.
Exposure exchanges support credit ratings by reducing the amount of funds needed to cover concentration risk. They provide 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.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.