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The African Development Bank (AfDB) has secured approval from its Board of Directors for a significant exposure exchange agreement worth $1 billion with the Asian Development Bank. The move aims to support additional sovereign lending capacity while reinforcing the AfDB’s capital adequacy metrics. The agreement represents the second exposure exchange of its kind for the AfDB, following a previous successful transaction with the Inter-American Development Bank and the World Bank Group’s International Bank for Reconstruction and Development.
Exposure exchanges between multilateral development banks involve a synthetic exchange of sovereign exposures in a risk-neutral manner, helping to address single obligor constraints and portfolio concentration. This latest exchange is particularly crucial in light of the challenges faced by African countries due to the impact of the Covid-19 pandemic and the spillover effects of the Russia-Ukraine war.
Max Ndiaye, the AfDB’s Director for Syndications, Co-financing, and Client Solutions, emphasized the significance of this operation, highlighting how it aligns with the G20’s call for multilateral development banks to collaborate and adopt innovative approaches to maximize capital for increased development lending.
Despite the AfDB’s current prudential ratios adhering to their statutory limits and maintaining their AAA credit rating by S&P Global Ratings, the exposure exchange is expected to provide African countries with additional financing opportunities. This is especially beneficial for nations requiring increased countercyclical lending while staying within internal single obligor limits and concentration ratios.
African countries have faced fiscal pressures since the onset of the Russia-Ukraine war, and approximately 21 countries are in or at risk of debt distress. The exposure exchange agreement reaffirms the AfDB’s commitment to support development projects in Africa during periods of global financial turbulence.
Overall, this strategic partnership with the Asian Development Bank signifies a proactive approach in providing vital financial support to African nations and fostering economic resilience amidst challenging times.
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