THE African Development Bank (AfDB) has received approval from its Board of Directors for a significant exposure exchange of $1 billion with the Asian Development Bank (ADB).
According to a statement on the bank’s website, the bank noted that the main aim of the transaction is to provide support in unlocking additional sovereign lending headroom while reinforcing the African Development Bank’s capital adequacy metrics.
It marks the second exposure exchange agreement executed by the African Development Bank with the first being with the Inter-American Development Bank and the World Bank group’s international bank for reconstruction and development.
“This new exposure exchange agreement is the second transaction that the African Development 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.
“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.”
Commenting on the benefit of the currency exchange agreement and what it means for countries on the continent, the bank 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 the African Development Bank to continue supporting its regional member countries, particularly following the COVID-19 pandemic, combined with the spillover effects of the Russian–Ukraine war, which affected most African countries.”
The bank’s Director for Syndications, Co-financing and Client Solutions, Max Ndiaye, said, “This operation demonstrates the relevance of the African Development Bank and its peer institutions in adhering to the G20’s call on the multilateral development bank community to collaborate in adopting innovative approaches and initiatives. This includes risk transfers to maximise capital for increased development lending.”
The exposure agreement signifies the bank’s commitment to continue to provide funding for development projects in Africa in times of global financial turbulence.
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