The African Development Bank (AfDB) and Asian Development Bank (ADB) have forged a new partnership to boost development lending in Africa. The agreement is aimed at strengthening the former’s capital position and lending capacity across the continent.
The Sh129 billion ($1 billion) exchange exposure agreement (EEA) is part of AfDB’s ongoing balance sheet optimization strategy. It will enable AfDB to redistribute its sovereign exposures, reducing portfolio concentration risks and providing a crucial buffer against potential credit migrations of its member countries.
By mitigating these risks and maintaining a diversified profile, AfDB will be better positioned to offer increased support to all its borrowing countries, even amidst global challenges impacting African economies.
According to Hassatou N’Sele, AfDB’s Vice President for Finance and Chief Financial Officer, this transaction underscores the commitment of the group to maximize capital resources and collaborate with its peers to sustain growth across Africa.
“This transaction is a continued demonstration of multilateral development banks’(MDBs) cooperation as recommended by the G20 International Financial Architecture working group and remains in line with the G20 call for development institutions to optimize and leverage their balance sheets,” Hassatou N’Sele said.
The EEA builds on prior successful deals executed by AfDB with the Inter-American Development Bank (IADB) and the International Bank for Reconstruction and Development (IBRDin December 2015 and the ADB in 2023, demonstrating the cooperative efforts among multilateral development banks to optimize their balance sheets.
This will also maintain the bank’s capital flexibility without compromising its risk profile, while supporting its broader ten-year strategy.
In accordance to Max Ndiaye, Senior Director at AfDB, MDBs play a crucial role in stabilizing and supporting the financial needs of developing nations. “This agreement enables us to deliver on our mission with a strengthened capital position that serves our Regional Member Countries effectively,” he said.
This is the third such transaction undertaken by AfDB, bringing the total EEA amounts executed by the bank to Sh838.50 billion ($6.5 billion). These innovative capital management tools allow AfDB to diversify risks, increase lending capacity, and strengthen its overall financial resilience – critical steps in fulfilling its development mandate across the African continent.
