Development banks reach risk-sharing deal

23 Dec 15

Three global development banks have reached a risk-sharing agreement that is intended to optimise asset use and enhance development effectiveness.

The African Development Bank, Inter-American Development Bank and the World Bank’s International Bank for Reconstruction and Development have signed up to the framework, which will allow the institutions to exchange the risks with one another.

This is intended to tackle the concentration of assets that arises from multilateral development banks lending to sovereign shareholders alone. This requires them to hold additional capital and to reduce risks mainly by reducing or limiting exposure in countries where lending volumes were especially high.

By sharing risks, the banks said they would be able to make the most of their resources and enhance their development impact. The first three bilateral exposure exchange agreements were reached earlier this month, and were worth a total of about $6.5bn.

Jim Yong Kim, president of the World Bank Group, said the “innovative agreement” would enhance the banks’ collective financial capacity and development effectiveness. “The initiative also shows how the multilateral development banks will go to great lengths to be flexible in order to reduce risks,” he stated.

Akinwumi Adesina, AfDB president, added that the “ground-breaking” initiative would have “a very significant positive effect” on the bank’s capital ratios and its institutional credit profile.

“This is critical as we look ahead to a ambitious development programme to accelerate progress across Africa,” he added. 

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