New Delhi: The Asian Development Bank (ADB) signed two new sovereign exposure exchange agreements (EEAs) with the African Development Bank (AfDB) and the Inter-American Development Bank (IDB), respectively. The agreements aim to bolster ADB’s lending capacity to its borrowing members, a press release revealed.
ADB has signed five Enhanced Engagement Agreements (EEAs) with Multilateral Development Banks (MDBs) since 2020. The total value of these agreements now stands at $6 billion. Two new exchanges were recently signed.
According to the ADB release, sovereign exposure exchanges are risk management tools used to mitigate portfolio concentration risks. These agreements involve exchanging concentrated loan exposures with countries where the MDBs have less or no credit exposure. By doing so, ADB reduces its exposure concentration, optimizes its capital usage, and increases its lending capacity.
The agreements aim to benefit the borrowers included in the exchanges by lowering their net exposure to ADB, providing them with additional borrowing headroom under ADB’s limits framework. ADB is committed to exploring innovative ways to manage its capital effectively and support the region in addressing various crises, the release added noting that in 2023, the bank successfully unlocked $100 billion in additional lending capacity over the next decade through an update to its Capital Adequacy Framework.