The Asian Development Bank unveiled new capital reforms on Friday that will unlock $100 billion in new financing capacity over 10 years as the lender enhances its development and anti-poverty mission to tackle climate change and other global crises.
The Philippine-based lender said it is adjusting its risk appetite and reducing its minimum-level of capitalization in order to preserve its top tier AAA credit rating while allowing it to expand its lending commitments by nearly 40 per cent to about $36 billion annually.
The move to stretch ADB's balance sheet follows similar measures announced by the World Bank earlier this year that would yield a $50 billion increase in lending over a decade. But ADB's effort will yield twice the new lending on an 'apples to apples' comparison, ADB Managing Director General Woochong Um told Reuters.
ADB has historically taken a more conservative approach, maintaining a higher risk-adjusted capital ratio than the World Bank and other multilateral development banks, said Roberta Casali, vice president for finance and risk management.
As ADB took a more 'granular' approach to analyzing risks and adjusting downward estimates of unexpected losses, the lender had more room to squeeze new lending from its capital structure than some other banks had.
In aiding the effort - and providing some comfort to credit rating agencies - is the creation of a new $12 billion countercyclical lending buffer fund, which can be used to aid ADB member countries during times of sudden crises, assisting them in stabilizing them and reducing loan losses.
The World Bank said on Thursday that it would propose new capital measures that would add more than $100 billion in new lending over a decade on top of the $50 billion yielded by previous measures. Debt-like hybrid capital and increased loan portfolio guarantees are among the examples used in these initiatives.
Discussions on expanding lending to fight climate change, pandemics, food insecurity and fragility will be a main focus at World Bank-IMF annual meetings in Marrakech, Morocco, Oct. 9-15.
With a projected $3 trillion in annual climate transition financing needs in developing nations, far more capital, private sector participation and innovation will be needed, ADB officials said.
Um said he would be happy to have heard of the move.