A $1 billion exposure exchange agreement has been signed between the African Development Bank (AfDB) and the Asian Development Bank, designed to strengthen AfDB’s capital and expand its sustainable lending capabilities across Africa.

This agreement, finalized during the IMF/World Bank Annual Meetings in Washington DC on October 25, marks the third transaction under AfDB’s Balance Sheet Optimization strategy.

Through this partnership, the AfDB will optimize its capital by redistributing sovereign exposures, minimizing portfolio concentration risks, and providing a cushion against potential credit changes among its member nations.

By diversifying sovereign exposure, the exchange agreement enhances the AfDB’s capacity to support all borrowing countries, even amidst global economic challenges affecting African economies.

This transaction builds on previous agreements with the Inter-American Development Bank and the International Bank for Reconstruction and Development in 2015, and another with the Asian Development Bank in 2023, all of which have helped the AfDB reduce concentration risks, boost lending, and maintain a balanced financial profile.

“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.

“We appreciate the continued corporation with our peers in fulfilling our respective development agendas,” said Hassatou N’Sele, African Development Bank’s Vice President for Finance and Chief Financial Officer.

In addition, the African Development Bank will be able to maintain capital flexibility without compromising its risk profile, while supporting the Bank’s Ten-Year Strategy.

“As MDBs, we play a crucial role in stabilizing and supporting the financial needs of developing nations. This agreement underscores our commitment to maximizing our capital resources and collaborating with our peers to sustain growth across Africa,” said Max Ndiaye, Senior Director of the Syndications, Client Solutions and Africa Investment Forum department of the African Development Bank.

“Through this exchange, we continue to lead in innovation, enabling us to deliver on our mission with a strengthened capital position that serves our Regional Member Countries effectively.”

MDBs use exposure exchange agreements as a diversification and capital management tool to optimize their balance sheets by synthetically exchanging a portfolio of loan exposures with exposure to countries where credit exposure is less or non-existent.

This latest transaction brings the total exchange exposure agreements executed by the African Development Bank to $6.5 billion.