ADB remains at forefront of Capital Management through Better Clarity on Callable Capital

A report released today by ADB on callable capital provides, for the first time, greater clarity and transparency regarding its utilization.

The Asian Development Bank (ADB) remains at the forefront of efforts by multilateral development banks (MDBs) to optimize their balance sheets in line with the Group of 20 (G20) Independent Review on Multilateral Development Banks’ Capital Adequacy Frameworks. A report released today by ADB on callable capital provides, for the first time, greater clarity and transparency regarding its utilization.

“ADB’s analysis of our callable capital is the result of collaborative efforts and support from our shareholders and peer institutions. It sheds light on the robustness of our financial strategies and will reassure our stakeholders of the solid foundation underpinning our operations,” said ADB Vice-President for Finance and Risk Management Roberta Casali. “We trust that stakeholders and credit rating agencies will find this analysis useful in valuing callable capital and look forward to strengthening our dialogue with them on this.”

Callable capital is capital that is subscribed to by shareholders that has not been paid-in. Unique to MDBs, callable capital is a commitment from each shareholder to make additional capital available to an institution, but only in the event additional capital is required for an institution to avoid defaulting on its borrowings or guarantees. No major MDB has ever had to use this financial instrument.

In 2021, the G20 launched the Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks to help MDBs maximize their development impact. It recommends strategic shifts in five areas, including one on callable capital.

ADB’s analysis of its callable capital reached several conclusions:

The ADB Charter clearly outlines the conditions under which callable capital may be utilized.

ADB can call upon additional capital well in advance of a potential default.

Shareholders have expressed their readiness to respond positively to a call, reflecting their strong support to ADB and its mission.

Reverse stress test results confirm the very low likelihood of ADB ever needing to call upon additional capital, reaffirming ADB’s triple A credit rating and financial resilience.

The results not only demonstrate ADB’s strong financial footing but also enhance stakeholders’ understanding of ADB’s financial policies, further building trust in ADB’s capacity to drive meaningful change across the region. The results are also in line with G20 and shareholders’ calls for MDBs to become better, bolder, and bigger.

Last September, ADB’s Capital Adequacy Framework review increased ADB’s lending capacity by $100 billion over the next decade. Other initiatives by ADB to grow its lending headroom include the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP) and exposure exchange agreements that aim to increase ADB resources to support developing member countries in addressing simultaneous and overlapping crises, especially climate change.