AfDB and ADB Sign $1 Billion Exposure Exchange Deal to Boost Sustainable Lending in Africa

New Agreement Enhances African Development Bank’s Capital Flexibility and Lending Capacity Amidst Global Economic Challenges.

The African Development Bank (AfDB) and the Asian Development Bank (ADB) have finalized a $1 billion Exposure Exchange Agreement (EEA) designed to strengthen AfDB's capital position and expand sustainable lending capabilities across Africa. The agreement was signed on October 25, on the sidelines of the International Monetary Fund (IMF) and World Bank Annual Meetings in Washington, D.C. This transaction marks the third exposure exchange conducted under the AfDB’s Balance Sheet Optimization Strategy and supports the African Bank's Ten-Year Strategy, which emphasizes inclusive growth and sustainable development in its regional member countries.

Enhancing Capital Efficiency and Risk Diversification

This new exchange with the Asian Development Bank allows AfDB to redistribute sovereign exposures, a strategic move that reduces portfolio concentration risks while creating a buffer against potential credit downgrades in member countries. By broadening its exposure across various markets, AfDB strengthens its resilience and gains the ability to continue supporting high-impact projects across Africa, even as global economic uncertainties put pressure on the continent.

The EEA mechanism facilitates a synthetic exchange of loan portfolios between the banks, allowing AfDB to expand its exposure to low-risk countries, thus enhancing the institution's capacity to provide development financing without compromising its risk profile. This diversification measure is expected to fortify AfDB’s lending potential across multiple sectors, from infrastructure and agriculture to healthcare and education, which are critical to African development.

Track Record of Balance Sheet Optimization

This transaction follows two prior successful exposure exchange agreements between AfDB and other multilateral development banks (MDBs). In 2015, AfDB completed exchanges with the Inter-American Development Bank (IADB) and the International Bank for Reconstruction and Development (IBRD), and in 2023, with ADB. These agreements have cumulatively allowed AfDB to execute exposure exchanges totalling $6.5 billion, significantly expanding its balance sheet capacity and enhancing its financial resilience.

AfDB’s Vice President for Finance and Chief Financial Officer, Hassatou N’Sele, highlighted the significance of this latest agreement as a continued commitment to MDB cooperation, stating, “This transaction is a demonstration of multilateral development banks’ cooperation, as recommended by the G20 International Financial Architecture Working Group. By optimizing and leveraging our balance sheets, we are better positioned to fulfil our development mandates in an increasingly challenging global environment.”

Supporting Africa’s Development Agenda

Through the EEA, AfDB is poised to uphold its development commitments, including sustainable financing for critical areas like climate resilience, economic diversification, and digital infrastructure. Max Ndiaye, Senior Director of Syndications, Client Solutions, and the Africa Investment Forum at AfDB, emphasized the importance of these collaborations: “As MDBs, we play a crucial role in supporting the financial stability of developing nations. This agreement exemplifies our dedication to maximizing capital resources and collaborating with peers to sustain growth across Africa. This partnership enhances our ability to serve Regional Member Countries effectively, even as they face significant economic challenges.”

Broadening MDBs' Use of Exposure Exchange Agreements

EEAs have become a valuable diversification and capital management tool for MDBs, as they enable synthetic exchanges of loan portfolios with countries where direct credit exposure is either reduced or non-existent. These exchanges allow MDBs like AfDB to manage their capital with greater flexibility and maintain a diversified portfolio that supports lending commitments to member countries.

This latest transaction reinforces AfDB’s proactive approach to sustainable development financing, adding to its track record of innovation in capital optimization. The institution remains committed to empowering its member countries to meet their development needs by fostering resilience and financial stability, even amidst a volatile global economy.