IDB and ADB Strengthen Capital Adequacy and Lending Capacity with $1.5 Billion Exposure Exchange

The Inter-American Development Bank (IDB) and the Asian Development Bank (ADB) signed a new sovereign exposure exchange agreement valued at $1.5 billion. This marks the third agreement of this kind between ADB and IDB. These instruments are key for strengthening the capital adequacy of multilateral development banks' (MDB), enhancing financial efficiency, and expanding lending capacity to support high-impact development projects.

"We are delighted to continue deepening our partnership with ADB, as we further optimize our institutions' balance sheets and expand our lending capacities" said Gustavo De Rosa, IDB Chief Financial Officer. "This operation reflects MDBs commitment to working as a system to deliver greater impact and scale for the benefit of their member countries", he added.

An exposure exchange agreement (EEA) is a financial instrument that allow MDBs to manage and redistribute credit risk. By synthetically exchanging concentrated loan exposures with exposure to countries outside their region of operations, these arrangements provide capital relief for sovereign-focused MDBs. EEAs are a cost-effective and efficient solution to enhance the capital adequacy, financial resilience and creditworthiness of regional MDBs, which often face limited portfolio diversification options.

The exchange will be "synthetic" as it does not entail the actual transfer of loans from either MDB's balance sheet and does not change the relationship between the original lender and the borrower.