Major multilateral development banks could increase lending by nearly $480 billion collectively before a decline in their capital positions leads to downgrades, Fitch Ratings said in a new report. Fitch does not expect multilateral development banks to use their lending headroom in full.
The agency assessed how much lending would be consistent with unchanged ratings for each of the 12 largest Fitch-rated MDBs, primarily with reference to their capital ratios relative to our criteria-defined thresholds and balance sheet size.
The three biggest multilateral development banks by total assets — International Bank for Reconstruction and Development, Asian Development Bank, and European Investment Bank — have the most lending headroom in billions of U.S. dollars by this measure.
“MDBs are reviewing their capital adequacy frameworks in response to demands from their shareholders that they increase their development impact,” the report noted.
According to Fitch, the International Bank for Reconstruction and Development, the World Bank Group’s lending arm, could lend a further $117 billion, or 47 percent of its current banking exposure.
The report also reveals that the Asian Development Bank and European Investment Bank can lend an additional $100 billion and $90 billion, respectively.
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The report says that both the Asian Infrastructure Investment Bank and the New Development Bank could more than double their current banking exposure without impacting their cash position. The overall figure would increase the 12 lenders’ banking exposure by 37 percent, Fitch added.
“Fitch expects MDBs will respond with some adjustment to capital management while maintaining capital ratios consistent with their high ratings,” the agency added.
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