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Multilateral banks could lend up to $480 billion more before rating downgrades, Fitch says
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(Reuters) – A dozen of the largest multilateral development banks could collectively lend a further half-trillion dollars before facing rating downgrades, Fitch said in a Wednesday report, following a review of its criteria for rating supranational institutions.
The multilateral lenders in Fitch’s report “could collectively lend nearly an additional $480 billion” before a cash shortage would lead to downgrades, all else being equal, the rating agency said. MDBs are international banks chartered by multiple countries to develop economies in lower- and middle-income countries.
Still, Fitch said it sees the multilaterals continuing to operate well within the thresholds of their ratings, meaning Fitch does not expect them to fully use the lending headroom.
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% of its current banking exposure, with nearly $100 billion and $90 billion extra available for the Asian Development Bank and European Investment Bank respectively.
The report says both the Asian Infrastructure Investment Bank and the New Development Bank could more than double their current banking exposure without flashing red in their cash position. The overall figure would increase the 12 lenders’ banking exposure by 37%, Fitch said.
MDBs are reviewing their capital adequacy frameworks in response to demands from their shareholders that they increase their development impact,” the report said. Fitch expects MDBs will respond with some adjustment to capital management while maintaining capital ratios consistent with their high ratings.
This year, leaders of 10 MDBs committed to take action in five critical areas, including additional lending headroom totaling $300 billion to $400 billion over the next decade.
(Reporting by Rodrigo Campos in New York; Editing by Rod Nickel)
A multilateral development bank (MDB) is an international financial institution created by multiple countries to provide financial and technical assistance for development projects in lower and middle-income countries.
Capital adequacy refers to the amount of capital a bank or financial institution must hold as a buffer against its risk-weighted assets, ensuring stability and solvency.
A rating downgrade occurs when a credit rating agency lowers the credit rating of an entity, indicating a higher risk of default and potentially leading to increased borrowing costs.
Lending headroom refers to the capacity of a financial institution to extend additional loans without breaching its capital requirements or risk thresholds.
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