Asian Development Bank Announces $100 Billion as Part of Capital Reforms to Tackle Climate Change

By: Asia Business Outlook Team | Friday, 29 September 2023

On Sept 29, the Asian Development Bank (ADB) announced new capital reforms that will unlock $100 billion in new financing capacity over the next ten years as the lender expands its development and anti-poverty mission to address climate change and other global crises.

The Manila-based lender said it was adjusting its risk appetite and lowering its minimum level of capitalization in order to maintain its top tier AAA credit rating while increasing its lending commitments by nearly 40% to around $36 billion per year.

ADB's move to stretch its balance sheet follows similar measures announced by the World Bank earlier this year that will yield a $50 billion increase in lending over a decade. But the ADB's effort will yield twice the new lending on an "apples to apples" comparison, ADB Managing Director General Woochong Um told Reuters in an interview.

ADB has traditionally taken a more conservative approach, maintaining a higher risk-adjusted capital ratio than the World Bank and other multilateral development banks, said Roberta Casali, vice president for finance and risk management.

So as ADB took a more "granular" approach to analyzing risks, and adjusting downward estimates of unexpected losses, the lender had more room to squeeze new lending from its capital structure than some other banks had, Casali said.

The creation of a new $12 billion Countercyclical Lending Buffer fund to aid ADB member countries in times of unexpected crises, helping to stabilise them and avoid loan losses, will aid the effort and provide some comfort to credit rating agencies.

On Sept 28, the World Bank announced new capital measures that would add more than $100 billion in new lending over a decade, on top of the $50 billion yielded by previous measures. These include the increased use of loan portfolio guarantees and the use of debt-like hybrid capital.