ADB okays capital management reforms

Published : 30 Sep 2023 09:48 PM

The Asian Development Bank (ADB) on Friday approved capital management reforms that unlock $100 billion in new funding capacity over the next decade to address the region’s overlapping, simultaneous crises. 

The expansion of available funds will be further leveraged through mobilizing private and domestic capital to move from the billions to trillions required to tackle the climate crisis.

The reforms were introduced through an update of ADB’s Capital Adequacy Framework (CAF). They expand the bank’s annual new commitments capacity to more than $36 billion—an increase of approximately $10 billion, or about 40%.

The expansion is achieved by optimizing ADB’s prudential level of capitalization while maintaining its overall risk appetite. The reforms also create a Countercyclical Lending Buffer to support ADB developing member countries (DMCs) facing unexpected crises. 

The measures, which will enable ADB to provide up to $360 billion of its own financing to its DMCs and private sector clients over the next decade, are designed to ensure ADB maintains its AAA credit rating and its ability to provide DMCs with funding at low cost and with long maturities.

The reforms further safeguard ADB’s AAA credit rating through the introduction of a recovery plan that would prevent capital erosion during periods of financial stress. ADB’s capital adequacy framework is reviewed every 3 years.

“These important reforms will significantly expand ADB’s ability to support a broad range of critical development efforts across Asia and the Pacific, including greater concessional resources for our vulnerable members,” said ADB President MasatsuguAsakawa. 

“Our decision today is part of ADB’s response to the call for multilateral development banks (MDBs) to do more with our resources and faster.

These resources will help the region manage a complex set of overlapping crises, address gender inequality, and provide for basic needs in the context of the existential challenge of climate change.”

Private capital mobilization will play a critical role in leveraging billions to trillions, by expanding private sector involvement in the development agenda. Upstream actions will help improve macroeconomic policy and the institutional and enabling environment for private sector investment, spurring increased domestic and foreign investment.