After reviewing its standards for assessing supranational institutions, Fitch stated in research released on Wednesday that twelve of the biggest multilateral development banks could extend their combined lending by another half-trillion dollars before risking a drop in their ratings.
According to Fitch’s research, the multilateral lenders “could collectively lend nearly an additional $480 billion” before, under all other circumstances, a liquidity deficit would result in downgrades.
International banks known as MDBs were established to boost the economy of lower- and middle-income nations.
Nevertheless, Fitch stated that it does not anticipate the multilaterals to fully utilize the lending headroom because it sees them operating well within the bounds of their ratings.
The World Bank Group’s lending arm, the International Bank for Reconstruction and Development, has approximately $100 billion and $90 billion more available for the Asian Development Bank and European Investment Bank, respectively, and could lend an additional $117 billion, or 47% of its current banking exposure, according to Fitch.
Laptops 1000The Asian Infrastructure Investment Bank and the New Development Bank, according to the research, have the potential to more than triple their existing banking exposure without experiencing a negative cash position flash.
According to Fitch, this would result in a 37% increase in the banking exposure of the 12 lenders.
“MDBs are reviewing their capital adequacy frameworks in response to demands from their shareholders to increase their development impact,” said the report.
“Fitch expects MDBs will respond with some adjustment to capital management while maintaining capital ratios consistent with their high ratings.”
The heads of ten MDBs pledged to address five key issues this year, including providing an extra $300 billion to $400 billion in lending headroom over the following ten years.
