Multilateral Development Banks' Lending Capacity

(Reuters) – A dozen of the largest multilateral development banks (MDBs) could collectively lend an additional half-trillion dollars before facing rating downgrades, according to a report by Fitch on Wednesday, 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 leads to downgrades, all else being equal. MDBs are international banks chartered by multiple countries to develop economies in lower- and middle-income countries.

Still, Fitch noted that it sees the multilaterals continuing to operate well within their rating thresholds, meaning it does not expect them to fully use their lending capacity.

According to Fitch, the International Bank for Reconstruction and Development, part of the World Bank Group, could lend an additional $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 indicates that both the Asian Infrastructure Investment Bank and the New Development Bank could more than double their current banking exposure without jeopardizing their cash positions. Overall, this increase would raise the banking exposure of the 12 lenders by 37%, as per Fitch.

"MDBs are reviewing their capital adequacy frameworks in response to shareholder demands for increased development impact," the report stated. "Fitch expects MDBs to make adjustments to their 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 an additional lending headroom totaling $300 billion to $400 billion over the next decade.