Senior executives at multilateral development banks will meet on Wednesday with the top credit ratings agencies, bank executives said, amid a broad push to expand their lending capacity and help countries brace for climate change and other challenges.
The closed-door meeting will address how to value callable capital – a commitment from shareholders to step in during extreme circumstances — in the banks’ capital adequacy frameworks, Roberta Casali, vice president for risk at the Asian Development Bank, told a Rockefeller Foundation event on Tuesday. It will be the fourth such meeting this year, she said.
The World Bank’s main lending arms could expand their lending capacity by nearly $900 billion if the ratings agencies changed their processes and modified the allowance they make for callable capital, a study commissioned by Rockefeller found.
Lakshmi Shyam-Sunder, the World Bank’s chief risk officer, said the ratings agencies had shown some openness to considering revisions in how they treat callable capital in the banks’ balance sheets.
“They are beginning to change their tune,” she said. “We’re now seeing a more open-minded willingness to consider changes in their methodology.”
The key to the multilateral development banks’ strategy to boost lending is to preserve their AAA credit ratings, which enable them to borrow at low rates and pass on the savings to developing countries.
Casali said Wednesday’s meeting, on the sidelines of the annual meetings of the International Monetary Fund and World Bank in Morocco, would include officials from the World Bank, the Asian Development Bank and the African Development Bank, along with the three top credit raters – Moody’s, Standard & Poor’s and Fitch.
Earlier on Tuesday, World Bank President Ajay Banga told Reuters that the rules governing how pledged capital can be called in times of stress are “very loose” and need a “clear and tangible process” to reassure ratings agencies.
U.S. Treasury Secretary Janet Yellen on Tuesday said Treasury has asked the multilateral development banks to prioritize incorporating “a prudent share” of callable capital into their capital adequacy frameworks, as part of broader reforms aimed at expanding funding options to help developing countries amid a worsening climate crisis.
Experts say developing and emerging economies need $2.4 trillion per year to meet global climate challenges.
Currently, the ratings agencies apply widely different rules and standards in assessing the risks associated with the banks’ lending and balance sheets.
