African Development Bank Publishes Report On Callable Capital

The African Development Bank, AfDB, has published a report clarifying the legal framework, processes and governance for a call on the callable capital by the institution.

Callable capital refers to the portion of the Bank’s capital that is subscribed by shareholders but not immediately paid. It represents a commitment to make additional capital available to the institution in the very unlikely event that it cannot meet its obligations on its debts or guarantees.

The report presents the circumstances leading to a call on callable capital, and the processes for such a call being made by the Bank and met by shareholders. This important exercise follows a recommendation made by the G20 following an independent expert review of MDB capital adequacy frameworks and aims to provide credit rating agencies with key information that they could find useful in their assessment of the value of callable capital.

Similar reports are also published by the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the World Bank.

The results of a reverse stress testing exercise conducted on the African Development Bank assessing the probability of a scenario materializing where the Bank would need to call on its callable capital is presented in the report, which also clarifies the mechanisms to be followed by the Bank when making a call on callable capital, and shareholders’ response to such a call.

The analysis demonstrates that the probability of such an event is extremely remote. This is attributed to the Bank’s robust financial risk and capital management anchored on its risk appetite statement and long-term financial sustainability framework. It also reflects the Bank’s preferred creditor treatment and its extraordinary shareholder support.

While the processes and timeframes for responding to a call on callable capital vary among shareholders, the clarifications provided show that they should be able to respond to such a call in a timely manner.