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.
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