Improving Governance in Africa

What is the Exposure Exchange Agreement? In 2015, the Bank entered into Exposure Exchange Agreements (EEAs) with other Multilateral Development Banks (MDBs) with the objective of managing the risks in its loan portfolio in order to optimize its balance sheet, reduce sovereign concentration risk and increase lending headroom The EEA involves a simultaneous exchange of equivalent credit risk on defined sovereign credit exposure with each participating MDB retaining a minimum of 50% of the total exposure to each country that is part of the EEA. Under the EEA, the MDB that originates the sovereign loans continues to be the lender of record. Final maturities in 2030 with linear amortization starting from 2025 USD 4.47 billion of total notional amount of credit protection purchased/sold No premium paid as amount of exposure exchanged is notionally the same at inception Similar to other regional MDBs, AfDB's credit rating is affected by concentration risks First EEA with IBRD and IADB, both AAA rated entities, to reduce sovereign concentration risk EEA has substantially improved lending capacity and capital adequacy ratios The seller is only required to make principal payments to the buyer when the buyer writes off or restructure part or all of the loans in the reference portfolio Experience shows that MDBs hardly ever write off arrears as arrears always ultimately get settled As of June 2016, no default have occurred on any exposures covered under these EEA and the Bank continues to expect full recovery of its sovereign and sovereign-guaranteed exposures Share of Portfolio 25% 20% 15% 10% 5% 0% Morocco Egypt South Africa Tunisia Botswana Angola Nigeria Before EE After EE Brazil Mexico Argentina 79

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