Page 33 - Abyssinia Busniess Network November 2019

initial application as compared to
one or even two years for the big
multilaterals. While some banks
in the North have similarly upped
the ante, a lot more is needed in
order to meet the vision of the
Global Green New Deal.

Some encouraging noises are
being heard from the different
levels of the banking ecosystem,
including central banks, which
may have more space than is
getting Image
sometimes envisaged to resume
The lead shareholders in the large The stock of their traditional role of creating
multilateral financial institutions are and guiding credit to the areas of
underwhelming in their support for outstanding loans the economy where it is needed
capitalizing these banks, and continue to made by the China most. Indeed, central banks
divert significant revenues when profits played this role in several of
are made rather than reinjecting them Development the successful examples where
into the equity base. Instead, scaling up countries managed to transform
is being promoted through securitization Bank was $1,635 themselves from agricultural
and balancesheet optimization, which billion in 2017, to industrial economies. It is
potentially bring a whole new set of only in recent years, under the
problems. Southern governments have much larger than rubric of “independence”, that
been much more willing to take the lead the traditional interlinkage
in expanding the role of public banks, the total loans by between banks and government
in part out of a sense of frustration with the World Bank development goals has been cut.
the inadequate response from the North.
They have established new public banks, (for 2017, the net The extent to which governments
and expanded existing ones, scaling up outstanding loan provide support to “their”
so quickly that even though they only development banks is an
started to become actively engaged of IBRD and IDA important factor in their success.
since the early 2000s onwards, they Many governments require their
have surpassed the older multilateral are $177 billion banks to maintain high credit
banks. The stock of outstanding loans and $138 billion ratings typically AAA, even if
made by the China Development Bank this is higher than the rating of the
was $1,635 billion in 2017, much larger respectively). sovereign itself. This gives banks
than the total loans by the World Bank two masters: they must please
(for 2017, the net outstanding loan of banks are well capitalized with credit-rating agencies and also
IBRD and IDA are $177 billion and reliable funding sources, which meet their developmental goals,
$138 billion respectively). permits them to have a longer- which by definition include
term horizon and thereby finance riskier projects. If governments
Southern-led multilateral initiatives long-maturity projects such were perceived by credit-rating
have been just as significant the BRICS as infrastructure, which more agencies as being more willing
countries’ New Development Bank and commercially oriented banks to “stand by” their banks, a more
the Asian Infrastructure Investment may not be so ready to support. favourable rating would ease
Bank have been in operation for just a They have also shown speedier their costs of borrowing and free
few short years but are already making response, taking on average six up hundreds of billions of dollars
their presence felt. These Southern-led months to approve loans from for development lending.

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