AfDB Board Approves Fully Flexible Loan Product: Embedding Risk Management Features in Sovereign and Sovereign-Guaranteed Loans
On Wednesday, December 4, the Board of the African Development Bank Group approved the Fully Flexible Loan Product, which was developed in response to borrower demand and embeds risk-management features currently offered through the Bank’s risk management products, including sovereign and sovereign-guaranteed loans.
It also introduces a maturity-based pricing structure for sovereign guaranteed borrowers that would allow them to select the loan profiles that match their funding needs and debt-management capacities.
The Fully Flexible Loan product has the following features:
- Ability to convert the lending currency for disbursed and/or undisbursed loan balances into another AfDB approved lending currency, any time after loan signing;
- Convertibility of the base interest rate (fix, unfix and re-fix the base rate) for disbursed loan balances, any time after loan signing;
- Ability to establish interest rate caps or collars for disbursed loan balances, any time after the loan agreement has been signed; and
- Maturity based pricing of loan with a maximum maturity, grace period and average maturity of 25, eight and 17 years, respectively.
In addition, the Board also approved: (i) a one-time free option to fix the floating base rate of discontinued sovereign guaranteed loan products; and (ii) the principle of Management computing and communicating the lending base rates and funding margins for the Bank’s loan products, based on methods to be approved by the Board.
The fully Flexible Loan Product derives from the Bank’s capacity to enable sovereign and sovereign-guaranteed borrowers to customize the financial terms of signed AfDB loans without amending the loan agreement or incurring any additional risk.
The terms and conditions for requesting, accepting and executing the conversion features will be defined in Conversion Guidelines to be issued by Management.