Brics-owned bank to cast wider net

New Development Bank aims to become more global and extend loans to the private sector in a bid to boost infrastructure and tackle climate change

The Brics-owned New Development Bank, which was formed to provide emerging-market economies with their own multilateral financial institution, will begin opening up its membership to other countries and increasing its global presence.

The Brics-owned New Development Bank, which was formed to provide emerging-market economies with their own multilateral financial institution, will begin opening up its membership to other countries and increasing its global presence.

The Shanghai-headquartered bank was founded in 2015 by Brazil, Russia, India, China and SA, which each contributed $2bn to the bank’s equity capital and each own a 20% stake.

“We are opening up membership to new countries, which will see the institution become bigger and more global in character. I would anticipate we will make announcements before the end of the year in relation to new countries joining the bank,” said the bank’s vice-president for finance, Leslie Maasdorp, in an interview with Business Day.

This will see other emerging markets becoming members of the bank, which includes becoming shareholders and thereby becoming eligible to borrow from the bank.

Under the bank’s charter, the founding members’ shareholding can be diluted to 55% over time, with each member retaining an 11% stake.

In full operation for just five years, the bank had grown its loan book to $24.4bn by the end of 2020, with almost half the loan book taking the form of sovereign loans extended last year to help its five member countries provide a medical and economic response to Covid-19.

Maasdorp, whose career has included roles with Goldman

Sachs, Absa Capital and Bank of America Merrill Lynch, said the bank will pivot and begin increasing its lending to the private sector, with the intention that 30% of new lending volumes are extended to infrastructure companies.

“Public debt has reached unsustainable levels. We have the ability to extend long-dated loans for up to 30 years, so we intend to accelerate our lending to private institutions. This will occur in parallel with our intent to direct more of our lending towards climate finance and assisting member countries achieve net zero or carbon neutrality by 2050,” Maasdorp said.

One of the primary reasons for the bank’s establishment was the need to provide financing for infrastructure as emerging economies continued to grow. The bank has approved 76 projects in five countries across the energy, transport, water and telecommunications sectors.

Nearly a third of all infrastructure lending has gone into renewable energy. Maasdorp said the bank has not financed any new investments in fossil fuels but is ready to help companies and economies that are dependent on fossil fuels to transition to new models.

“SA is still heavily reliant on Eskom. The old power stations are going to have to be decommissioned at some stage, and we will need a regional economic strategy for the whole of Mpumalanga. The bank can be there to provide solutions for the transition,” said Maasdorp.

The bank is able to lend to its members at a rate below what individual countries can borrow in the market.

Despite being a new institution, the New Development Bank enjoys an AA+ credit rating from S&P Global Ratings and Fitch Ratings, which is effectively seven credit rating levels above where SA on its own stands. The bank does not penalise either SA or Brazil (also subinvestment grade) for having an inferior credit rating when lending to them.

Maasdorp said the speed at which the bank acts is another competitive advantage that can fuel its growth. “One of the huge advantages of the bank is that it is new, and speed of execution was one of the things we built into the system. Last year we approved $10bn of loans with a staff contingent of 210, so we think on many measures we are ahead of our peers in terms of the speed of approving loans and the efficiency in doing so.”

ONE OF THE HUGE ADVANTAGES OF THE BANK IS THAT IT IS NEW, AND SPEED OF EXECUTION WAS ONE OF THE THINGS WE BUILT INTO THE SYSTEM

Leslie Maasdorp NDB vice-president for finance

PUBLIC DEBT HAS REACHED UNSUSTAINABLE LEVELS. WE HAVE THE ABILITY TO EXTEND LONG-DATED LOANS FOR UP TO 30 YEARS

Leslie Maasdorp NDB vice-president for finance