Development banks could pump $1 trillion into global growth drive - S&P

LONDON (Reuters) - The world’s top development banks and multilateral lenders could pump an additional $1 trillion into the global economy without negatively impacting their ratings, Standard and Poor’s estimated on Tuesday.

Policymakers are expected to back a renewed push for global growth at the International Monetary Fund’s spring meetings this week and development banks have been cited as one of the channels that could provide support by upping their lending.

S&P said it had analysed how much the 19 multilateral lending institutions (MLIs) that it rates could increase their lending without hurting their credit scores that often govern how much they can lend in the first place.

“Based on the results, we estimate that, together, the MLIs have the means to lend another $1 trillion at the present rating levels,” a report by a group of the firm’s analysts said.

“This amount represents an overall increase of about 72 percent compared with current levels,” which it said was about $1.5 trillion.

The analysis looked at the bulk of major MLIs from the African and Asian development banks to the European Investment Bank and Inter-American Development Bank which concentrates on Latin America and the Caribbean.

Most of heavy lifting, however, would have to be done by a relatively small set of the institutions. Only 5 of the 19 that S&P looked at would be able double their exposures while some had virtually no room for manoeuvre at all.

“We believe most of this capacity lies with ‘AAA’ rated entities, which benefit from robust intrinsic capital adequacy and reserves of ‘AAA’ rated callable capital,” S&P added, referring to money the mainly government shareholders of MLIs have committed to provide if needed.

As a group, they account for about one-third of the total additional $1 trillion capacity. For three of the five though the extra leeway would require shareholder governments to stump up their “callable capital” which is sometimes seen as a taboo.

Other factors could make an impact. The amounts the development banks and other MLIs could increase their lending would be restricted if key shareholder governments’ ratings continue to fall.

“If, for example, the United Kingdom (AAA) were downgraded, we would no longer consider about $55 billion of its callable capital commitments in our ratings on ‘AAA’ MLIs,” S&P said.

(for full report click

Reporting by Marc Jones, editing by Pritha Sarkar