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African Development Bank – ‘ANNLRPT’ for 12/31/21

On:  Tuesday, 8/9/22, at 7:40am ET   ·   For:  12/31/21   ·   Accession #:  1208646-22-74   ·   File #:  83-00004

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/09/22  African Development Bank          ANNLRPT    12/31/21    1:3.9M                                   Black & Callow/FA

Document/Exhibit                   Description                      Pages   Size 

 1: ANNLRPT     Annual Report by an International Development Bank  HTML   2.39M 

INFORMATION STATEMENT

African Development Bank

The African Development Bank (the “Bank” or “ADB”) intends from time to time to issue debt securities (the “Securities”) with maturities and on terms related to market conditions at the time of sale. The Securities may be sold to dealers or underwriters, who may resell the Securities in public offerings or otherwise. In addition, the Securities may be sold by the Bank directly or indirectly through agents.

 _______________________________________ 

The specific aggregate principal amount, status, maturity, interest rate, or interest rate formula and dates of payment of interest, purchase price to be paid to the Bank, any terms for redemption or other special terms, currency or currencies, form and denomination of Securities, information as to stock exchange listings and the names and any compensation of the dealers, underwriters or agents in connection with the sale of the Securities being offered at a particular time (“Offered Securities”) will be set forth or referred to in a prospectus, offering circular, information memorandum, supplemental information statement, or pricing supplement, together with the terms of offering of the Offered Securities.

Securities issued by the Bank are not required to be registered under the U.S. Securities Act of 1933, as amended. Accordingly, no registration statement has been filed with the U.S. Securities and Exchange Commission (the “Commission”). The Securities have not been approved or disapproved by the Commission or any state securities commission nor has the Commission or any state securities commission passed upon the accuracy or adequacy of this Information Statement. Any representation to the contrary is a criminal offence in the United States of America.

Recipients of this Information Statement should retain it for future reference, since it is intended that each prospectus, offering circular, information memorandum, or supplemental information statement or pricing supplement prepared in connection with the issuance of Offered Securities will refer to this Information Statement for a description of the Bank and its financial condition and results of operation, until a new information statement is issued.

9 August 2022

AVAILABILITY OF INFORMATION

The Bank will provide additional copies of this Information Statement and other information with respect to the Bank, including the Agreement Establishing the African Development Bank, as amended (the “Bank Agreement”) and its annual report to the Boards of Governors, upon request. Written or telephone requests may be directed to the Bank’s address at Immeuble Siege, 6 Avenue Joseph Anoma, Plateau, 01 BP 1387, Abidjan 01, Côte d’Ivoire, Attention: The Treasurer, telephone +225-272-026-2028, facsimile +225-272-024-2155. This Information Statement is also available on the Bank’s website (http://www.afdb.org). The annual report and the documents and information on the Bank’s website are not intended to be incorporated by reference in this Information Statement.

In the United States, this Information Statement is to be filed with the U.S. Securities and Exchange Commission (the ‘‘SEC’’) electronically through the EDGAR system and will be available at the website address http://www.sec.gov/edgarhp.htm. The Bank has also filed unaudited quarterly financial statements with the SEC. These filings are also available electronically through the EDGAR system.

The issuance of this Information Statement or any prospectus, offering circular, information memorandum, supplemental information statement, pricing circular and the offering and sale of Securities are not a waiver by the Bank or by any of its members, Governors, Directors, Alternates, officers or employees of any of the rights, immunities, privileges or exemptions conferred upon any of them by the Bank Agreement, or by any statute, law or regulation of any member of the Bank or any political subdivision of any member, all of which are hereby expressly reserved.

The Bank uses a unit of account (the “Unit of Account” or “UA”) equivalent to the International Monetary Fund’s (IMF) Special Drawing Right (SDR) as its reporting currency. The value of the SDR, which may vary from day to day, is currently computed daily in U.S. dollars by the IMF. Except as otherwise specified, all amounts in this Information Statement and any prospectus, offering circular, information memorandum, supplemental information statement or pricing supplement are expressed in UA. Currencies have been translated into UA at the rates of exchange used by the Bank and prevailing on the last day of the period presented. In certain instances, amounts in UA have also been presented in U.S. dollars at the conversion rates set forth below. Such presentations are made solely for convenience and should not be construed as a representation that the UA actually represents, has been or could be converted into U.S. dollars at these or any other rates.

In recent years, there have been significant changes in the relative values of the U.S. dollar and the component currencies of the UA. The Bank makes no representation that would indicate that the U.S. dollar or any other currency accurately reflects the historical financial performance or present financial condition of the Bank. Exchange rates used by the Bank for converting UA into U.S. dollars are as follows:

As at 31 December

TABLE OF CONTENTS

LIST OF ABBREVIATIONS AND ACRONYMS

SUMMARY INFORMATION
(All numerical data are as at 31 December 2021, except as otherwise indicated.)

General

The Bank is a regional multilateral development institution established in 1963. The Bank’s membership consists of 54 African states (the “regional member countries” or “RMCs”) and 27 non-African states (the “non-regional member countries”).

The central goal of the Bank’s activities is promoting sustainable economic growth and reducing poverty in Africa. The Bank provides financing for a broad range of development projects and programmes. In addition, it: (i) provides policy-based loans and equity investments; (ii) finances non-publicly guaranteed private sector loans; (iii) offers technical assistance for projects and programmes that provide institutional support; (iv) promotes the investment of public and private capital; and (v) responds to requests for assistance in coordinating RMC development policies and plans. The Bank also gives high priority to national and multinational projects and programmes that promote regional economic cooperation and integration. The Bank's 2013-2022 strategy (the “Ten Year Strategy”) focuses on achieving inclusive growth and assisting Africa to gradually transition to green growth. The Ten-Year Strategy is built around five core operational priorities, specifically, infrastructure development, regional integration, private sector development, governance, skills and technology. To accelerate the delivery on the Ten-Year Strategy and advance the transformation of Africa, the Bank decided in 2015 to place a sharper focus on five priority areas known as “The High 5s”. The High 5s are: Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa, and Improve the quality of life for the people of Africa.

The Bank’s capital stock is owned by its member countries. On 31 October 2019, at its Fifth Extraordinary Meeting, the Bank’s Board of Governors (the “Board of Governors”) adopted Resolution B/BG/EXTRA/2019/03 authorising the Seventh General Capital Increase (GCI-VII). Under the capital structure of the Bank, the share in the Bank’s overall share capital of regional member countries is 60 percent and that of non-regional member countries is 40 percent. As at 31 December 2021, the authorised capital of the Bank was UA 180,638.83 million.

Assets

Loan Portfolio – The Bank’s principal asset is its portfolio of loans. The Bank provides loans to its regional member countries and to public sector enterprises guaranteed by the governments of RMCs. The Bank also extends loans to private sector enterprises of its RMCs without government guarantee. It is the Bank’s general policy on sovereign lending that each loan to an entity other than a government should be guaranteed by the government within whose jurisdiction the financed project lies. Loans may be granted to eligible private sector entities without a government guarantee. Generally, such loans are secured by collateral. As at 31 December 2021, cumulative loans and grants signed, net of cancellations, amounted to UA 56.28 billion, UA 1.29 billion higher than 2020 while total disbursed and outstanding loans, before the accumulated provision for impairment, were UA 20.66 billion, a decrease of UA 0.68 billion over the UA 21.34 billion outstanding as at the end of 2020. Although the Bank experiences delays in payments on some of its loans, it expects that sovereign and sovereign guaranteed loans will eventually be paid, and such delays will only affect the timing of the cash flows on the loans. For non-sovereign and sovereign loans, a significant increase in credit risk is considered to have occurred when the rating at the reporting date has been downgraded or contractual payments are more than 30 days past due and the overdue amount is higher than UA 25,000. Except that in the case of sovereign loans, the rating downgrade and 30 days overdue must occur at the same time with the overdue amounts exceeding the set limit. If in a subsequent period, asset quality improves and any previously assessed significant increase in credit risk since origination is reversed, then the provision for doubtful debts reverts from lifetime expected credit loss (“ECL”) to 12-months ECL. Exposures whose credit rating remains within the Bank’s investment grade criteria are considered to have a low credit risk even where their credit rating has deteriorated.

Liquidity – The Bank holds sufficient liquid assets to secure the continuity of normal operations even in the unlikely event that it is unable to obtain additional resources from the capital markets for one year. To achieve this, the Bank computes a prudential minimum level of liquidity (“PML”) based on the projected net cash requirement for a rolling one-year period. The liquidity policy sets the PML as the Bank’s projected net cash requirements for a 1-year horizon and is updated quarterly and computed as the sum of four components: (1) 1-year debt service requirements; (2) 1-year projected net loan disbursements (loans disbursed less repayments) if greater than zero; (3) the loan equivalent value of signed guarantees; and (4) undisbursed equity investments. The maximum level of liquidity is determined by the Bank’s debt limits.

Liabilities, Capital and Reserves

Liabilities – As at 31 December 2021, the Bank’s total borrowings (including subordinated debt of UA 78.50 million) amounted to UA 25,115.71 million. The Bank raises resources in a cost-effective manner across markets in order to finance programmes and projects in its regional member countries and to meet its liquidity requirements. The capital adequacy framework approved by the Bank’s Board of Directors (the “Board of Directors”) adopted the use of a single debt to usable capital ratio to monitor the Bank’s leverage. The ratio caps the Bank’s total outstanding debt at 100 percent of usable capital. Usable capital comprises the equity of the Bank and the callable capital of its non-borrowing members rated A- or better. The Bank’s usable capital as at 31 December 2021 was UA 58,825.21 million and its debt to usable capital ratio, a measure of the Bank’s financial leverage, was 42.7 percent.

Capital and Reserves – Subscriptions to the capital stock of the Bank are made up of initial subscriptions to the capital, a voluntary capital increase, a series of special capital increases and general increases of the Bank’s capital. On 31 October 2019, the Board of Governors approved the Seventh General Capital Increase (GCI-VII). GCI-VII increased the authorised capital stock of the Bank by 125% from UA 69,472 million to UA 153,191 million with the creation of 8,371,881 new shares.

At its Extraordinary General Meeting held on 5 March 2021, the Board of Governors adopted a resolution, effective immediately, authorising the creation of temporary callable capital stock increasing the Bank’s capital from UA 153,191,360,000 to UA 181,795,830,000. During the same meeting, the Board of Governors approved and authorised the return and cancellation of temporary callable shares without Voting Powers, created in 2019 and subscribed to by Canada and the Kingdom of Sweden, from the total authorised capital stock of the Bank, as part of the interim measures pending the conclusion of the Seventh General Capital Increase. Consequently, the authorised capital of the Bank was reduced by UA 1,157,000,000, bringing it down to UA 180,638,830,000.

The par value of one share of the Bank’s capital is UA 10,000. The newly created 8,371,881 GCI-VII shares are composed of paid-up shares (6 percent) and callable shares (94 percent). The shares of the Bank are allocated to the regional and non-regional members such that, when fully subscribed, the regional members will hold 60 percent of the total capital stock of the Bank and the non-regional members will hold the balance of 40 percent.

As at 31 December 2021, of the Bank’s total subscribed capital of UA 148,473.62 million, an amount of UA 9,958.90 million (7 percent) represented the paid-up portion and UA 138,514.72 million (93 percent) was callable. The portion of paid-up capital for which the Bank has received payment, referred to as paid-in capital, amounted to UA 5,710.57 million as at 31 December 2021.

As at 31 December 2021, the callable capital of the Bank’s 27 non-regional member countries was UA 56,523.92 million, which represented 225.05 percent of the Bank’s total outstanding borrowings as at 31 December 2021. As at 31 December 2021, the callable capital of the Bank’s 21 industrialised member countries that are also members of the Development Assistance Committee (“DAC”) of the Organisation for Economic Cooperation and Development (“OECD”) (namely Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Korea, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States) was UA 53,290.97 million, representing 212.18 percent of the Bank’s total outstanding borrowings as at 31 December 2021.

Under the Bank Agreement, the total amount outstanding in respect of the ordinary operations of the Bank (consisting of approved loans less cancellations and repayments, plus equity participations) shall not at any time exceed the total amount of its unimpaired subscribed capital, reserves, and surplus. Such total amount outstanding as at 31 December 2021 was UA 30,448.40 million and such total capital (net of the Cumulative Exchange Adjustment on Subscriptions (“CEAS”), reserves and surplus) was UA 151,468.97 million, resulting in a ratio of 20.1 percent. The ratio of disbursed and outstanding loans (including irrevocable commitments to pay undisbursed amounts) to equity was 237 percent. The Bank’s total equity (paid-in capital and reserves net of CEAS) also referred to as risk capital, amounted to UA 8,705.92 million. The risk capital utilization rate, which measures the amount of capital consumed by the Bank's activities, was 84.3 percent.

Profitability

Although profit maximisation is not a primary objective, the Bank has earned a profit in every year since it began operations in 1966, except in 2015. For 2021, income before transfers approved by the Board of Governors amounted to UA 96.55 million. The Bank does not distribute dividends to its shareholders. Under the Bank Agreement, reserves have first claim on net income. After a determination has been made regarding the amount to be retained in reserves, any remaining amount is allocated to: (i) fulfil commitments or conditional undertakings approved by the Board of Governors; (ii) a surplus account; and/or (iii) distributed to key initiatives.

Accounting Standards

The financial statements of the Bank are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Risk Management and Internal Control

The Bank seeks to minimise its exposure to risks that are not essential to its core business of providing development finance and related assistance. Accordingly, the Bank’s risk management policies, guidelines and practices are designed to reduce exposure to interest rate, currency, liquidity, counterparty, legal and other operational risks while maximising the Bank’s capacity to assume credit risks to public and private sector clients, within its approved risk limits. The Bank’s risk management policies and practices are included in the notes to the financial statements.

Following the approval by the Board of Directors in 2004, the Bank established an Internal Control Unit (ICU) to implement, among other duties, the Committee of Sponsoring Organizations (COSO) control framework to regularly evaluate the effectiveness of its internal controls in all significant business operations. Management and the External Auditors issue an annual attestation on the effectiveness of the Bank’s internal controls over financial reporting as part of the annual audit process. The attestations at the end of 2021 are included elsewhere in this document.

The above information is qualified by the detailed information and financial statements appearing elsewhere in this Information Statement.

SUMMARY OF SELECTED FINANCIAL DATA

(Amounts expressed in millions of UA)

(*) Certain reclassifications of prior year’s amounts have been made to conform to the presentation in the current year. These reclassifications

did not affect prior year’s reported result.

(1)       Excludes loans approved but unsigned

(2)       Subscribed capital is net of the Cumulative Exchange Adjustment on Subscriptions

(3)       Net of the Special Reserve. Disbursed and outstanding loans include irrevocable reimbursement guarantees

(5)        The weighted average cost on borrowings excludes the mark-to-market (“MTM”) impact

(6)        Operating income plus interest expense, divided by interest expense

(7)       Indicates the Bank’s target ratio

(8)       The Bank’s policy limits the RCUR to 100 percent

The above information should be read in conjunction with the annual financial statements for the respective periods and is qualified by the detailed information and financial statements appearing elsewhere in this Information Statement.

THE BANK

The Bank is a regional multilateral development institution with membership comprising 54 African states and 27 non-African states from the Americas, Asia, and Europe (the “regional members” and “non- regional members”, respectively). The Bank was established in 1963 and operates under the Bank Agreement signed in Khartoum, Sudan, on 4 August 1963. The Bank began operations in 1966 with 29 regional members. The Bank Agreement was amended on 7 May 1982 to permit non-regional countries to be admitted as members. A list of the members as at 31 December 2021 showing each member’s voting power and the amount of its subscription to the Bank’s capital stock is provided in Note K to the financial statements included herein. In conformity with the finding of the United Nations’ General Assembly, the membership of the former Yugoslavia was formally suspended by the Board of Directors (see Note K to the financial statements included herein).

The central goal of the Bank’s activities is promoting sustainable economic growth and reducing poverty in Africa. The Bank provides financing for a broad range of development projects and programmes. In addition, it: (i) provides policy-based loans and equity investments; (ii) finances non-publicly guaranteed private sector loans; (iii) offers technical assistance for projects and programmes that provide institutional support; (iv) promotes the investment of public and private capital; and (v) responds to requests for assistance in coordinating RMC development policies and plans. The Bank also gives high priority to national and multinational projects and programmes that promote regional economic cooperation and integration. The Bank's 2013-2022 strategy (the “Ten-Year Strategy”) focuses on achieving inclusive growth and assisting Africa to gradually transition to green growth. The Bank is responding to the challenge of supporting inclusive growth and the transition to green growth by scaling up investment and implementation of the Ten-Year Strategy by focusing on five priority areas, referred to as the “High 5s”. The High 5s are to “Light up and power Africa”; “Feed Africa”; “Industrialize Africa”; “Integrate Africa” and “Improve the quality of life for the people of Africa”.

The Bank’s ordinary operations are financed from its ordinary capital resources. The ordinary capital resources include subscribed capital stock, borrowings by the Bank, loan repayments, income from loans, equity investments and guarantees and other funds and income received by the Bank in its ordinary operations. The capital stock of the Bank is divided into paid-up capital and callable capital. The Bank's paid-up capital is the amount of capital payable over a period specified in the Board of Governors' resolution approving the relevant capital increase. The callable capital is subject to call only as and when required by the Bank, to meet obligations incurred on funds borrowed or loans guaranteed.

In addition to its ordinary operations, the Bank administers the African Development Fund (the “ADF”), which provides loan financing on concessionary terms to RMCs that are in the greatest need of such financing. The ADF is legally and financially separate from the Bank, and the Bank is not liable for any obligations of the ADF. The Bank also administers, under separate agreements and arrangements, the Nigeria Trust Fund (the “NTF”) and several other special and trust funds. The resources of these special and trust funds are held, committed and otherwise disposed of entirely separately from the Bank’s ordinary capital resources (see Note S-3 and S-4 to the Financial Statements included herein).

MEMBERSHIP OF CERTAIN COUNTRIES

Information with respect to the membership and total subscription of certain member countries, including the United States, Japan, France, Germany, Switzerland and the United Kingdom, is included on the inside back cover in copies of this Information Statement circulated in such respective countries.

GOVERNMENTAL APPROVAL OF BORROWINGS

As required by the Bank Agreement, offerings of Securities will only be made in the currency or markets of a member country after the government of such member has consented to the raising of funds by the Bank and the issuance of Securities in such currency or markets and has agreed that the proceeds from the sale of securities may be exchanged for the currency of any other country without restriction.

CAPITALISATION

General

The following table sets forth the outstanding borrowings, capital stock and reserves and net income of the Bank as at 31 December 2021:

Authorised Capital

The Bank’s original authorised capital stock of UA 250 million has been increased in line with the provisions of the Bank Agreement, which provides that the authorised capital stock may be increased as and when the Board of Governors deems it advisable. The authorised capital stock of the Bank has undergone several increases recently. Four special capital increases were approved in 2008 (Resolution B/BG/2008/07), 2009 (Resolution B/BG/2009/05), 2012 (Resolution B/BG/2012/04) and 2019 (Resolution B/BG/2019/04), to enable membership and subscription of shares by the Republic of Turkey, the Grand Duchy of Luxembourg, the Republic of South Sudan, and Ireland, respectively.

In 2009, Canada and Korea responded favourably to the Bank’s need for expanded financial capacity pending decisions on a sixth General Capital Increase (GCI-VI) of the Bank by a temporary increase of their callable capital with no attached voting rights. The special capital increase, adopted by the Board of Governors Resolution B/BG/2010/02, brought the authorised capital of the Bank to UA 23,947 million. The Resolution provided for the retirement and cancellation of the temporary callable capital subscribed by Canada (UA 1.63 billion) and the Republic of Korea (UA 0.19 billion) upon the effectiveness of their respective subscriptions to a general capital increase and pursuant to authorization by the Board of Governors.

GCI-VI was approved by the Board of Governors’ Resolution B/BG/2010/08, raising the authorised capital of the Bank from UA 23,947 million to UA 67,687 million, representing a 200 percent increase of the Bank’s authorised capital (excluding Canada and Korea’s temporary callable capital and special capital increases for Turkey and Luxembourg) with a paid-up capital of 6 percent. The shares created under GCI-VI were allocated to regional and non-regional members in such proportions that when fully subscribed, the regional members would hold 60 percent of the total voting power and the non-regional members would hold 40 percent of the total voting power. Pursuant to due authorisation by resolutions of the Board of Governors, the temporary callable shares of Canada and Korea were cancelled in 2011 and 2012, respectively.

In 2019, the Board of Governors adopted and authorised the creation of non-voting temporary callable capital of 115,700 shares as part of the interim measures pending the conclusion of the Seventh General Capital Increase (GCI-VII). Canada subscribed for 79,000 shares and Sweden for 35,700 shares in July 2019 and December 2019 respectively. In line with the terms of their subscriptions, both member countries returned the non-voting temporary callable shares to the Bank following the effectiveness of their subscriptions to GCI-VII on 10 December 2020 for Sweden, and 18 February 2021 for Canada.

On 31 October 2019, the Board of Governors approved GCI-VII, representing a 125 percent increase of the capital resources of the Bank. Consequently, GCI-VII increased the authorized capital stock of the Bank from UA 69,472 million¹ to UA 153,191 million with the creation of 8,371,881 new shares. The new shares are allocated to the regional and non-regional members in such proportions that, when fully subscribed, the regional members would hold 60 percent of the total voting power of the Bank, whilst the non-regional members would hold 40 percent of the total voting power. The new capital stock of the Bank is divided into paid-up and callable shares in the proportion of 6 percent and 94 percent respectively.

The paid-up portion of the GCI-VII subscription is payable in twelve annual instalments for member countries eligible to receive financing from ADF and eight annual instalments for member countries not eligible to receive financing from ADF. A member country’s payment of the first instalment triggers its subscription, and the entire callable shares are issued. Shares representing the paid-up portion of the subscription are issued only as and when the Bank receives the actual payments for such shares.

At the Seventh Extraordinary General Meeting held on 5 March 2021, the Board of Governors adopted and authorized the creation of 2,860,447 temporary callable capital shares increasing the Bank’s authorised capital from one UA 153,191,360,000 to UA 181,795,830,000. The new shares created which are in the form of callable shares, will expire on 31 December 2023, or such earlier date as the Bank may determine. All Instruments of Subscription are qualified and effective only in the case of a single event leading to a reduction in the stock of the Bank’s AAA-rated callable capital by at least 30 percent that would have the effect of reducing the coverage of the Bank’s net debt by AAA-rated callable capital below 100 percent (the “Qualifying Event”). Upon the occurrence of the Qualifying Event, members who have subscribed to the temporary callable capital stock will acquire certain voting rights. Each share will have a par value of UA 10,000, as set forth in the Resolution.

¹ The amount of UA 69,472,550,000 includes: (i) the special capital increase of UA 1,340,500,000, authorized under Resolution B/BG/2019/04 to allow the Republic of Ireland to subscribe to UA 536,200,000. The remainder of UA 804,300,000 were to be subscribed by RMCs to maintain the 60 percent - 40 percent ratio between RMCs and non-RMCs ; (ii) the temporary increase in non-voting callable capital of UA 800,000,000 allocated to the Government of Canada under Resolution B/BG/2019/09 ; and (iii) the temporary increase in non-voting callable capital of UA 357,000,000 allocated to the Kingdom of Sweden pursuant to Resolution B/BG/EXTRA/2019/01.

At the same Seventh Extraordinary Meeting held on 5 March 2021, the Board of Governors approved the requests to cancel the non-voting temporary callable shares of the Kingdom of Sweden and Canada mentioned in the above paragraph. In addition to the cancellation process, the Board of Governors approved a commensurate reduction in the authorised capital stock of the Bank by 115,700 shares in conformity with Article 29 (2) (a) of the Agreement establishing the Bank. The authorised capital of the Bank was thus reduced by UA 1,157,000,000, bringing it down to its current level of UA 180,638,830,000.

Subscribed Capital

Member countries subscribe to the capital of the Bank by depositing an instrument of subscription. The subscription is deemed effective when the member country pays the first instalment of the paid-up capital. The shares representing the paid-up portion are issued when the Bank receives the actual payments for such shares, while the entire callable shares are issued upon the payment of the first instalment of the paid-up capital.

As at 31 December 2021, the total subscribed capital of the Bank amounted to UA 148,473.62 million of which, an amount of UA 9,958.90 million (7 percent) was paid-up capital and UA 138,514.72 million (93 percent) was callable capital.

The Bank Agreement provides that shares of capital stock are to be issued at par value (UA 10,000 per share), unless the Board of Governors decides by a majority vote to issue them on other terms. The liability of the members is limited to the unpaid portion of the issue price of the shares. Shares are transferable only to the Bank.

Callable Capital

As at 31 December 2021, the Bank’s total callable capital was UA 138,514.72 million. Of this amount, UA 56,523.92 million represented the callable capital of the Bank’s non-regional member countries. The callable capital of the 21 Bank members, who are also members of the DAC of the OECD, was UA 53,290.97 million.

Callable capital is that portion of the subscribed capital stock subject to call only as and when required by the Bank to meet its obligations on borrowings of funds for inclusion in its ordinary capital resources or guarantees chargeable to such resources. In the event of a call, payment must be made by the member countries concerned in gold, convertible currency or in the currency required to discharge the obligation of the Bank for which the call was made.

Calls on the callable capital are required to be uniform in percentage on all shares of capital stock, but obligations of the members to make payment upon such calls are independent of each other. The failure of one or more members to make payments on any such call would not excuse any other member from its obligation to make payment. Further calls can be made on non-defaulting members, if necessary, to meet the Bank’s obligations. However, no member could be required to pay more than the unpaid balance of its ordinary capital subscription. No call has ever been made on the callable capital of the Bank.

Paid-up Capital

As at 31 December 2021, the total paid-up capital stock of the Bank amounted to UA 9,958.90 million.

The Board of Governors determines the modes of payment for paid-up capital stock as well as the period over which payment is to be made. Prior to May 1981, all payments in respect of the paid-up capital were required to be made in convertible currencies. However, with respect to subscriptions under the capital increases authorised in May 1979 (but effective December 1982) and in May 1981, regional members had the following two options for making their payments: (i) five equal annual instalments, of which at least 50 percent is payable in convertible currency and the remainder in local currency; or (ii) five equal annual instalments, of which 20 percent is payable in convertible currency and 80 percent in non-negotiable, non-interest bearing notes. Such notes were payable solely in convertible currency in ten equal annual instalments, commencing on the fifth anniversary of the first subscription payment date. Non-regional members were required to make their payments solely in convertible currencies.

For GCI-IV, regional members were required to make payment for their subscriptions as follows: (i) 50 percent in five equal annual instalments in cash in freely convertible currencies; and (ii) 50 percent by the deposit of five non-negotiable, non-interest-bearing notes of equal value denominated in UA and payable between the sixth and tenth year of subscription in convertible currencies according to a specific schedule. For non-regional members, payments were to be made in five equal annual instalments in their national currencies, if such currencies were freely convertible, or in notes denominated in convertible currencies and payable on demand.

For GCI-V, the paid-up portion of the shares was payable in eight equal and consecutive annual instalments, in convertible currencies.

For GCI-VI, the paid-up portion of the shares was payable in twelve equal and consecutive annual instalments for those members eligible to receive financing exclusively from the ADF, and in eight equal and consecutive annual instalments by all other members. Payments were only made in convertible currencies. Shares representing the paid-up portion of subscriptions were only issued when the Bank received actual payments for such shares.

For GCI-VII, the paid-up portion of the subscription is payable in eight equal annual instalments for member countries not eligible to borrow from the ADF, and in twelve equal annual instalments for member countries eligible to borrow from the ADF. Some member countries have elected to pay their subscription in fewer instalments, opting for the advance payment scheme, and have received a commensurate discount on their GCI-VII subscription.

The paid-in capital is the portion of the paid-up capital that has actually been received. As at 31 December 2021, the total paid-in capital of the Bank was UA 5,710.57 million made up of: (1) UA 5,595.40 million paid in convertible currencies; and (2) UA 115.17 million paid in local currencies.

For a more complete description of subscriptions to capital stock, including amounts due but unpaid, and voting power of members, see Note K to the financial statements.

Cumulative Exchange Adjustment on Subscriptions

As at 31 December 2021, the Cumulative Exchange Adjustment on Subscriptions (‘‘CEAS’’) representing the translation difference on subscriptions was a negative UA 155.84 million. It should be noted that prior to GCI-IV, payments on the share capital subscribed by the non-regional member countries were fixed in terms of their national currencies. Furthermore, payments by regional and non-regional members in US dollars were fixed at an exchange rate of 1 UA= US$ 1.20635 (GCI-IV and GCI-V), and, at a fixed exchange rate of 1 UA = 1.30777 for Euro. Fixed exchange rates were also offered for the Special Drawing Right (SDR) basket currency under GCI-VI and GCI-VII. As a result, losses and gains could arise from converting these currencies to UA when received. Such conversion differences are reported in the CEAS account.

Non-Borrowing Members

The following table sets forth the callable portion of the capital subscription and the total capital subscription of non-borrowing members as at 31 December 2021⁽¹⁾.

(Expressed in UA million)

* Member of the DAC of the OECD.

Maintenance of Currency Values

Pursuant to the Bank Agreement, each member is required to pay to the Bank any additional amount of its national currency necessary to maintain the value of all such national currency paid to the Bank on account of its subscription whenever the par value of the member’s currency in terms of the UA or its foreign exchange value has, in the opinion of the Bank, depreciated to a significant extent. In the event of an increase in such par value or such foreign exchange value, the Bank is required, pursuant to the Bank Agreement, to pay to the member an amount of its currency necessary to adjust in a similar way the value of all such national currency held by the Bank on account of its subscription.

It was decided in 1979 by the Board of Governors that the application of the maintenance of value would be suspended until such time as the Board of Directors determines that the SDR is being definitively applied as the unit of value applicable to members’ subscriptions in the International Bank for Reconstruction and Development (the “World Bank”) for purposes of the maintenance of value provisions of its Articles of Agreement. In October 1986, the World Bank decided that the capital stock of the World Bank would be valued in terms of the SDR, at the rate at which the SDR was valued in terms of U.S. dollars immediately before the introduction of the basket method of valuing the SDR on 1 July 1974. This value was 1 SDR=$1.20635.

Voting Rights

Each member country has 625 votes and, in addition, one vote for each share of the capital stock of the Bank held by that member. In effect, a member country is allowed to exercise: (1) the votes attributed to the portion of the paid-up shares which have been issued to such member; and (2) the votes attributable to the entire callable capital portion of the stock subscribed when the subscription of such member is deemed effective.

In the event of any delay or default in payment of the paid-up capital, the member's right to vote the corresponding callable shares will be suspended until the payment is received by the Bank.

Reserves

Reserves consist of retained earnings, fair value gains/losses on investments designated at fair value through other comprehensive income, gains/losses on borrowings at fair value arising from “own credit”, and remeasurements of defined benefit liability. Retained earnings include the net income for the period, after taking into account transfers approved by the Board of Governors, and net charges recognized directly in equity. Income before transfers approved by the Board of Governors for the year ended 31 December 2021 amounted to UA 96.55 million.

SUMMARY STATEMENT OF INCOME AND EXPENSES

The following summary of income and expenses relating to the ordinary capital resources of the Bank for the years ended 31 December 2021, 2020, 2019 and 2018, has been derived from the audited financial statements of the Bank for the respective years. This summary should be read in conjunction with the audited financial statements and related notes for the respective years.

(*) The Bank Group is composed of three entities: the African Development Bank, the African Development Fund and the Nigeria Trust Fund

OPERATIONS OF THE BANK

Lending Operations

The Bank is authorised under the Bank Agreement to make, participate in or guarantee loans to governments of its regional member countries, their agencies and political subdivisions, and to public and private enterprises operating within such countries, as well as to international or regional entities concerned with economic development in the region. It is the general policy of the Bank that all loans be made to or guaranteed by national governments, central banks or other governmental entities engaging the full faith and credit of such governments. The Bank, however, has adopted a strategy and policies for the promotion of the private sector in RMCs under which loans, equity and equity-linked products, such as subordinated loans, may be granted to eligible private sector entities without a government guarantee. Such loans are generally secured by collateral.

Under the Bank Agreement, the total amount outstanding in respect of the ordinary operations of the Bank (comprised of approved loans less cancellations and repayments, plus equity participations) may not at any time exceed the total amount of its unimpaired subscribed capital, reserves and surplus included in its ordinary capital resources. As at 31 December 2021, such total outstanding amount was UA 30,448.40 million, 2.6 percent lower than in 2020.

In evaluating projects, the Bank considers a wide variety of factors, including the economic, technical and financial feasibility of the project, the effect on the general development activity of the country concerned, the contribution to the removal of impediments to economic development, the capacity of the borrowing country to service additional external debt, and the effect on the balance of payments. Other factors include the effect of new technologies on productivity, and the effect of the project on employment opportunities and the environment. In addition, the Bank considers the ability of the borrower to obtain financing elsewhere on terms and conditions that the Bank considers reasonable. One of the principal functions of the Bank is to direct resources to projects that form part of a national or regional development programme, and which benefit two or more regional member countries, particularly projects designed to stimulate intra-African trade and economic development.

It is the policy of the Board of Directors to consider loans and other financial products only on the basis of written reports prepared by staff of the Bank. These reports set forth detailed information regarding the technical feasibility and economic merits of the project to be financed and relevant financial and legal matters, as well as the economic situation of the country in which the project is located. The process of identifying and appraising a project and of approving and disbursing a project loan often extends over several years. The average time to prepare a project from the project concept note stage to Board of Directors’ approval ranges from approximately six to twelve months depending on the complexity of the project. The appraisal of projects is carried out by the Bank’s staff, in some cases with the help of external consultants. Loans do not become effective until certain legal requirements are fulfilled by the borrower. The Bank generally requires that borrowers seek competitive bids from potential suppliers, that engineering plans and specifications are drawn up independently of suppliers or manufacturers and, if appropriate, that independent consultants be retained by borrowers. The Bank supervises the disbursements of its loans to ensure that the proceeds are applied only for project expenditures as incurred and are used by the borrower only for the procurement of goods and services required for the project being financed. In order to monitor the effective implementation of projects being financed, the Bank maintains a continuous relationship with the borrower after a loan is made.

The Bank’s policy of loan administration and project supervision involves field missions, where necessary, and the submission of progress reports on a regular basis. Subsequent to physical completion, the project is evaluated to determine the extent to which productivity and other goals, such as envisaged contribution towards economic growth and development outcomes, were met. Since loan disbursements are made against project expenditures, the disbursement period frequently extends over five to seven years.

Loans are disbursed in four ways: (1) by reimbursement to borrowers, (2) by direct payment to suppliers for expenses incurred in connection with approved projects, (3) by advances to borrowers of up to 10 percent of a given loan commitment to be accounted for by the borrower, or (4) by the issuance of irrevocable commitments to commercial banks backing their letters of credit to suppliers for shipment of specified goods to borrowers.

Since 1987, the Bank’s lending operations have included non-project lending in the form of sector investment and rehabilitation and structural adjustment lending. The Bank’s participation in such non-project lending has generally been in conjunction with other development organisations, including the World Bank.

In 2016, the Bank launched the Industrialization Strategy for Africa 2016–2025 to succeed the Private Sector Development Strategy approved in 2013 for the period 2013-2017. Led by the Private Sector, Infrastructure and

Industrialization Complex, the strategy aims to increase the capacity of African firms to compete with imported products in local markets; boost regional trade; support development and expansion of small and medium enterprises and industry clusters. The strategy will pursue six flagship programmes aimed at fostering industrial policies, catalyzing funding in infrastructure and promoting private sector development. They include programmes to catalyze funding in infrastructure and industry projects; expand liquid and effective capital markets; promote and drive enterprise development; promote strategic partnerships; develop efficient industry clusters; and foster successful industrial policies.

Total Bank approvals for non-sovereign operations in 2021 amounted to UA 549 million – a increase of 39.7 percent from the UA 393 million non-sovereign operations approved in 2020. The 2021 approvals comprised loans and grants, equity participation and guarantees amounting to UA 2,449.14 million in total.

Following the approval by the Board of Directors on 13 May 2014 of a proposal to allow eligible ADF-only countries access to the Bank’s sovereign window, several low-income African countries can now secure non-concessionary resources from the Bank for financing viable projects. The new approach allows the Bank to respond proactively to the improved economic conditions in RMCs over the past decade and underscores the African Development Bank Group (the “Bank Group”)’s recognition of the strong economic progress of African countries during the last decade, and its mandate to help to sustain inclusive growth in countries.

Detailed information on loans approved by the Bank as at 31 December 2021 (excluding fully repaid loans and cancelled loans) are set forth in Note C and Note G to the financial statements included herein.

Approvals and Disbursements

In 2021, the Bank’s loan disbursements (excluding equity participation) amounted to UA 1,677.88 million. Total loan approvals (excluding special funds and equity participations) by the Bank amounted to UA 2,440.00 million in 2021; a 1.7 percent decrease compared to 2020 approvals of UA 2,482.72 million.

Currency composition of loans

The following table sets forth the Bank’s disbursed and outstanding loans by currency as at 31 December 2021 and 2020:

Disbursed and Gross Outstanding Loans by Currency

(Amounts expressed in UA million)

Overdue and Non-Performing Loans

At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for exposures since initial recognition by comparing the risk of a default occurring over the remaining expected life from the reporting date and the date of initial recognition.

In line with expected credit loss (ECL) principles, Non-Performing Loans are categorized as credit impaired when events that have a detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition. For impairment purposes, the Bank recognizes lifetime ECL for all non-performing financial assets, as a specific provision. Evidence of impairment includes indications that the borrower is experiencing significant financial difficulties, or a default or delinquency has occurred. A default occurs when either or both of the following happens:

Interest revenue is calculated by applying the effective interest rate to the amortized cost (net of the applicable impairment loss provision) for non-performing financial assets. For performing assets, interest revenue is recognized on the gross carrying amount.

A financial asset is no longer considered as impaired when all past due amounts, including interest, have been recovered, and it is determined that the principal and interest are fully collectible in accordance with the original contractual terms or revised market terms of the financial instrument with all criteria for the impaired classification having been remedied.

The Bank has never written off any of its sovereign guaranteed outstanding loans. In line with the status of the Bank and its relationship with its borrowers and guarantors, the Bank expects that each of these loans will ultimately be repaid and, accordingly, has no expectation of writing off outstanding loans in the future. The Bank maintains a continuous dialogue with its borrowers as part of its efforts to ensure prompt payment on all its loans

Loan Terms

Loans are stated at their principal amounts outstanding less any allowance for impairment. Except for private sector development loans, all of the Bank’s loans are made to, or guaranteed by, regional member countries. Amounts disbursed on loans are repayable in the currency or currencies disbursed by the Bank or in other freely convertible currency or currencies approved by the Bank. The amount repayable in each of these currencies shall be equal to the amount disbursed in the original currency. Loans are granted for a maximum period of 25 years, including a grace period not exceeding 8 years, which is typically the period of project implementation.

The following table sets forth the maturity structure of disbursed and gross outstanding loans as at 31 December 2021 and 2020:

Maturity Structure of Gross Loans as at 31 December 2021 and 2020

(Amounts expressed in UA million)

Borrowing Policies

The Board of Directors has authorised the issuance of two classes of debt, senior debt and subordinated debt. All debt of the Bank is senior debt unless by its terms it is expressly subordinated in right of payment to other debt of the Bank. Both classes rank pari passu except in the event of a call by the Bank on its callable capital, whereupon the holders of the subordinated debt of the Bank will be subordinated in right of payment to holders of senior debt.

The Bank’s policy limits its debt to usable capital ratio to 100 percent. The Bank has also adopted the working principle that, within the limitations set forth, the actual amount of its senior debt outstanding at any time should be a function of its objective of obtaining and maintaining a rating on its securities at the highest levels from recognised rating agencies. As at 31 December 2021, the amount of total outstanding borrowings of UA 25,115.71 million (both senior and subordinated debt) represented 42.7 percent of the usable capital and 18.1 percent of the total callable capital of UA 138,514.72 million of all members of the Bank.

In December 2001, the Bank established the unlimited Global Debt Issuance Facility (GDIF) to replace its Euro-Medium Term Note Programme and US Medium Term Note Programme with respect to its future borrowings. The Bank also has a Euro Commercial Paper (ECP) programme and a USD Commercial Paper (USCP) programme of EUR 2 billion (for the ECP and USCP jointly). The GDIF and the ECP and USCP programmes maximise the Bank’s financing flexibility and enable its continuous issuance of notes in the Euro, the US and other domestic markets.

The Bank has entered into arrangements whereby, in the event of a call on its callable capital, it would request its member countries to make payment in response to such a call into a special account established by the Bank with the Federal Reserve Bank of New York, or its successor duly designated for the purpose. The terms of such account provide that the proceeds of a call must first be applied in payment of, or in provision for full settlement of all outstanding obligations of the Bank incurred in connection with the issuance of senior debt before any other payment shall be made with such proceeds.

The weighted average life of the Bank’s outstanding borrowings as at 31 December 2021, 2020, 2019 and 2018 was 4.05, 3.84, 4.01 and 4.01 years respectively.

As at 31 December 2021, the Bank’s outstanding borrowings were denominated in twenty-three currencies or currency units.

The table below sets forth the maturity structure of the Bank’s outstanding borrowings as at 31 December 2021:

The following table sets forth for the periods indicated the average interest rates on the Bank’s loans, the return on its average earning assets, the average cost of its funded debt and other funds available and its interest coverage ratio:

Selected Financial Ratios

(1)       Interest accrues only on disbursed and outstanding loan amounts.

(2)        The weighted average cost on borrowings excludes the MTM impact

(3)       Net income before distribution plus interest expense, divided by interest expense.

Asset and Liability Management

The Bank’s Asset and Liability Management (“ALM”) activities include all debt funding transactions, investment of liquid resources, managing the currency exposure and operational aspects of the Bank’s lending and equity investment operations.

The principal objective of the Bank’s ALM operations is to ensure that the Bank is able to provide flexible lending and investment products that meet client needs, while simultaneously reducing exposure to non-core risks such as market risk (interest rate, foreign exchange and liquidity risk), counterparty credit risk and operational risk in line with the Bank’s over-arching risk management philosophy.

Liquid Assets and Liquidity Policy

The Bank’s principal liquidity risk management objective is to hold sufficient liquid resources to enable it to meet all probable cash flow needs for a rolling 1-year horizon without additional financing from the capital markets.

In order to minimize liquidity risk, the Bank maintains a prudential minimum level of liquidity (PML) based on the projected net cash requirement for a rolling 1-year period. The PML is updated quarterly and computed as the sum of four components: (1) 1-year debt service requirements; (2) 1-year projected net loan disbursements (loans disbursed less repayments) if greater than zero; (3) loan equivalent value of signed guarantees; and (4) undisbursed equity investments.

Generally, liquid assets of the Bank are invested in marketable securities issued or guaranteed by the member countries or public entities thereof, supranational, corporate and financial institution obligations, and time deposits. The Bank also has limited exposure to asset and mortgage-backed securities. All marketable securities are valued at market value with the exception of certain investments in debt securities intended to be held to maturity which are carried at amortised cost using the effective interest method.

The Bank’s cash and treasury investments (net of repurchase agreements) as at 31 December 2021 totalled UA 13,097.04 million, compared to UA 11,158.00 million at the end of 2020. Investment income for 2021 amounted to UA 129.34 million or a return of 1.07 percent on an average liquidity level of UA 12.13 billion, compared to an income of UA 181.45 million, or a return of 1.53 percent, on an average liquidity level of UA 11.83 billion in 2020. The decrease was primarily due to lower interest rates, which negatively impacted income on the USD treasury investment portfolio.

The Bank’s liquid assets are tranched into three portfolios, namely operational portfolio, prudential portfolio, and equity-backed portfolio, each with a different benchmark that reflects the cash flow and risk profile of its assets and funding sources. These benchmarks are one-month London Interbank Bid Rate (LIBID) for the operational portfolio, and 6-month London Interbank Offered Rate (LIBOR), resetting on February 1 and August 1 for the prudential portfolio. The operational and prudential portfolios are held for trading. The equity-backed portfolio is managed against a repricing profile benchmark with 10 percent of the Bank’s net assets repricing uniformly over a period of 10 years and is held at amortized cost.

Bank Rating

The Bank monitors and manages its key financial strength metrics in a stringent manner and is rated by four major rating agencies. For 2021, the rating agencies, Standard & Poor’s, Moody’s, Fitch Ratings, and the Japan Credit Rating Agency have reaffirmed their AAA and AA+ rating of the Bank’s senior and subordinated debts respectively, with a stable outlook. Their ratings reflect and confirm the Bank’s strong liquidity and capital position, strong membership support, preferred creditor status, sound capital adequacy and prudent financial management and policies.

Equity Participations

The Bank may invest in equities either directly or indirectly, through appropriate funds and other investment vehicles. The Bank’s objective in such equity investments is to promote the economic development of its regional member countries and in particular the development of their private sectors. The Bank’s equity participation is also intended to promote the efficient use of resources, promoting African participation, playing a catalytic role in attracting other investors and lenders and mobilizing the flow of domestic and external resources to financially viable projects, which also have significant economic merit.

Unless otherwise approved by the Board of Directors, the Bank’s equity participation shall not exceed 25 percent of the equity capital of the entity in which it invests. The Bank therefore does not seek a controlling interest in the companies in which it invests, but closely monitors its equity investments through board representation. In accordance with the Board of Governors’ Resolution B/BG/2009/10 of 13 May 2009, total equity investment by the Bank shall not at any time exceed 15 percent of the aggregate amount of the Bank’s paid-in capital and reserves and surplus (risk capital) included in its ordinary capital resources. The Bank’s equity participations at the end of 2021 amounted to UA 983.20 million.

The Bank has equity participations in, among others, various regional and sub-regional development banks and other public and private sector financial institutions such as the African Export-Import Bank, Shelter-Afrique, Eastern and Southern African Trade and Development Bank, and commercial banks as well as in several regional private equity funds.

Under IFRS 9 equity investments must be measured at fair value through profit or loss. However, where the equity investment is not held for trading, an entity has the option to take fair value changes into other comprehensive income, with no recycling of the change in fair value to profit or loss if the investment is subsequently derecognized. As the Bank’s equity investments are currently held for strategic purposes of enhancing development in regional member countries rather than for trading, the Bank has elected to designate all its equity investments as at fair value through other comprehensive income.

The underlying assets of entities in which the Bank has equity investments are periodically fair valued by fund managers or independent valuation experts using market practices. The fair value of investments in listed enterprises is based on the latest available quoted bid prices. The fair value of investments in unlisted entities is assessed using appropriate methods, for example, discounted cash flows. The fair value of the Bank’s equity participations is measured as the Bank’s percentage ownership of the net asset value of the funds.

Special and trust funds

In addition to its ordinary resources, the Bank administers various special and trust funds for purposes which are consistent with the Bank’s objective of promoting the economic development and social progress of its regional member countries. The resources of special and trust funds are required to be held, used, committed, invested or otherwise disposed of entirely separately from the ordinary capital resources of the Bank. The administration of each of these funds is subject to the Bank Agreement and financial regulations, specific rules and regulations, and applicable policies of the Bank. The Bank typically receives an administrative fee for managing these funds.

The Bank also manages the ADF and the NTF, both of which supplement the activities of the Bank. In addition, the Bank has been entrusted with the administration of grant funds on behalf of donors, including member countries, agencies and other entities. Grant resources are restricted for specific uses which include the co-financing of Bank lending projects, and technical assistance for borrowers including feasibility studies, project preparation and capacity building. Details of these funds are disclosed in Notes S-4 and S-5 to the financial statements included herein.

African Development Fund

The ADF was established in 1972 pursuant to an agreement between the Bank and 15 non-regional members (the “ADF Agreement”) to provide loans on concessionary terms to the RMCs. The ADF and all of its resources are separate and entirely independent from those of the Bank. The Bank assumes no liability for any of the obligations of the ADF.

The ADF Agreement designates a Board of Governors (the “ADF Board of Governors”) as the ADF’s highest policy making organ. The ADF Board of Governors meets at least once annually. The ADF Board of Directors, which includes seven non-regional members nominated by their constituencies and seven executive directors representing the ADB, is responsible for overseeing the general operations of the ADF.

The ADF uses the UA as the measure of the subscription of its participants and of its loans and for statistical and financial reporting purposes. Following amendment of the ADF Agreement, the UA of the ADF has been aligned with the UA of the Bank with effect from 1 January 1993.

The purpose of the ADF is to assist the Bank in making an effective contribution to the economic progress and social development of the regional member countries and to promote cooperation among them. The operations of the ADF supplement those of the Bank. In contrast to the lending policy of the Bank, the ADF provides long-term financing for projects on concessionary terms. The ADF’s loan financing is directed primarily at those RMCs which are in the greatest need of such financing.

The resources of the ADF primarily consist of subscriptions by the Bank, subscriptions and contributions by ADF State Participants, as well as other resources received by the ADF.

ADF has continued to receive additional resources mostly from its State Participants in the form of periodic general replenishments, typically conducted every three years. The two most recent are the Fourteenth Replenishment of the ADF (“ADF-14”) and the Fifteenth Replenishment of the ADF (“ADF-15”). ADF-14 became effective on 20 June 2017 following its adoption by the ADF Board of Governors on 27 April 2017. During the negotiations of the ADF-14 in Luxembourg from 28 to 29 November 2016, Deputies agreed on a resource level of UA 5.04 billion, comprised of donor subscriptions of UA 3.38 billion, including a grant element of UA 0.14 billion from Concessional Donor Loans (CDL) and Bridge Loans, donor contributions of UA 0.12 billion in the form of CDL (net of grant element), supplementary contributions of UA 0.01 billion, Advanced Commitment Capacity or internally generated resources of UA 0.74 billion and a technical gap of UA 0.79 billion. As at 31 December 2021, State Participants had subscribed a total amount of UA 3.34 billion (including the grant element of CDLs), representing 99 percent of the ADF-14 pledged amount.

On the other hand, ADF-15 became effective on June 30, 2020 following its adoption by the ADF Board of Governors on May 14, 2020. State Participants agreed on an ADF-15 resource level of UA 5.62 billion covering the operational period of 2020-2022 and comprised of: (i) Donor subscriptions of UA 3.55 billion; (ii) Concessional Donor Loans of UA 0.71 billion (including the grant element of concessional donor loans); and (iii) Advanced Commitment Capacity of UA 1.36 million. Three Regional Member Countries – Angola, Egypt, and South Africa – also pledged and subscribed to ADF-15. As of 31 December 2021, a total of UA 3,711.31 million (including the grant element of CDLs) in instruments of subscription (IoS) had been received from ADF-15 subscriptions.

The cumulative subscriptions to the ADF amounted to UA 33.96 billion as at 31 December 2021. ADF approvals stood at UA 1,263.25 million, representing an increase of 34.6 percent against 2020.

Loans and grants disbursed under ADF decreased by 21.4 percent to stand at UA 1.36 billion in 2021 from UA 1.73 billion in 2020. As at 31 December 2021, cumulative disbursements on loans and grants amounted to UA 30.39 billion compared to UA 29.03 billion at the end of the previous year. A total of 2,550 loans and grants were fully disbursed for an amount of UA 25.54 billion, representing 84.04 percent of cumulative disbursements.

Loans are generally granted under conditions that allow for repayment up to 40 years after a 10-year grace period commencing from the date of the loan agreement. Loan principal is generally repayable from years 11 through 20 at a rate of 2 percent per annum and from years 21 through 40 at a rate of 4 percent per annum. A service charge at a rate of 0.75 percent per annum on the principal amount disbursed and outstanding is payable by the borrower semi-annually. Loans approved after June 1996 carry a 0.5 percent per annum commitment charge on the undisbursed portion. Such commitment charge commences to accrue after 120 days from the date of signature of the loan agreement. With effect from the Twelfth Replenishment of the ADF, loans to blend, gap and graduating countries carry differentiated financing terms of thirty (30) years’ maturity, including a grace period of 5 years and interest rate of 1 percent, in addition to the existing standard 0.50 percent commitment fee and 0.75 percent service charge. Under the Thirteenth Replenishment of the ADF, further differentiated lending terms were adopted with a view to preserving the long-term financial sustainability and capacity of the ADF. The new lending terms require the acceleration of loan repayment by regular and advanced ADF-only countries, and also to blend, gap and graduating countries. They also grant financial incentives for voluntary loan repayment.

Nigeria Trust Fund

The Agreement Establishing the Nigeria Trust Fund Agreement (the “NTF Agreement”) was signed on 26 February 1976, between the Bank and the Federal Republic of Nigeria and became effective on 25 April 1976. Upon expiry of the original NTF Agreement on 25 April 2008, it was renewed for another period of ten years commencing from 25 April 2008. Following the approval of the Federal Government of Nigeria, the NTF Agreement has been extended for an additional period of 5 years starting from April 25, 2018. The purpose of the NTF is to assist in the economic development of the most needy regional member countries of the Bank by providing funds on terms intermediate between those of the Bank and those of the ADF. The resources of the NTF are managed by the Bank on behalf of the Government of Nigeria. The purpose of the NTF is to enable Nigeria to make an increasingly effective contribution to the economic development and social progress of Africa, especially of those member countries of the Bank which are relatively less developed. NTF loans currently bear an interest rate of between 2 and 4 percent, a repayment period of up to 25 years including a grace period of up to five years prior to the commencement of principal repayments and a commission of 0.75 percent payable on undisbursed balances. The resources of the NTF come from contributions from the Federal Republic of Nigeria and the net income of the NTF.

In April 2003, the ADB Board of Directors endorsed the Initiatives to Enhance the Development Effectiveness of the NTF. The enhancements subsequently approved by the Board of Governors include: (i) participation in the Heavily Indebted Poor Countries (“HIPC”) debt relief initiative by contributing 10 percent of the annual net income of the NTF to the HIPC Trust Fund; (ii) an adjustment of the interest rate for NTF loans from 4 percent to a range of 2 to 4 percent to increase the concessionality of such loans; (iii) the execution of a Technical Cooperation Agreement with the Bank Group for the purposes of providing resources for the financing of technical and institutional support programmes for the benefit of RMCs; and (iv) the introduction of greater flexibility in the investment of the resources of the NTF, pending their use in financing projects.

As at 31 December 2021, the NTF had total assets of UA 181.01 million.

Litigation

The Bank is not a party to any material litigation.

ADMINISTRATION OF THE BANK

Board of Governors

All the powers of the Bank are vested in the Board of Governors, which consists of a Governor and an Alternate Governor appointed by each member of the Bank, who exercises the voting power to which that member country is entitled. Each Governor and Alternate Governor serves for a term of five years, subject to termination of appointment or to reappointment at any time at the discretion of the appointing member country.

The Board of Governors may delegate to the Board of Directors all its powers except certain specified powers, such as the power to increase or decrease the authorised capital and to approve, after reviewing the report of the auditors, the balance sheet and statement of income and expenses of the Bank.

The Board of Governors holds an annual meeting and such other meetings as may be provided for the Board of Governors or called by the Board of Directors. Meetings of the Board of Governors are called by the Board of Directors whenever requested by five members of the Bank, or by members having one quarter of the total voting power.

Board of Directors

Without prejudice to the powers of the Board of Governors, the Board of Directors is responsible for the conduct of the general operations of the Bank, and, for this purpose, exercises all the powers delegated to it by the Board of Governors. Prior to 28 May 2010, the Board of Directors was composed of eighteen members twelve of whom are elected by the Governors representing RMCs, and six by the Governors representing non-regional member countries. On 28 May 2010, the Board of Governors increased the membership of the Board of Directors from eighteen to twenty. Thirteen members represent regional member countries and seven represent non-regional member countries.

Each Director appoints an Alternate Director who acts in his/her absence. Directors and their Alternates are required to be nationals of member countries. An Alternate Director may participate in meetings of the Board of Directors but may vote only when acting in place of the absent Director.

Directors are elected for a term of three years and may be re-elected provided that no Director shall serve for more than two three-year terms. Members of the Board of Directors as at 31 December 2021 are listed below.

Board of Directors – Countries Represented as at 31 December 2021

President and Management

The Board of Governors elects the President of the Bank by a vote of a majority of the total voting power of the members, including a majority of the total voting power of the regional member countries. The Bank Agreement provides that the President shall be a national of a regional member country. The President is the chief executive officer of the Bank and conducts the current business of the Bank under the direction of the Board of Directors. The President is elected for a term of five years and may be re-elected provided that no person may be elected President for more than two successive five-year terms.

The President is the Chairman of the Board of Directors but has no vote except a deciding vote in case of a tie. The President may participate in meetings of the Board of Governors but has no vote. The President is the legal representative of the Bank.

The Principal Officers of the Bank as at 31 December 2021 are listed below.

THE AGREEMENT ESTABLISHING THE AFRICAN DEVELOPMENT BANK

The Bank Agreement constitutes the Bank’s governing charter and establishes the status, immunities, exemptions and privileges of the Bank, describes its purpose, membership, capital structure and organisation, authorises the kinds of transactions in which it may engage and prescribes limitations on such transactions. The Bank Agreement also includes provisions with respect to the admission of additional members, the increase of the authorised capital stock, the terms and conditions under which the Bank may make or guarantee loans, the use of currencies held by it, the withdrawal and suspension of member countries and the suspension and termination of the operations of the Bank.

The Bank Agreement may be amended only by a resolution of the Bank’s Board of Governors approved by a two-thirds majority of the total number of Governors representing not less than three-quarters of the total voting power of the member countries, including two-thirds of the regional members having three-quarters of the total voting power of the regional members. The unanimous agreement of the Board of Governors is required for the approval of any amendment modifying the right to withdraw from the Bank, the pre-emptive rights to subscribe capital stock or the limitation on the liability of the member countries. No such amendment has been made to the Bank Agreement to date. The Bank Agreement provides that any question of interpretation of its provisions arising between any member country and the Bank or between member countries shall be referred to the Board of Directors for decision. Such decision may then be referred to the Board of Governors whose decision shall be final.

Membership of the Bank

Any African country that has the status of an independent state may become a regional member of the Bank. The geographical area to which the regional membership and the development activities of the Bank extend consists of the continent of Africa and the African islands. Non-regional countries that are, or become, participants in the ADF or that have made, or are making, contributions to the ADF may be admitted to the Bank.

Although any member may withdraw from the Bank by delivering written notice, any such member remains liable for all direct and contingent obligations to the Bank (including its obligations in respect of callable capital) so long as any part of the loans or guarantees contracted before the termination date is outstanding. No member has withdrawn from the Bank since its establishment. However, membership of the former Yugoslavia was suspended by the Bank’s Board of Directors, in conformity with resolutions and determinations of the UN General Assembly (see Note K to the financial statements included herein).

Legal Status, Immunities and Privileges

The following is a summary of the principal provisions of the Bank Agreement relating to the legal status, immunities and privileges of the Bank in the territories of its members.

The Bank has full juridical personality with capacity to contract, to acquire and dispose of immovable and movable property, and to institute legal proceedings. It is immune from every form of legal process, except in cases arising out of the exercise of its borrowing powers when it may be sued only in a court of competent jurisdiction in the territory of a member in which it has its principal office, or in the territory of a member or non-member where it has appointed an agent for the purpose of accepting service or notice of process or has issued or guaranteed securities. No actions against the Bank may be brought by members or persons acting for or deriving claims from members.

The property and assets of the Bank are immune from all forms of seizure, attachment or execution before the delivery of final judgment against the Bank. Such property and assets are also immune from search, requisition, confiscation, expropriation or any other form of taking or foreclosure by executive or legislative action. The archives of the Bank are inviolable. The Governors, Directors, Alternate Directors, officers and employees of the Bank and experts and consultants performing missions for the Bank are immune from legal process with respect to acts performed by them in their official capacity. The Bank Agreement enables the Board of Directors to waive any of these immunities where in its opinion it would further the interest of the Bank to do so.

The Bank, its property, other assets, income and the operations and transactions it carries out pursuant to the Bank Agreement are exempt from all taxation and from all customs duties in the member states. The Bank is also exempt from any other obligation relating to the payment, withholding or collection of any tax or duty.

GENERAL DESCRIPTION OF THE SECURITIES

Each prospectus, offering circular, information memorandum, supplemental information statement or pricing supplement will include the following information regarding the terms of Offered Securities: (a) the aggregate principal amount, (b) status (and subordination, in the case of subordinated securities), (c) the maturity date (if any), (d) the interest rate, (e) the currency or currencies, including composite currencies, of denomination and payment, (f) the dates on which such interest will be payable, (g) the redemption dates and prices and provisions for a sinking fund, if applicable, (h) the form and denomination and (i) if applicable, the fiscal or paying agent or agents with respect to the Securities.

Securities will be repayable from the ordinary capital resources of the Bank. The Board of Directors of the Bank has authorised the issuance of two classes of debt securities, senior (“Senior Securities”) and subordinated (“Subordinated Securities”). All debt securities of the Bank are Senior Securities unless by their terms they are expressly subordinated in right of payment to other debt securities of the Bank. Both classes of debt securities rank pari passu except in the event of a call on the callable capital of the Bank, whereupon the holders of Subordinated Securities of the Bank will be subordinated in right of payment to holders of debt which is not expressly so subordinated, in each case subject as may otherwise be set out in any prospectus, offering circular, information memorandum, supplemental information statement or pricing supplement.

The Securities will not be the obligation of any government, and their terms and conditions will contain a statement to that effect. The specific terms and conditions of each issue of Offered Securities will be set forth or referred to in the prospectus, offering circular or supplemental information statement relating to the Offered Securities.

The Securities will not contain any limitations on the right of the Bank to issue any other bonds, notes or obligations.

TAXATION

The Securities and the interest on them generally will not be exempt from taxation.

Under the Bank Agreement, the Securities and the interest paid on them are not subject to any tax by a member of the Bank (i) which discriminates against the Securities solely because they are issued by the Bank or (ii) if the sole jurisdictional basis for the tax is the place or currency in which the Securities are issued, made payable or paid, or the location of any office or place of business maintained by the Bank. Also, under the Bank Agreement, the Bank is not under any obligation to withhold or pay any taxes on any interest on the Securities it issues.

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FINANCIAL HIGHLIGHTS FOR THE YEARS ENDED 2021, 2020 AND 2019

Net Operational Income

Net operational income is comprised of the net interest income on earning assets, the provision for loan and investment losses, the changes in fair value of borrowings, investments and derivatives, translation losses or gains and other income. The table below shows the breakdown of the net operational income for the last three years.

(*) includes the fair value gains or losses (MTM impact)

FY 2021 vs. FY 2020

Loan income and related derivatives, decreased by UA 112.37 million to UA 348.24 million in 2021 from UA 460.62 million in 2020, due to the lower interest rate environment over the year and lower average volume of outstanding loans. Income from investments and related derivatives decreased to UA 129.34 million in 2021 from UA 181.45 million in 2020, due to lower interest rates and unfavorable changes in market price of trading instruments

Included in borrowing expenses are interest expense that decreased to UA 71.05 million in 2021 from UA 252.93 million in 2020, due to lower interest rates. The average interest expense on borrowings decreased to 0.30 percent in 2021 from 1.00 percent in 2020.

FY 2020 vs. FY 2019

Loan income and related derivatives, decreased by UA 189.58 million to UA 460.62 million in 2020 from UA 650.20 million in 2019, due to lower interest rates and lower average volume of outstanding loans. Income from investments and related derivatives increased to UA 181.45 million in 2020 from UA 263.20 million in 2019, due to lower interest rates and unfavorable changes in market price of trading instruments.

Included in borrowing expenses are interest expense that decreased to UA 252.93 million in 2020 from UA 476.11 million in 2019, due to lower interest rates. The average interest expense on borrowings decreased to 1.00 percent in 2020 from 1.87 percent in 2019.

Non-interest expenses

Non-interest expenses include the administrative expenses, provisions for the depreciation of property, equipment, intangible assets and other sundry expenses. Total administrative expenses relate to the expenses incurred on behalf of the ADF, the NTF and for the operations of the Bank itself. The ADF and NTF reimburse the Bank for their share of the total administrative expenses, based on an agreed-upon cost-sharing formula. The table below shows the breakdown of the net non-interest expenses for the last three years. 

FY 2021 vs. FY 2020

Net non-interest expenses, which mainly consist of personnel expenses, increased to UA 214.66 million in 2021 from UA 196.12 million in 2020. Total Bank Group administrative expenses decreased to UA 393.36 million in 2021 from UA 398.18 million in 2020. Total manpower expenses increased by UA 4.54 million (or 1.3 percent) to UA 353.34 million in 2021 from UA 348.80 million in 2020. Other administrative expenses decreased by 0.9 percent to UA 40.03 million in 2021 from UA 40.38 million in 2020, primarily due to reduced travel as a result of the COVID-19 pandemic. The Bank’s share of the total administrative expenses increased by UA 16.14 million, or 10.2 percent, to UA 174.55 million in 2021 from UA 158.41 million in 2020.

FY 2020 vs. FY 2019

Net non-interest expenses, which mainly consist of personnel expenses, decreased to UA 196.12 million in 2020 from UA 215.39 million in 2019. Total Bank Group administrative expenses decreased to UA 398.18 million in 2020 from UA 414.34 million in 2019. Total manpower expenses increased by UA 13.02 million (or 3.9 percent) to UA 348.80 million in 2020 from UA 335.78 million in 2019. Other administrative expenses decreased by 48.6 percent to UA 40.38 million in 2020 from UA 78.56 million in 2019, primarily due to reduced travel as a result of the COVID-19 pandemic. The Bank’s share of the total administrative expenses decreased by UA 20.93 million, or 11.7 percent, to UA 158.41 million in 2020 from UA 179.34 million in 2019.

Financial Condition

The Bank’s total equity increased by 11.7 percent to UA 8,705.92 million primarily due to capital subscriptions receipts during the year. Reserves increased to UA 3,151.19 million, 10.27 percent higher than in 2020.

REPORT OF THE EXTERNAL AUDITORS FOR 2021 AND ADB FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2021 AND 2020

TABLE OF CONTENTS

Balance sheet as at 31 December 2021

(UA thousands)

The accompanying notes to the financial statements form part of this statement.

The accompanying notes to the financial statements form part of this statement.

Income statement

for the year ended 31 December 2021

(UA thousands)

The accompanying notes to the financial statements form part of this statement.

Statement of other comprehensive income
for the year ended 31 December 2021

(UA thousands)

The accompanying notes to the financial statements form part of this statement.

Statement of changes in equity

for the year ended 31 December 2021

(UA thousands)

The accompanying notes to the financial statements form part of this statement.

Statement of cash flows

for the year ended 31 December 2021

(UA thousands)

The accompanying notes to the financial statements form part of this statement.

Notes to the Financial Statements
for the year ended 31 December 2021

NOTE A – Operations and affiliated organizations

The African Development Bank (ADB or the Bank) is a multilateral development finance institution dedicated to the economic and social progress of its regional member states. The Bank’s Headquarters is located in Abidjan, Côte d’Ivoire. The Bank finances development projects and programs in its regional member states, typically in cooperation with other national or international development institutions. In furtherance of this objective, the Bank participates in the selection, study and preparation of projects contributing to such development and, where necessary, provides technical assistance. The Bank also promotes investments of public and private capital in projects and programs designed to contribute to the economic and social progress of the regional member states. The activities of the Bank are complemented by those of the African Development Fund (ADF or the Fund), which was established by the Bank and certain countries; and the Nigeria Trust Fund (NTF), which is a special fund administered by the Bank. The ADB, ADF, and NTF each have separate and distinct assets and liabilities. There is no recourse to the ADB for obligations in respect of any of the ADF or NTF liabilities. The ADF was established to assist the Bank in contributing to the economic and social development of the Bank’s regional members, to promote cooperation and increased international trade particularly among the Bank’s members, and to provide financing on concessional terms for such purposes.

In accordance with Article 57 of the Agreement establishing the Bank, the Bank, its property, other assets, income and its operations and transactions shall be exempt from all taxation and customs duties. The Bank is also exempt from any obligation to pay, withhold or collect any tax or duty.

NOTE B – Summary of significant accounting policies

The Bank’s individual financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These financial statements have been prepared under the historical cost convention except for certain financial assets and financial liabilities that are carried at fair value.

The significant accounting policies applied in the preparation of the financial statements are summarized below.

Revenue Recognition

Interest income is accrued and recognized based on the effective interest rate for the time such instrument is outstanding and held by the Bank. The effective interest rate is the rate that discounts the estimated future cash flows through the expected life of the financial asset to the asset’s net carrying amount. Interest income is recognized on loans and treasury investments.

Fee and commission income and expenses are recognized in the income statement.

Realized and unrealized fair value gains or losses are recognized in the income statement on financial assets and financial liabilities (including derivatives) classified as measured at fair value through profit or loss (FVTPL).

Dividends are recognized on equity participation instruments classified as measured at fair value through other comprehensive income (FVOCI) when the Bank’s right to receive the dividends is established.

Functional and Presentation Currencies

The Bank conducts its operations in the currencies of its member countries. As a result of the application of IAS 21 revised, “The Effects of Changes in Foreign Exchange Rates”, the Bank prospectively changed its functional currency from the currencies of all its member countries to the Unit of Account (UA) effective 1 January 2005, as it was concluded that the UA most faithfully represented the aggregation of economic effects of events, conditions and the underlying transactions of the Bank conducted in different currencies.

The UA is also the currency in which the financial statements are presented. The value of the Unit of Account is defined in Article 5.1 (b) of the Agreement establishing the Bank (the Agreement) as equivalent to one Special Drawing Right (SDR) of the International Monetary Fund (IMF) or any unit adopted for the same purpose by the IMF.

The IMF formally approved the inclusion of the Chinese Renminbi Yuan (CNY) in its Special Drawing Rights (SDR) basket with effect from 1st October 2016 with a weight of 10.92 percent. In line with the Bank’s policy, Management approved the execution of currency exchange transactions to align the net assets composition of the Bank to the SDR.

Currency Translation

Income and expenses are translated to UA at the rates prevailing on the date of the transaction. Monetary assets and liabilities are translated into UA at rates prevailing at the balance sheet date. The rates used for translating currencies into UA at 31 December 2021 and 2020 are reported in Note S. Non-monetary assets and liabilities are translated into UA at historical rates.

Translation differences are included in the determination of net income. Capital subscriptions are recorded in UA at the rates prevailing at the time of receipt. The translation difference relating to payments of capital subscriptions is reported in the financial statements as the Cumulative Exchange Adjustment on Subscriptions (CEAS).

This is composed of the difference between the UA amount at the predetermined rate and the UA amount using the rate at the time of receipt. When currencies are converted into other currencies, the resulting gains or losses are recognized in the income statement in the determination of net income.

Member Countries’ Subscriptions

The Bank classifies financial instruments as financial liabilities or equity instruments in accordance with the substance of the contractual arrangements of the instruments and the definition under IAS 32. Issued financial instruments or their components are classified as liabilities if the contractual arrangements result in the Bank having a present obligation to either deliver cash or another financial asset to the holder of the instrument. If this is not the case, the instrument is generally classified as an equity instrument and the proceeds included in equity, net of transaction costs.

The Bank’s member countries’ subscriptions meet the conditions for classification as equity specified for puttable financial instruments that include contractual obligations for repurchase or redemption for cash or another financial asset.

Although the Agreement establishing the ADB allows for a member country to withdraw from the Bank, no member has ever withdrawn its membership voluntarily, nor has any member indicated to the Bank that it intends to do so. The stability in the membership reflects the fact that the members, who constitute both African and non-African countries, are committed to the purpose of the Bank to contribute to the sustainable economic development and social progress of its Regional Member Countries individually and jointly. Accordingly, as of 31 December 2021, the Bank did not expect to distribute any portion of its net assets due to member country withdrawals.

In the unlikely event of a withdrawal by a member, the Bank shall arrange for the repurchase of the former member’s shares. The repurchase price of the shares is the value shown by the books of the Bank on the date the country ceases to be a member, hereafter referred to as “the termination date”. The Bank may partially or fully offset amounts due for shares purchased against the members liabilities on loans and guarantees due to the Bank.

The former member would remain liable for direct obligations and contingent liabilities to the Bank for so long as any parts of the loans or guarantees contracted before the termination date are outstanding. If at a date subsequent to the termination date, it becomes evident that losses may not have been sufficiently taken into account when the repurchase price was determined, the former member may be required to pay, on demand, the amount by which the repurchase price of the shares would have been reduced had the losses been taken into account when the repurchase price was determined.

In addition, the former member remains liable on any call, subsequent to the termination date, for unpaid subscriptions, to the extent that it would have been required to respond if the impairment of capital had occurred and the call had been made at the time the repurchase price of its shares was determined.

In the event that a member were to withdraw, the Bank may set the dates in respect of payments for shares repurchased. If, for example, paying a former member would have adverse consequences for the Bank’s financial position, the Bank could defer payment until the risk had passed, and indefinitely if appropriate. Furthermore, shares that become unsubscribed for any reason may be offered by the Bank for purchase by eligible member countries, based on the share transfer rules approved by the Board of Governors. In any event, no payments shall be made until six months after the termination date.

If the Bank were to terminate its operations, all liabilities of the Bank would first be settled out of the assets of the Bank and then, if necessary, out of members’ callable capital, before any distribution could be made to any member country. Such distribution is subject to the prior decision of the Board of Governors of the Bank and would be based on the pro-rata share of each member country.

Employee Benefits

Short term employee benefits

Short-term benefits (such as wages, salaries, bonuses etc.) are employee benefits expected to be settled within 12 months of the balance sheet date. Short-term employee benefits are expensed in the profit or loss as the related service is provided. A liability is recognized for the amount expected to be paid if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Post-employment benefits

The Bank operates a post-employment benefit plan that combines the features of a defined benefit (DB) and a defined contribution (DC) plan into a hybrid pension structure which are explained below.

Defined Contribution Plans

Under the defined contribution plan, the Bank and its employees pay fixed contributions to an externally administered fund with investment-grade credit rating, on behalf of the participants. The retirement benefits of the participants depend solely on the contributions made and the plan’s investment performance. The Bank has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The contributions are recognized as pension expense in the income statements when they are due. Contributions not yet transferred to the fund are recorded in account payable on the balance sheet and are transferred within the shortest possible time frame.

Defined Benefit Plans

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as accrual rate, age, contribution years of service and average remuneration. The liability recognized in the balance sheet in respect of defined benefit is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The Bank operates a Staff Retirement Plan (SRP), that is accounted for as a defined benefit plan.

The calculation of the cost of providing benefits for the DB is performed annually by a qualified actuary using the Projected Unit Credit Method. Upon reaching retirement age, pension is calculated based on the average remuneration for the final three years of pensionable service and the pension is subject to annual inflationary adjustments.

Remeasurement of the net defined benefit obligation, which comprise actuarial gains and losses as well as the differences between expected and real returns on assets are recognized immediately in other comprehensive income in the year they occur. Net interest expense and other expenses related to the defined benefit are recognized in the profit or loss.

When benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Bank recognizes gains and losses on settlement of a defined benefit plan when the settlement occurs.

Medical Benefit Plan

The Bank also operates a defined Medical Benefit Plan (MBP), which provides post-employment healthcare benefits to eligible former staff, including retirees. Membership of the MBP includes both staff and retirees of the Bank. The entitlement to the post-retirement healthcare benefit is usually conditional on the employee contributing to the Plan up to retirement age and the completion of a minimum service period.

The expected costs of these benefits derive from contributions from plan members as well as the Bank and are accrued over the period of employment and during retirement. Contributions by the Bank to the MBP are charged to expenses and included in the income statement.

The MBP Board, an independent body created by the Bank, determines the adequacy of the contributions and is authorized to recommend changes to the contribution rates of both the Bank and plan members.

The liability recognized in the balance sheet in respect of MBP is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The calculation of the cost of providing benefits for the MBP is performed annually by a qualified actuary using the Projected Unit Credit Method.

Remeasurement of the net defined benefit obligation, which comprise actuarial gains and losses as well as the differences between expected and real returns on assets are recognized immediately in other comprehensive income in the year they occur. Net interest expense and other expenses related to the MBP are recognized in the profit or loss.

The effect of changes in accounting policies and further details of the Bank’s employee benefits are included in Note O – Employee Benefits.

Financial Instruments

Financial assets and financial liabilities are recognized on the Bank’s balance sheet when the Bank assumes related contractual rights or obligations. All financial assets and financial liabilities are initially recognized at fair value plus for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition or issue.

In accordance with IFRS 9, the Bank manages its financial assets in line with the applicable business model and accordingly, classifies its financial assets into the following categories: financial assets at amortized cost; financial assets at FVTPL; and financial assets at FVOCI.

In line with the Bank’s business model, financial assets are held either for the stabilization of income through the management of net interest margin or for liquidity management. The Bank’s investments in the equity of enterprises, whether in the private or public sector is for the promotion of economic development of its member countries and not for trading to realize fair value changes. Management determines the classification of its financial assets at initial recognition.

A financial asset is classified as at “amortized cost” only if the asset meets two criteria: the objective of the Bank’s business model is to hold the asset to collect the contractual cash flows; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. The nature of any derivatives embedded in debt investments are considered in determining whether the cash flows of the investment are solely payment of principal and interest on the principal outstanding and are not accounted for separately.

Financial assets other than those classified at amortized cost are classified as measured at fair value through profit or loss or other

comprehensive income, as appropriate, if either of the two criteria above is not met.

Financial assets at amortized cost include, cash and cash equivalents, some loans and receivables on amounts advanced to borrowers and certain debt investments that meet the criteria of financial assets at amortized cost. Receivables comprise demand obligations, accrued income and receivables from loans and investments and other amounts receivable. Loans and receivables meeting the two criteria above are carried at amortized cost using the effective interest method.

Loan origination and similar fees are deferred and recognized over the life of the related loan or financial product as an adjustment of the yield. The amortization of origination fee for loans and related financial products is included in income under the relevant category, as appropriate.

Loans that have a conversion option that could potentially change the future cash flows to no longer represent solely payments of principal and interest are measured at FVTPL as required by IFRS 9. The fair value is determined using the expected cash flows model with inputs including interest rates and the borrower’s credit spread estimated based on the Bank’s internal rating methodology for non-sovereign loans.

Investments classified as financial assets at amortized cost include non-derivative treasury investments with fixed or determinable payments and fixed maturities. These investments are carried and subsequently measured at amortized cost using the effective interest method.

Financial assets that do not meet the amortized cost criteria as described above are measured at FVTPL. This category includes all treasury assets held for resale to realize short-term fair value changes as well as certain loans for which either of the criteria for recognition at amortized cost is not met. Realized and unrealized gains or losses on these financial assets are reported in the income statement in the period in which they arise. Derivatives are also categorized as financial assets at FVTPL.

In addition, financial assets that meet amortized cost criteria can be designated and measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

On initial recognition, the Bank can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments not held for trading as financial assets measured at FVOCI.

Equity investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from fair value measurement recognized in other comprehensive income and transferred to appropriate reserve in equity. The cumulative gains or losses in equity are not reclassified to profit or loss on disposal of the equity investments but may be reclassified to retained earnings. No impairments are recognized in the income statement. Dividends earned from such investments are recognized in profit and loss unless the dividends clearly represent a repayment of part of the cost of the investment, in which case, it is recognized against the carrying amount of the equity investment.

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for an incurred loss because a specified debtor fails to make payments when due in accordance with the terms of a specified debt instrument. The Bank issues such financial guarantees—which are not managed on a fair value basis—to its clients including banks, financial institutions and other parties. IFRS 9 requires written financial guarantees that are managed on a fair value basis to be designated at fair value through profit or loss. However, financial guarantees that are not managed on a fair value basis are initially recognized in the financial statements at fair value. Subsequent to initial recognition, these financial guarantees are measured at the higher of the amount initially recognized less cumulative amortization, and the loss allowances determined under IFRS 9.

Recognition and Derecognition of Financial Assets

Purchases and sales of financial assets are recognized or derecognized on a trade-date basis, which is the date on which the Bank commits to purchase or sell the asset. Loans are recognized when cash is advanced to the borrowers. Financial assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership.

Securities Purchased under Resale Agreements, Securities Lent under Securities Lending Agreements and Securities Sold under Repurchase Agreements and Payable for Cash Collateral Received

Securities purchased under resale agreements, securities lent under securities lending agreements, and securities sold under repurchase agreements are recorded at market rates. The Bank receives securities purchased under resale agreements, monitors the fair value of the securities and, if necessary, closes out transactions and enters into new repriced transactions. The securities transferred to counterparties under the repurchase and security lending arrangements and the securities transferred to the Bank under the resale agreements do not meet the accounting criteria for treatment as a sale.

Therefore, securities transferred under repurchase agreements and security lending arrangements are retained as assets on the Bank balance sheet, and securities received under resale agreements are not recorded on the Bank’s Balance Sheet. In cases where the Bank enters into a “reverse repo” – that is, purchases an asset and simultaneously enters into an agreement to resell the same at a fixed price on a future date – a receivable from reverse repurchase agreement and an obligation under repurchase is recognized in the statement of financial position. However, the underlying asset is not recognized in the financial statements.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash, are subject to insignificant risk of changes in value and have a time to maturity upon acquisition of three months or less.

Borrowings

In the ordinary course of its business, the Bank borrows funds in the major capital markets for lending and liquidity management purposes. The Bank issues different debt instruments denominated in various currencies, with differing maturities at fixed or variable interest rates. The Bank’s borrowing strategy is driven by three major factors, namely: timeliness in meeting cash flow requirements, optimizing asset and liability management with the objective of mitigating exposure to financial risks, and providing cost-effective funding.

In addition to long and medium-term borrowings, the Bank also undertakes short-term borrowing for cash and liquidity management purposes only. Borrowings not designated at fair value through profit or loss are carried on the balance sheet at amortized cost with interest expense determined using the effective interest method. Borrowing expenses are recognized in profit or loss and include the amortization of issuance costs, discounts and premiums, which is determined using the effective interest method. Borrowing activities may create exposure to market risk, most notably interest rate and currency risks.

The Bank uses derivatives and other risk management approaches to mitigate such risks. Details of the Bank’s risk management policies and practices are contained in Note C to these financial statements. Certain of the Bank’s borrowings obtained prior to 1990, from the governments of certain member countries of the Bank, are interest-free loans.

Financial Liabilities at Fair Value through Profit or Loss

This category has two sub-categories: financial liabilities held for trading, and those designated at FVTPL at inception. Derivatives are categorized as held-for-trading. The Bank applies fair value designation primarily to borrowings that have been swapped into floating-rate debt using derivative contracts. In these cases, the designation of the borrowing at fair value through profit or loss is made in order to significantly reduce accounting mismatches that otherwise would have arisen if the borrowings were carried on the balance sheet at amortized cost while the related swaps are carried on the balance sheet at fair value.

In accordance with IFRS 9, fair value changes in the Bank’s financial liabilities that are designated as at FVTPL are presented as follows: the amount of change in the fair value that is attributable to changes in the Bank’s “own credit risk” are presented in OCI; and the remaining amount of change in the fair value is presented in profit or loss.

Amounts presented in OCI are never reclassified to profit or loss when the liability is settled or derecognized. However, the Bank may transfer the cumulative gain or loss within equity i.e., to retained earnings.

Other Liabilities

All financial liabilities that are not derivatives or designated at FVTPL are recorded at amortized cost. These include certain borrowings, accrued finance charges on borrowings and other accounts payable and liabilities. Financial liabilities are derecognized when they are discharged or canceled or when they expire.

Derivatives

The Bank uses derivative instruments in its portfolios for asset/liability management, cost reduction, risk management and hedging purposes. These instruments are mainly cross-currency swaps and interest rate swaps. The derivatives on borrowings are used to modify the interest rate or currency characteristics of the debt the Bank issues. This economic relationship is established on the date the debt is issued and maintained throughout the terms of the contracts. The interest component of these derivatives is reported as part of borrowing expenses.

The Bank classifies all derivatives at fair value, with all changes in fair value recognized in the income statement. When the criteria for the application of the fair value option are met, then the related debt is also carried at fair value with changes in fair value recognized in the income statement.

The Bank assesses its hybrid financial assets (i.e. the combined financial asset host and embedded derivative) in its entirety to determine their classification. A hybrid financial asset is measured at amortized cost if the combined cash flows represent solely principal and interest on the outstanding principal; otherwise it is measured at fair value. As at 31 December 2021, the Bank had hybrid loans that were measured at fair value in accordance with IFRS 9.

Derivatives embedded in financial liabilities or other non-financial host contracts are treated as separate derivatives when their risks and characteristics were not closely related to those of the host contract and the host contract was not carried at fair value with unrealized gains or losses reported in profit or loss. Such derivatives are stripped from the host contract and measured at fair value with unrealized gains and losses reported in profit or loss.

Derivative Credit Valuation (CVA) and Funding Valuation Adjustment (FVA)

Valuation adjustment for counterparty and funding risk (CVA/FVA) is recognized on derivative financial instruments to reflect the impact on fair value of counterparty credit risk and the Bank’s own credit quality. This adjustment takes into account the existing compensating agreements for each of the counterparties. The CVA is determined on the basis of the expected positive exposure of the Bank vis-à-vis the counterparty, the FVA is calculated on the basis of the expected negative exposure of the Bank vis-à-vis the counterparty, and the funding spreads, on a counterparty basis. These calculations are recognized on the life of the potential exposure and concentrates on the use of observable and relevant market data.

Hedge Accounting

The Bank applies fair value hedge accounting to interest rate swaps contracted to hedge the interest rate risk exposure associated with its fixed rate loans. Under fair value hedge accounting, the change in the fair value of the hedging instrument and the change in the fair value of the hedged item attributable to the hedged risk are recognized in the income statement.

At inception of the hedge, the Bank documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking the hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Bank documents whether the hedging instrument is highly effective in offsetting changes in fair values of the hedged item attributable to the hedged risk. Hedge accounting is discontinued when the Bank’s risk management objective for the hedging relationship has changed, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting except where the reason for the discontinuation is directly linked to the IBOR reforms amendments of IFRS 9 and IAS 39. The cumulative fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.

Impairment of Financial Assets

The Bank applies a three-stage approach to measuring expected credit losses (ECLs) for the following categories of financial assets: Debt instruments measured at amortized cost, Loan commitments, financial guarantee contracts and Treasury investments held at amortized cost.

Financial assets migrate through the following three stages based on the change in credit risk since initial recognition:

Stage 1 includes financial assets that have not had a significant increase in credit risk (SICR) since initial recognition. The Bank recognizes 12 months of ECL for stage 1 financial assets. In assessing whether credit risk has increased significantly, the Bank compares the risk of a default occurring on the financial asset as at the reporting date, with the risk of a default occurring on the financial asset as at the date of its initial recognition.

Stage 2 comprises financial assets that have had a significant increase in credit risk since initial recognition, but for which there is no objective evidence of impairment. The Bank recognizes lifetime ECL for stage 2 financial assets. For these exposures, the Bank recognizes an allowance amount based on lifetime ECL (i.e. an allowance amount reflecting the remaining lifetime of the financial asset). A significant increase in credit risk is considered to have occurred when contractual payments are more than 30 days past due and the amount overdue is more than UA 25,000 for sovereign and non-sovereign loans or where, in the case of non-sovereign loans, there has been a rating downgrade since initial recognition.

Included in stage 3, are assets that have been categorized as credit impaired. The Bank recognizes lifetime ECL for all stage 3 financial assets, as a specific provision. A financial asset is classified as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition.

Evidence of impairment includes indications that the borrower is experiencing significant financial difficulties, or a default or delinquency has occurred. A default occurs with regard to an obligor when either or both of the following have taken place:

Interest revenue is calculated by applying the effective interest rate to the amortized cost (net of the applicable impairment loss provision) for impaired financial assets falling under stage 3. For assets falling within stage 1 and 2 interest revenue is recognized on the gross carrying amount.

When the Bank has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period but determines at the current reporting date that criteria for recognizing the lifetime ECL is no longer met i.e., cured, the Bank measures the loss allowance at an amount equal to 12-month ECL at the current reporting date. A financial asset is considered cured (i.e., no longer impaired) when all past due amounts, including interest, have been recovered, and it is determined that the principal and interest are fully collectable in accordance with the original contractual terms or revised market terms of the financial instrument with all criteria for the impaired classification having been remedied.

Determining the stage for impairment

At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for exposures since initial recognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date of initial recognition. The Bank considers reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. Refer to Note C.

An exposure will migrate through the ECL stages as asset quality deteriorates or improves. For both non- sovereign and sovereign loans, a significant increase in credit risk is considered to have occurred when the rating at reporting date has been downgraded or contractual payments are more than 30 days past due and the overdue amount is higher than UA 25,000. Except that in the case of sovereign loans both the rating downgrade and 30 days overdue must occur at the same time with the overdue amounts exceeding the limit.

If, in a subsequent period, asset quality improves and any previously assessed significant increase in credit risk since origination is reversed, then the provision for doubtful debts reverts from lifetime ECL to 12-months ECL. Exposures whose credit rating remains within the Bank’s investment grade criteria are considered to have a low credit risk even where their credit rating has deteriorated.

When there is no reasonable expectation of recovery of an asset, it is written off against the related provision. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off reduce the amount of the expense in the income statement.

Measurement of ECLs

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:

Financial assets that are not credit-impaired at the reporting date : as the present value of all cash shortfalls over the expected life of the financial asset discounted by the effective interest rate. The cash shortfall is the difference between the cash flows due to the Bank in accordance with the contract and the cash flows that the Bank expects to receive.

Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows discounted by the effective interest rate.

Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Bank if the commitment is drawn down and the cash flows that the Bank expects to receive.

Financial guarantee contracts: as the expected payments to reimburse the holder less any amounts that the Bank expects to recover. ECLs are recognized using a loss allowance account and recognized in the profit and loss.

For further details on how the Bank calculates ECLs including the use of forward-looking information, refer to the Credit quality of financial assets section in Note C.

Offsetting of Financial Instruments

Financial assets and liabilities are offset and reported on a net basis when there is a current legally enforceable right to off-set the recognized amount. A current legally enforceable right exists if the right is not contingent on a future event and is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties and there is an intention on the part of the Bank to settle on a net basis, or realize the asset and settle the liability simultaneously. The Bank discloses all recognized financial instruments that are set off and those subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset. Information relating to financial assets and liabilities that are subject to offsetting, enforceable master netting arrangement is provided in Note C.

Fair Value Disclosure

In active markets, the most reliable indicators of fair value are quoted market prices. A financial instrument is regarded as quoted in an active market if quoted prices are regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive.

Indications that a market might be inactive include when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few or no recent transactions observed in the market. When markets become illiquid or less active, market quotations may not represent the prices at which orderly transactions would take place between willing buyers and sellers and therefore may require adjustment in the valuation process. Consequently, in an inactive market, price quotations are not necessarily determinative of fair values.

Considerable judgment is required to distinguish between active and inactive markets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank measures fair values using other valuation techniques that incorporate the maximum use of market data inputs.

The objective of the valuation techniques applied by the Bank is to arrive at a reliable fair value measurement. Other valuation techniques include net present value, discounted cash flow analysis, option pricing models, comparison to similar instruments for which market observable prices exists and other valuation models commonly used by market participants. Assumptions and inputs used in valuation techniques include risk free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates and expected price volatilities and correlations.

The Bank uses widely recognized valuation models for measuring the fair value of common and simpler financial instruments, like interest rate and currency swaps that use only observable market data and require minimum management judgment and estimation. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with the measurement of fair value. Observable market prices and inputs available vary depending on the products and markets and are subject to changes based on specific events and general conditions in the financial markets.

Where the Bank measures portfolios of financial assets and financial liabilities on the basis of net exposures, it applies judgment in determining appropriate portfolio level adjustments such as bid-ask spread. Such judgments are derived from observable bid- ask spreads for similar instruments and adjusted for factors specific to the portfolio.

The following three hierarchical levels are used for the measurement of fair value:

Level 1:      Quoted prices in active markets for the same instrument (i.e., without modification or repackaging).

Level 2:     Quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data. Included in this category are instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3:      Valuation techniques for which significant input is not based on observable market data and the unobservable inputs have a significant effect on the instrument’s valuation. Instruments that are valued based on quoted market prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments are included in this category.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price.

The methods and assumptions used by the Bank in measuring the fair values of financial instruments are as follows:

Cash: The carrying amount is the fair value.

Investments: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Borrowings: Fair values of the Bank’s borrowings are based on market quotations when possible or valuation techniques based on discounted cash flow models using London Interbank Offered Rate (LIBOR) market-determined discount curves adjusted by the Bank’s credit spread. Credit spreads are obtained from market data as well as indicative quotations received from certain counterparties for the Bank’s new public bond issues. The Bank also uses systems based on industry standard pricing models and valuation techniques to value borrowings and their associated derivatives.

The models use market-sourced inputs such as interest rates, yield curves, exchange rates and option volatilities. Valuation models are subject to internal and periodic external reviews. When a determination is made that the market for an existing borrowing is inactive or illiquid, appropriate adjustments are made to the relevant observable market data to arrive at the Bank’s best measure of the price at which the Bank could have sold the borrowing at the balance sheet date.

For borrowings on which the Bank has elected fair value option, the portion of fair value changes on the valuation of borrowings relating to the credit risk of the Bank is reported in Other Comprehensive Income in accordance with IFRS 9.

Equity investments: The Bank holds direct equity in various enterprises and private funds which may be listed or unlisted. All equity investments held by the Bank are measured at fair value in line with IFRS 9. Where, as in the case of private funds, the underlying assets are periodically valued by fund managers or independent valuation experts using market practices, Management has concluded that these valuations are representative of fair value.

Where such valuations are unavailable, the percentage of the Bank’s ownership of the net asset value of such funds is deemed to approximate the fair value of the Bank’s equity participation. The fair value of investments in listed enterprises is based on the latest available quoted bid prices.

Derivative financial instruments: The fair values of derivative financial instruments are based on market quotations where possible or valuation techniques that use market estimates of cash flows and discount rates. The Bank also uses valuation tools based on industry standard pricing models and valuation techniques to value derivative financial instruments.

The models use market- sourced inputs such as interest rates, yield curves, exchange rates and option volatilities. All financial models used for valuing the Bank’s financial instruments are subject to both internal and periodic external reviews.

Loans: The Bank does not sell its sovereign loans, nor does it believe there is a comparable market for these loans. The Bank’s loan assets, except for those at fair value, are carried on the balance sheet at amortized cost. The fair value of loans carried at amortized cost are deemed to approximate their carrying value net of the impairment losses based on the expected credit loss model and represents Management’s best measures of the present value of the expected cash flows of these loans.

The fair valuation of loans has been measured using a discounted cash flow model based on year-end market lending rates in the relevant currency including impairment, when applicable, and credit spreads for non- sovereign loans. In arriving at its best estimate Management makes certain assumptions about the unobservable inputs to the model, the significant ones of which are the expected cash flows and the discount rate. These are regularly assessed for reasonableness and impact on the fair value of loans.

An increase in the level of forecast cash flows in subsequent periods would lead to an increase in the fair value and an increase in the discount rate used to discount the forecast cash flows would lead to a decrease in the fair value of loans. Changes in fair value of loans carried at fair value through profit and loss are reported in the income statement.

Valuation Processes Applied by the Bank

The fair value measurements of all qualifying treasury investments, borrowings, loans and equity investments are reported to and reviewed by the Assets & Liabilities Management Committee (ALCO) in line with the Bank’s financial reporting policies.

Where third-party information from brokers or pricing experts are used to measure fair value, documents are independently

assessed and evidence obtained from the third parties to support the conclusions.

The assessment and documentation involves ensuring that (i) the broker or pricing service provider is duly approved for use in pricing the relevant type of financial instrument; (ii) the fair value arrived at reasonably represents actual market transactions; (iii) where prices for similar instruments have been adopted, that the same have been, where necessary, adjusted to reflect the characteristics of the instrument subject to measurement and where a number of quotes for the same financial instrument have been obtained, fair value has been properly determined using those quotes.

Day One Gain or Loss

The fair value of a financial instrument at initial recognition is based on fair value as defined under IFRS 13. A gain or loss may only be recognized on initial recognition of a financial instrument if the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

On initial recognition, a gain or loss may not be recognized when using a fair value which is not defined under IFRS 13. The Bank only recognizes gains or losses after initial recognition to the extent that they arise from a change in a factor (including time) that market participants would consider in setting a price.

The Bank holds financial instruments, some maturing after more than ten years, where fair value is not based on quoted prices in an active market at the measurement date. Such financial instruments are initially recognized at the transaction price, although the value obtained from the relevant market participants may differ.

The difference between the transaction price and the fair value measurement that is not evidenced by a quoted price in an active market or by a valuation technique that uses only observable market data, commonly referred to as “day one profit and loss”, is either: (i) amortized over the life of the transaction; or (ii) deferred until the instrument’s fair value can be measured using market observable inputs or is realized through settlement.

The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognized immediately in the income statement without immediate reversal of deferred day one profits and losses.

Investment in Associates

Under IAS 28, “Investments in Associates and Joint Ventures”, the ADF and any other entity in which the Bank has significant influence are considered associates of the Bank. An associate is an entity over which the Bank has significant influence, but not control, over the entity’s financial and operating policy decisions. The relationship between the Bank and the ADF is described in more detail in Note H.

IAS 28 requires that the equity method be used to account for investments in associates. Under the equity method, an investment in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition.

The investor’s share of the profit or loss of the investee is recognized in the investor’s income statement. The subscriptions by the Bank to the capital of the ADF occurred between 1974 and 1990. At 31 December 2021, such subscriptions cumulatively represented less than 1 percent of the economic interest in the capital of the ADF.

Although ADF is a not-for-profit entity and has never distributed any dividend to its subscribers since its creation in 1972, IAS 28 require that the equity method be used to account for the Bank’s investment in the ADF. Furthermore, in accordance with IAS 36, the net investment in the ADF is assessed for impairment, and any impairment losses (or impairment reversals) are recognized in the income statements. Cumulative losses as measured under the equity method are limited to the investment’s original cost as the ADB has not guaranteed any potential losses of the ADF.

Property and Equipment

Property and equipment is measured at historical cost less depreciation. Historical cost includes expenditure directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. Repairs and maintenance are charged to the income statement when they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to amortize the difference

between cost and estimated residual values over estimated useful lives. The estimated useful lives are as follows:

The residual values and useful lives of assets are reviewed periodically and adjusted if appropriate. Assets that are subject to amortization are reviewed annually for impairment. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to disposal and its value in use. Gains and losses on disposal are determined as the difference between proceeds and the asset’s carrying amount and are included in the income statement in the period of disposal.

Intangible Assets

Intangible assets include computer systems software and are stated at historical cost less amortization. An intangible asset is recognized only when its cost can be measured reliably, and it is probable that the expected future economic benefits attributable to it will flow to the Bank. Amortization of intangible assets is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives of 3–5 years.

Leases

As a lessee, the Bank has several contracts for its offices in the headquarters and certain member countries that conveys the right to use the offices (the underlying asset) for a period in exchange for consideration. Under such agreements, the contract contains an explicitly identified asset and the Bank has the right to obtain substantially all of the economic benefits from use of the offices throughout the period of the lease.

At lease commencement date, the Bank recognizes a right-of-use asset and a lease liability on the balance sheet. Right-of-use assets are measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in Other Accounts Payable. The Bank depreciates the right-of-use assets on a straight-line basis over the shorter of its estimated useful life and the lease term.

At the commencement date, the Bank measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the Bank’s incremental borrowing rate. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

Allocations and Distributions of Income Approved by the Board of Governors

In accordance with the Agreement establishing the Bank, the Board of Governors is the sole authority for approving allocations from income to surplus account or distributions to other entities for development purposes. Surplus consists of earnings from prior years which are retained by the Bank until further decision is made on their disposition or the conditions of distribution for specified uses have been met. Distributions of income for development purposes are reported as expenses on the income statement in the year of approval. Distributions of income for development purposes are deemed as made on behalf of member countries and may be funded from amounts previously transferred to surplus account or from the current year’s income in equity.

Allocable Income

The Bank uses allocable income for making distributions out of its net income. Allocable income excludes unrealized mark-to- market gains and losses associated with instruments held for trading and adjusted for translation gains and losses.

Retained Earnings

Retained earnings of the Bank consist of amounts allocated to reserves from prior years’ income, balance of amounts allocated to surplus after deducting distributions approved by the Board of Governors, unallocated current year’s net income, and expenses recognized directly in equity as required by IFRS.

Segment Reporting

An operating segment is a component of the Bank Group that engages in business activities from which it can earn revenues and incur expenses, whose operating results are regularly reviewed by the Chief Operating Decision Maker (that is, Management under the direct authority of the Board) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments are identified and reported in a manner consistent with the internal reporting provided to Management and the Board. The measurement of segment assets, liabilities, income and expenses is in accordance with the Bank Group’s accounting policies.

Critical Accounting Judgments and Key Sources of Estimation Uncertainty

In the preparation of financial statements in conformity with IFRS, Management makes certain estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent liabilities. Actual results could differ from such estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The most significant judgments and estimates are summarized below:

The Bank’s accounting policies require that assets and liabilities be designated at inception into different accounting categories. Such decisions require significant judgment and relate to the following circumstances:

Fair Value through profit and loss: In designating financial assets or liabilities at fair value through profit or loss, the Bank has determined that such assets or liabilities meet the criteria for this classification.

Amortized cost and embedded derivatives: The Bank follows the guidance of IFRS 9 on classifying financial assets and those with embedded derivatives in their entirety as at amortized cost or fair value through profit or loss. In making this judgment, the Bank considers whether the cash flows of the financial asset are solely payment of principal and interest on the principal outstanding and classifies the qualifying asset accordingly without separating the derivative.

Consolidation: The Bank follows the guidance of IFRS 10 in ascertaining if there are any entities that it controls, and that may require consolidation.

Impairment losses on financial assets: The measurement of impairment losses under IFRS 9 across all categories of financial assets requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

The Bank’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgments and estimates include:

The Bank also uses estimates for its financial statements in the following circumstances:

Fair Value of Financial Instruments – The fair value of financial instruments that are not quoted in active markets is measured by using valuation techniques. Where valuation techniques (for example, models) are used to measure fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All valuation models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, valuation models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require Management to make estimates.

Changes in assumptions about these factors could affect the reported fair value of financial instruments. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes “observable” requires significant judgment by the Bank.

Post-employment Benefits – The present value of retirement benefit obligations is sensitive to the actuarial and financial assumptions used, including the discount rate. At the end of each year, the Bank determines the appropriate discount rate and other variables to be used to determine the present value of estimated future pension obligations. The discount rate is based on market yields of high-quality corporate bonds in the currencies comprising the Bank’s UA at the end of the year, and the estimates for the other variables are based on the Bank’s best judgment.

Change in Presentation and Comparative

In some cases, the Bank may in the current year, change the presentation of certain line items in the financial statements to enhance inter-period comparability. When such a change in presentation is made, the comparative information is also adjusted as may be necessary to reflect the new presentation.

The impact of COVID-19

At the beginning of the last quarter of 2021, there were prospects of a bounce-back of economic activities globally, as the pandemic had shown signs of abating. Infection rates reduced, and vaccination rates increased. However, the emergence of a new COVID-19 variant, Omicron, in December 2021, inflationary pressures due to supply-demand imbalance, and higher crude prices have dimmed the economic outlook for 2022.

For Africa, economic growth for 2022 is posited to be 4.1 percent (below the global growth rate of 4.4 percent), a decrease of

2.8 percent from the 6.9 percent growth rate registered in 2021. The continent’s recovery is hampered by low vaccination rates, supply chain disruptions that have delayed project implementation, and the issue of growing debt. According to the IMF, debt payments hinder the ability of African governments to provide social protection benefits to their citizens. The forecast of an increase in global interest rates in 2022 will push many African countries further into debt distress amidst the challenge of dealing with the pandemic.

The IMF’s latest economic outlook published on 25 January 2022 downgraded global growth for 2022 to 4.4 percent (previous forecast 4.9 percent). The report attributes the downgrade to rising COVID-19 cases, supply chain disruptions and higher than expected inflation. Also contributing to the downgrade is the slow recovery of the two big economies of the United States of America and China.

A major concern for global economic recovery is the divergence between the advanced and developing economies, caused by the disparities in vaccine access and roll-out programs. In advanced countries, almost 60 percent of the population are vaccinated, while only about 4 percent of low-income countries are vaccinated based on data from the IMF.

Therefore, achieving sustained economic recovery in 2022 is largely dependent on improved vaccination rates, keeping infection

rates down, and halting the emergence and spread of new variants.

From a financial reporting perspective, the known and estimable effects of COVID-19 for the year ended 31 December 2021 have been recorded in the financial statements and remain relatively deeper than 2020, manifesting in reduced net income for the year. The pandemic caused market interest rates to maintain a downward trajectory, with the USD 6-month Libor experiencing a sustained dip since 2020. This sustained downward trend in market interest rates led to a noticeable reduction in the Bank’s interest income from loans and treasury investments and a much deeper reduction in interest expense, which helped preserve the net interest income for 31 December 2021. However, it is expected that global interest rates will rise in 2022 as central banks seek to control inflation. Also, the continued uncertainty in asset and liability prices resulted in significant net fair value losses on the trading portfolios, particularly borrowings at FVTPL. The expectation is that market volatility may continue in 2022.

On lending operations, the pandemic continues to cause deterioration in the credit risk of counterparties, especially for the NSO portfolio, because of the prolonged slowdown in business activities on their sales revenue and capacity to generate sufficient financial resources to repay obligations as they fall due. This is expected to persist until supply chains are restored.

The Bank will continue to take appropriate credit actions, apply overlay adjustments in estimating ECLs on its exposures, and monitor and report all the effects of COVID-19 in its financial statements as they become known and estimable.

Event after the Reporting Period

The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.

Events that are indicative of conditions that arose after the balance sheet date, but do not result in an adjustment of the financial

statements themselves, are disclosed.

Russia-Ukraine conflict

In February 2022, Russia invaded Ukraine and this invasion has triggered Europe’s largest refugee crises and significant disruption to prices in financial and other markets across the world. Although Russia and Ukraine are relatively small in output terms, they are large producers and exporters of key food items, minerals and energy. The war has negatively impacted the supply and price of wheat, and energy prices across the world. The war has also heightened inflationary pressures and could slow-down global economic growth.

As at 31 December 2021, the Russia-Ukraine war had no direct impact on the financial performance and financial position of the Bank. However, because of its potential impact on the volatility of the fair value of tradeable certain financial assets and financial liabilities, the war may affect the Bank’s 2022 financial results. As a result, the Bank will continue to monitor and report the impact of the war on its operations and financial results as they become estimable during the 2022 financial year.

The Effect of New and Amended IFRSs

A number of new or amended standards became effective for annual periods beginning after 1 January 2021 and beyond with earlier application permitted. The Bank did not early adopt any of the new or amended standards in preparing these financial statements.

Changes in accounting policies

The accounting policies for the current year are consistent with those reported in the previous year except the changes to accounting policies and disclosures arising as follows;

New standards and amendments (including material explanation) applicable from 1 January 2021

1. Attributing bene t to periods of service (IAS 19 Employee Bene ts): In December 2020, the IFRS Interpretation Committee (IFRIC or the Committee) discussed a submission about the periods of service to which an entity attributes benefit for a particular defined benefit plan and issued a tentative Agenda Decision. At its April 2021 meeting, the Committee decided not to add the submission to its standard setting work plan but finalized an Agenda Decision that would include material explanations on how the applicable principles and requirements of IAS 19 should be applied in practice.

The Committee decided not to add the submission to its standard-setting work plan on the basis that the principles in IAS 19 provide an adequate basis for an entity to determine the periods of service to which retirement benefit is attributed in the submission. Please refer to Note O for further details and the impact of the Committee’s material explanation on the financial statements.

2. Interest Rate Benchmark Reform – Phase 1 (2020) and Phase 2 (2021): Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – In response to the discontinuation of the Interbank Offered Rate (IBOR), the IASB issued amendments to IFRSs in two phases:

Phase 1 – These amendments provide temporary exceptions for specific hedge accounting requirements impacted by

uncertainties arising from the reform, applicable to annual reporting periods beginning on or after 1 January 2020.

Phase 2 – These amendments relate to issues that could affect financial reporting when an IBOR is replaced with an alternative benchmark interest rate, impacting IBOR related financial assets, financial liabilities or lease liabilities, disclosures and hedging relationships that apply the hedge accounting requirements in IFRS 9 or IAS 39.

The amendment introduced a practical expedient that enables a company to account for a change in the contractual cash flows that are required by the IBOR reform by updating the effective interest rate to reflect the changes. Without these amendments, a gain or loss would have been recorded in the financial statements in line with existing IFRS 9 requirements on modification of terms of financial instruments. The Phase 2 amendments are applicable for annual reporting periods beginning on or after 1 January 2021. The Bank applied the phase 2 amendments for the year ended 31 December 2021 including disclosures related

to IBOR transitions. Please refer to Note C (Interest Rate Risk) for details of the impact on the financial statements.

3. COVID-19 Related Rent Concessions – Extension of practical expedient: In May 2020, the IASB issued COVID 19- Related Rent Concessions, which amended IFRS 16 Leases to provide lessees with an exemption from assessing whether a COVID- 19-related rent concession is a lease modification for payment originally due by 30 June 2021. Since lessors continue to grant COVID-19-related rent concessions to lessees and the effects of the COVID-19 pandemic are ongoing and significant, the IASB decided to extend the time period over which the practical expedient is applicable annual reporting periods beginning on or after 1 April 2021. This amendment did not have any significant impacts on the Bank’s lease accounting as at 31 December 2021.

New standards and amendments applicable from 1 January 2022

The following standards and amendments had been issued but are mandatorily applicable for annual reporting periods beginning on or after 1 January 2022.

for annual reporting periods beginning on or after 1 January 2022.

mandatorily applicable for annual reporting periods beginning on or after 1 January 2022.

reporting periods beginning on or after 1 January 2022.

January 2022.

applicable for annual reporting periods beginning on or after 1 January 2023.

NOTE C – Risk Management Policies and Procedures

In carrying out its development mandate, the Bank seeks to maximize its capacity to assume core business risks resulting from its lending and investing operations while at the same time minimizing its non-core business risks (market risk, counterparty risk, and operational risk) that are incidental but nevertheless unavoidable in the execution of its mandate.

Due to the upcoming discontinuation of the London Interbank Offered Rate (LIBOR) and other Interbank Offered Rates (IBORs) by the end of 2021, interest rate financial risk management processes, systems and operations will be affected. As a result, the Bank commissioned a “LIBOR Transition Project” to assess the potential impacts of the changes arising from the discontinuation of LIBOR and other IBORs and implement changes required to ensure a fair and seamless transition to the recommended Alternative Risk Free Rates. The LIBOR Transition Project progressed as expected during the 2021 year and relevant disclosures have been provided in the financial statement. Refer to “Interest Rate Risk” section below for details of the Bank’s LIBOR Transition Project and the impact of the transition and amendments to IFRSs on the financial statements.

Risk Governance and Risk Appetite

The highest level of risk management oversight in the Bank is assured by the Board of Executive Directors, which is chaired by the President. The Board of Directors is committed to the highest standards of corporate governance. In addition to approving all risk management policies, the Board of Directors regularly reviews trends in the Bank’s risk profile and performance to ensure compliance with the underlying policies.

Four management level committees perform monitoring and oversight roles: The Asset and Liability Management Committee (ALCO), the Credit Risk Committee (CRC), the Operations Committee (OPSCOM) and the Operational Risk Management Committee (ORMC). The ALCO is the oversight and control organ of the Bank’s finance and treasury risk management activities. It is the Bank’s most senior management forum on finance and treasury risk management issues and is chaired by the Vice President for Finance.

The CRC, which is chaired by the Group Chief Risk Officer, ensures effective implementation of the Bank’s credit policies and oversees all credit risk issues related to sovereign and non-sovereign operations. OPSCOM is chaired by the Senior Vice President and reviews all operational activities before they are submitted to the Board of Directors for approval. The ORMC—which has two co-chairs; Vice President, CHVP and the Group Chief Risk Officer—is a committee of representative business units across the Bank. It exercises oversight over the ORMF implementation process and provides a forum to facilitate monitoring, discussing and deciding on issues with policy implications related to operational risk management.

It provides a forum to facilitate monitoring, discussing and deciding on issues with policy implications related to operational risk management. ORMC meets on quarterly basis and reports to Senior Management and subsequently to the Board of Directors (if necessary) on any significant operational risk issues that require top management attention.

The ALCO, CRC and OPSCOM meet on a regular basis to perform their respective oversight roles. Among other functions, the ALCO reviews regular and ad-hoc finance and treasury risk management reports and financial projections and approves proposed strategies to manage the Bank’s balance sheet. The CRC is responsible for end-to-end credit risk governance, credit assessments, portfolio monitoring and rating change approval, amongst other responsibilities. The ALCO and CRC are supported by several standing working groups that report on specific issues including country risk, non-sovereign credit risk, interest rate risk, currency risk, financial projections, and financial products and services.

The Group Chief Risk Officer, who reports directly to the President of the Bank, is charged with oversight over all credit, market and operational risk issues. However, the day-to-day operational responsibility for implementing the Bank’s financial and risk management policies and guidelines are delegated to the appropriate business units. The Financial Management Department and the office of the Group Chief Risk Officer are responsible for monitoring the day to-day compliance with those policies and guidelines.

The degree of risk the Bank is willing to assume to achieve its development mandate is limited by its risk-bearing capacity. This institutional risk appetite is embodied in the Bank’s risk appetite statement, which articulates its commitment to maintain a prudent risk profile consistent with the highest credit rating. The Bank allocates its risk capital between non-core risks (up to 10 percent), with sovereign and non-sovereign lending and investing operations. The capital allocation for non-sovereign operations is up to 45 percent of the Bank’s risk capital.

Policy Framework

The policies, processes and procedures by which the Bank manages its risk profile continually evolve in response to market, credit, product, and other developments. The guiding principles by which the Bank manages its risks are governed by the Bank’s Risk Appetite Statement, the Capital Adequacy Policy, the General Authority on Asset and Liability Management (the ALM Authority), the General Authority on the Bank’s Financial Products and Services (the FPS Authority) and the Bank’s Credit Policy and associated Credit Risk Management Guidelines.

The ALM Authority is the overarching framework through which Management has been vested with the authority to manage the Bank’s financial assets and liabilities within defined parameters. The ALM Authority sets out the guiding principles for managing the Bank’s interest rate risk, currency exchange rate risk, liquidity risk, counterparty credit risk and operational risk. The ALM Authority covers the Bank’s entire array of ALM activities such as debt-funding operations and investment of liquid resources, including the interest rate and currency risk management aspects of the Bank’s lending and equity investment instruments.

The FPS Authority provides the framework under which the Bank develops and implements financial products and services for its borrowers and separate guidelines prescribe the rules governing the management of credit and operational risk for the Bank’s sovereign and non-sovereign loan, guarantee and equity investment portfolios.

Under the umbrella of the FPS Authority and the ALM Authority, the President is authorized to approve and amend more detailed operational guidelines as necessary, upon the recommendations of the Asset and Liability Management Committee (ALCO), the Credit Risk Committee (CRC) and the Operations Committee (OPSCOM).

The following sections describe in detail the manner in which the different sources of risk are managed by the Bank.

Credit Risk

Credit risk arises from the inability or unwillingness of counterparties to discharge their financial obligations. It is the potential for financial loss due to default of one or more debtors/obligors. Credit risk is by far the largest source of risk for the Bank arising essentially from its development lending and treasury operations.

The Bank manages three principal sources of credit risk: (i) sovereign credit risk in its public sector portfolio; (ii) non-sovereign credit risk in its portfolio of non-sovereign portfolio; and (iii) counterparty credit risk in its portfolio of treasury investments and derivative transactions used for asset and liability management purposes. These risks are managed within an integrated framework of credit policies, guidelines and processes, which are described in more detail in the sections that follow.

The Bank’s maximum exposure to credit risk before collateral received and other credit enhancements for 2021 and 2020 is as

follows:

(UA thousands)

When the Bank lends to the borrowers from its public sector window, it generally requires a full sovereign guarantee or the equivalent from the borrowing member state. In extending credit to sovereign entities, the Bank is exposed to country risk which includes potential losses arising from a country’s inability or unwillingness to service its obligations to the Bank.

The Bank manages country credit risk through its policies related to the quality at entry of project proposals, exposure management, including individual country exposures and overall creditworthiness of the concerned country. These include the assessment of the country’s risk profile as determined by its macroeconomic performance, debt sustainability, socio-political conditions, the conduciveness of its business environment and its payment track record with the Bank. The Bank also applies a sanctions policy that imposes severe restrictions on countries that fail to honor their obligation to the Bank.

Country Exposure in Borrowing Member Countries

The Bank’s exposures as at 31 December 2021 and 31 December 2020 from its lending activities to borrowing member countries as well as the private sector projects in those countries are summarized below:

Summary of loans as at 31 December 2021