CDB, CABEI, and CAF execute first-of-its-kind risk exchange agreements - Trade Treasury Payments

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CDB, CABEI, and CAF execute first-of-its-kind risk exchange agreements

Three regional development banks – the Caribbean Development Bank (CDB), the Central American Bank for Economic Integration (CABEI), and CAF (Development Bank of Latin America and the Caribbean) – have signed Exposure Exchange Agreements (EEAs) totalling $1.15 billion. 

The transactions mark the first use of this risk-sharing mechanism among multilateral development banks (MDBs) rated below AAA. CABEI and CAF executed a $700 million agreement, while a separate $450 million agreement was signed between CDB and CABEI.

EEAs are financial instruments that enhance capital adequacy by enabling MDBs to exchange segments of their sovereign credit exposures. These arrangements reduce concentration risk and improve the distribution of credit exposures across MDB portfolios.

The agreements align with recommendations made by the G20’s 2022 report on the Capital Adequacy Framework, which encourages MDBs to make more effective use of their existing balance sheets. By reducing portfolio concentrations, the transactions are expected to create additional lending capacity without requiring new capital injections.

For each participating institution, the transactions are intended to support long-term strategic objectives, including the ability to scale lending to member countries. CDB, CABEI and CAF have stated that the EEAs will enable them to finance additional projects across infrastructure, energy, and social sectors while maintaining sound financial positions.

Daniel Best, President of the CDB, said, “This agreement with CABEI is a milestone in cooperation among development banks. It not only reflects our financial strength and capacity for innovation but also sets a precedent for capital optimisation and greater support for Latin America and the Caribbean. By efficiently diversifying risks, we enhance our ability to extend new loans to our member countries, financing critical infrastructure, energy transition, and social development projects. These are the types of partnerships we need to drive sustainable development in the region.”

Gisela Sánchez, Executive President of CABEI, said, “These agreements represent a milestone in our history and a concrete result of our commitment to transforming development financing through strategic partnerships and financial innovation. As part of CABEI’s new Strategy, which prioritises capital efficiency and the use of innovative financial instruments, these collaborations with CAF and CDB reinforce our role as a catalyst for regional integration and sustainable development. Most importantly, they mark a significant step toward improving the lives of millions of people in Central America, the Caribbean and beyond.”

Sergio Díaz-Granados, Executive President of CAF, said, “This agreement with CABEI is a milestone in cooperation among development banks. It not only reflects our financial strength and capacity for innovation but also sets a precedent for capital optimisation and greater support for Latin America and the Caribbean. By efficiently diversifying risks, we enhance our ability to extend new loans to our member countries, financing critical infrastructure, energy transition, and social development projects. These are the types of partnerships we need to drive sustainable development in the region.”

While not large in scale relative to MDB total assets, the agreements mark a degree of coordination among non-AAA-rated regional lenders and suggest that regional institutions are seeking to deepen collaboration through technical instruments, beyond traditional co-financing or grant mechanisms. Analysts note that further adoption of EEAs or similar tools could help MDBs meet rising demand for development finance in a constrained capital environment.

The agreements are part of broader balance sheet optimisation efforts across development finance. As MDBs assess new tools to support long-term sustainability and delivery capacity, instruments like EEAs may become a more common feature of their financial architecture.