Introducing the Local Currency Loan Product

Abstract

Traditionally, the Asian Development Bank (ADB) has offered loans exclusively in foreign currency. However, in light of important economic changes in ADB’s developing member countries (DMCs) over the past decade, a review of how ADB can enhance its menu of financial products to meet the evolving financing demands is warranted. As DMCs underwent economic restructuring and moved away from fixed exchange rates following the 1997 Asian financial crisis, lenders and borrowers became more vigilant to avoid currency mismatches. More recently, large current account surpluses and substantial capital inflows have allowed some DMCs to build up significant foreign exchange reserves. In addition, a number of borrowing countries have liberalized the capital account, allowing sovereigns and large local borrowers to access international bond and syndicated loan markets. This has opened an additional source of foreign currency borrowing at competitive rates. At the same time, local capital markets in some DMCs are developing rapidly, reducing the need to borrow offshore.