limiting losses

A look at West African Development Bank’s credit insurance policy

By Yara Rizk

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Posted on August 2, 2023 10:35

Benin’s Serge Ekué, formerly of Natixis, has been at the helm of BOAD since 28 August 2020. (BOAD/Cyril Bailleul)
Benin’s Serge Ekué, formerly of Natixis, has been at the helm of BOAD since 28 August 2020. (BOAD/Cyril Bailleul)

The development bank’s new credit insurance policy is a decisive step towards boosting its financing capacity for member states.

Following the example of the world’s major financial institutions, the West African Development Bank (WADB) adopted a credit insurance policy on 13 July for its loan portfolio, marking a significant step forward in its deployment strategy. 

The policy is valued at CFA278bn ($466m), representing 11% of the WADB’s overall loan portfolio. 

A solid partnership with nine Europe-based private insurers has made this step possible, 18 months after the first individual insurance policies were put in place by the bank.

Best rating

The main objective of this approach is to raise the average rating of WADB’s loan portfolio in order to have a positive impact on its own investment grade rating. 

By opting for insurers rated A- and AA-, the WADB is also demonstrating its ambition to exploit the credit-insurance market on a long-term basis. This will serve as a tool for distributing balance-sheet exposures to strengthen its financing capacity for the benefit of West African Economic and Monetary Union (Uemoa) member states.

For WADB President Serge Ekué, this insurance marks a turning point: it “improves the risk profile of WADB and its borrowers” while offering “optimal opportunities for access to resources on the financial markets”. 

He adds: “This is perfectly in line with our Djoliba plan, launched in 2021, which aims to finance projects worth CFA3.3trn for the benefit of Uemoa member states by 2025.”

A structuring advance

The Djoliba plan (inspired by the Bambara word for “river” to symbolise the idea of fluid, continuous growth) is based on three main pillars: increasing development funding, promoting regional integration, and supporting sustainable development.

This underwriting of insurance policies, which is well known in so-called “mature” financial markets, is a major step forward in the region. In 2020, the Banque des États de l’Afrique Centrale (BEAC) also issued a call for tenders for the “subscription of an insurance policy for a global damage programme”, but since then there has been no official communication in this regard.

The Banque de Développement des États de l’Afrique Centrale (BDEAC), for its part, clearly stated in its 2023 to 2027 strategic plan that, as part of the reforms intended to be enacted, it wished to “obtain a capital insurance policy, subject to appeal by member states, if such insurance is available at reasonable prices”.

On the other hand, and not surprisingly, the larger institutions operating in the region, such as the Islamic Development Bank (IsDB) and the African Development Bank (AfDB), have had credit-insurance policies in place for the past few years.

Credit insurance policy

A bank with a credit insurance policy protects the institution against the risk of default by its borrowers by transferring part of this risk to the insurer. This enables the bank to manage its loan portfolio more efficiently and increase its lending capacity by limiting potential losses. 

In the event of non-payment by the borrower, the insurer assumes responsibility for reimbursing the bank in accordance with the terms of the credit-insurance policy.

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