BRICS bank struggling to repay dollar debts amid global lending de-dollarization efforts
- In Reports
- 05:34 PM, Jun 17, 2023
- Myind Staff
According to sources cited by the Wall Street Journal, a development bank established by the BRICS bloc of nations is facing difficulties in securing US dollar funds to repay its existing debts. The bank, which was created to reduce dependence on US dollar loans, is now grappling with the challenge of fulfilling its own financial obligations.
The New Development Bank, headquartered in Shanghai, has reportedly scaled back its issuance of new loans, according to the report.
The bank, established approximately eight years ago by the collective efforts of the BRICS countries (Brazil, Russia, India, China, and South Africa), aimed to provide an alternative to US-dominated financial institutions, such as the International Monetary Fund, and align with China's ambitions to diminish the prominence of the US dollar. Its lending activities exhibited significant growth, with committed loans surging from $1 billion in 2017 to $30 billion in 2022.
Despite aiming to reduce reliance on US dollar loans, the New Development Bank had to borrow from Wall Street and Chinese lenders, with around two-thirds of its own borrowings being in dollars, according to the Journal.
Following Russia's incursion into Ukraine, Wall Street lenders became hesitant to extend loans to a bank largely owned by Moscow. Additionally, the appointment of Dilma Rousseff, a former impeached president of Brazil, as the bank's new chief sparked controversy. The next president of the bank will be nominated by Russia.
In the absence of its usual dollar support, the institution is now servicing its existing debt through more costly borrowings. The Journal reports that the bank's latest bond issuance, which took place in April, was five times more expensive than previous loans, amounting to $1.25 billion.
To secure additional capital, the bank is engaging in discussions with Argentina, Saudi Arabia, and Honduras, exploring the possibility of their membership.
The New Development Bank faced a credit downgrade from Fitch Ratings in July due to its difficulty in obtaining dollars.
Furthermore, sources revealed that the bank was informed of a potential quadrupling of interest on new loans, leading to a doubling of the premium charged to its members for borrowing.
As a result, loan disbursements from the bank have significantly reduced, as reported by the Journal.
According to the lender, there is significant interest in the bonds issued by the New Development Bank, and the bank maintains strong loan origination and liquidity. However, the New Development Bank did not immediately respond to Insider's request for comment.
Image Source: Reuters
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