“Too many developing countries borrow excessively in foreign currency.”

The New Development Bank, a lender owned by Brazil, India, Russia, China and South Africa, is aiming to almost double its lending to $16bn this year and shift its loan book away from the US dollar to emphasise lending in local currencies. The NDB, or Brics bank as it is often known, is seen as a challenger to established lenders such as the World Bank, Asian Development Bank and IMF.
The move to lend more in local currencies should be welcomed, as “too many developing countries borrow excessively in foreign currency, which leads to dangerous FX risk exposure”, says Chris Humphrey, senior scientist at NADEL in an external pagearticle in the Financial Timescall_made (paywall). However, the bank has only disbursed 7 per cent of the loans it has approved, according to its latest annual report. That is a “warning sign that it may be rushing projects to approval without sufficient preparation”, he adds.
The bank’s project approval times are about one-third of those taken by other big development lenders. Speed is made possible as the bank works closely with borrower countries’ own development banks and agencies and tends to use local standards rather than international ones in terms of social and environmental safeguards. A model potentially offering greater legitimacy and efficiency. It could, however, also increase the social and environmental risks of investment.