The Inter-American Development Bank (IADB) has adopted a new capital adequacy policy and associated lending rate methodology to more closely align its risk management methods and procedures with current international banking practices.
In the new policy, the IADB will utilise the total-equity-to-loans ratio (TELR) as a benchmark to measure capital adequacy, as opposed to the reserves-to-loans ratio (RLR) used in the past. The new measure of capital adequacy will take into account the bank’s total equity, which is comprised of reserves, paid-in capital and the allowance for loan losses.
Due to its strong financial position, achieved during more than 40 years of net income accumulation, the bank will implement a sustainable and stable level of “standard loan charges” that will enable it to protect and reinforce the bank’s strong level of capitalisation and offer lower and more stable loan charges to its borrowing members.
The set of standard loan charges has been established such that it will be applied in all cases, unless there are significant changes in the financial condition of the bank. This set of standard loan charges comprises:
a lending spread of 30 basis points
a credit commission fee of 25 basis points
a permanent waiver of the inspection and supervision fee.
These new charges will be applied retroactively to July 1, 2003, and will apply to all the main lending rates: those based either on a currency pool, a single currency or Libor, with the exception of emergency loans.