Financing deployed by the Asian Development Bank’s (ADB) trade and supply chain division has surged 50% in value year-on-year in the wake of the Middle East conflict, its director has said.
The dramatic drop in vessel traffic through the Strait of Hormuz and a series of attacks on energy-related infrastructure in the region have had a significant impact on economies across Asia, with supply shortages driving up the cost of food and energy.
“There is a big increase in demand for trade finance from ADB, largely because credit limits that are available in developing Asia are getting squeezed because of higher commodity prices,” said Steven Beck, who has led the ADB’s trade finance unit for more than 20 years.
“Financial institutions have country and counterparty limits to support trade, and now that commodity prices have, in some cases, doubled, it’s eating away at those available limits.
“And financial institutions see a more challenging risk environment, so they are not likely to increase those limits at any great clip.”
As a result, Beck said, transactions “not seen as critical to food or energy security may be getting left out”.
“All these factors translate to more demand for multilateral development banks like us to step in and provide more capacity to support trade, especially in critical goods for energy and food security, and in the most challenging markets,” he said.
Manila-headquartered ADB has provided nearly US$1bn in energy security-related transactions so far this year, and a further US$600mn in food security deals.
The institution’s pipeline for energy security transactions is “well over a billion dollars”, Beck said, adding that depleting inventories of oil-on-water and damage to oil and gas facilities mean “the actual crunch in terms of supply may just be beginning”.
The ADB was one of seven multilateral development banks to sign a statement last week pledging to “provide immediate relief by supporting the most vulnerable populations and ensuring the continuity of essential services”.
Highlighting disruption to energy, fertiliser markets and trade routes, the joint statement called for an expansion of trade and supply chain finance, as well as provision of working capital and liquidity to utility companies, SMEs and the public sector.
The other signatories were the African Development Bank Group, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank Group and the World Bank Group.
Separately, the ADB has unveiled a series of initiatives over recent weeks aimed at supporting the region through the crisis.
It announced on May 8 it would mobilise US$30bn by 2030 to help Asean nations “advance long-term development priorities and withstand external shocks”, including by deepening capital markets and connecting power grids.
“Asean has clear priorities and strong ambitions, but the challenge now is delivery, especially as the region faces a period of compounding crises, from geopolitical uncertainty to economic shocks,” said ADB president Masato Kanda.
The lender has also launched a financing facility this month to help Asia-Pacific countries develop critical minerals supply chains, comprising grants and catalytic finance.
The catalytic finance window has been designed to encourage co-financing and risk-sharing, with Korea Eximbank and the Korean Trade Insurance Corporation (K-Sure) each signing a US$500mn memorandum as its first partners.
