Financial Report 2022

THE AFRICAN
DEVELOPMENT BANK

of 2021. The Bank’s callable capital at December 31, 2022,
stood at UA 138.79 billion, including UA 50.43 billion from nonborrowing member countries rated A- and higher, comparedwith UA 138.52 billion and UA 50.19 billion, respectively, as at
the end of the previous year. The evolution of the Bank’s capitalover the past five years is shown in Table 1.1.

FINANCIAL MANAGEMENT
Capital Subscription

The capital stock of the Bank is composed of paid-up andcallable capital. The paid-up capital is the amount of capital
payable over a period determined by the Board of Governors’
resolution approving the relevant General Capital Increase.
The Bank’s callable capital is subject to payment as and whenrequired by the Bank, only to meet its obligations arising fromborrowing funds for inclusion in its ordinary capital resources orguarantees chargeable to such resources. There has never beena call on the callable capital of the Bank. A member country’s
payment of the first installment of a capital subscription
triggers the issuance of the shares corresponding to the entire
callable capital portion, and the shares representing the paidup portion of subscriptions are issued only as and when the
Bank receives the actual payments for such shares.
Following the Board of Governors’ approval of a 125 percent
increase of the Bank’s capital base in 2019 and a Special
Temporary Callable Capital Increase in March 2021, theauthorized capital of the African Development Bank stood at
UA 180.64 billion as at end December 2022. Six percent of theshares created under the Seventh General Capital Increase(GCI-VII) are to be paid-up over a set period, while 94 percent
are callable. In accordance with the resolution governing thiscapital increase, the GCI-VII shares were allocated to regionaland non-regional members in such proportions that, when
fully subscribed, the regional group holds 60 percent of thetotal capital stock and the non-regional group 40 percent.
The paid-up portion of the GCI-VII subscription is payablein eight equal annual installments for Member Countries not
eligible to borrow from the African Development Fund (ADF)
and in twelve equal annual installments for Member Countries
eligible to borrow from the ADF.
As at December 31, 2022, the paid-up portion of the capitalof the Bank amounted to UA 9.97 billion, with a paid-in capitallevel (i.e., the portion of the paid-up capital that has been paid)of UA 6.37 billion compared with UA 9.96 billion and UA 5.71
billion of paid-up and paid-in capital, respectively, at the end

In accordance with the Bank’s Share Transfer Rules, shares forwhich payments have become due and remain unpaid are
forfeited after a prescribed period and offered for subscription
to member countries within the same membership group (i.e.,
regional or non-regional).
Details of the Bank’s capital subscriptions as of December
31, 2022 are presented in the Statement of Subscriptions to
the Capital Stock and Voting Powers, which forms part of the
Financial Statements included in this Report.

The Bank’s Credit Rating

The Bank continuously monitors and manages its key financial
strength metrics to sustain its high credit ratings. The four
leading international rating agencies - Standard and Poor’s,
Fitch, Moody’s, and Japan Credit Rating Agency - have all
reaffirmed the AAA/Aaa rating of the Bank’s senior loans
and AA+/Aa1 rating of its subordinated debt, with stable
outlook(s). The Bank’s high-quality credit ratings underline
its strong financial position, solid capital adequacy, highlevel of liquidity, excellent funding record, prudent financial
management, preferred creditor status and strong support
from shareholders.
In 2022, the Bank’s risk management functions continued toreinforce the Bank’s credit rating by ensuring sound Groupwide risk management decisions consistent with its AAA ratingtarget and reflecting institutional changes and transformation
processes undertaken while supporting the delivery of theHigh 5s. The Bank’s risk management policies and proceduresare described in detail in Note C to the Financial Statements.

Borrowing Activities

The Board of Directors approved the 2022 borrowing programfor a maximum amount of UA 7.1 billion to be raised fromfinancial markets plus an additional envelope of USD 350
million (UA 248 million equivalent) under the Enhanced
Private Sector Assistance (EPSA) facility. As of December
31, 2022, a total amount of UA 6.7 billion had been raised,
representing 94.4 percent of the approved borrowing program.
Notwithstanding a market that was at times challenging in

Table 1.1
Bank Authorized and Subscribed Capital, 2018–2022(in UA millions)

2022

2021

2020

2019

2018

180,639

180,639

153,191

153,191

66,975Paid-up Capital

9,975

9,959

7,054

4,951

4,957

Callable Capital

138,794

138,515

93,79361,19660,151

Total Subscribed Capital

148,769

148,474

100,847

66,147

65,108

Authorized capital5African Development Bank

2022, the Bank executed four benchmarks, two EUR, and two
USD benchmarks. The first benchmark of the year, issued in
March 2022 was a EUR 1.25 billion 5-year Global Benchmark
0.5 percent due March 2027. The second benchmark issuedin July was a USD 1 billion 3-year Global Benchmark 3.375
percent due July 2025. In September 2022, the Bank enjoyeda successful return to the euro market with a EUR 1.25 billion
7-year Social Bond Benchmark 2.25 percent due September
2029. The transaction registered demand in excess of EUR
2.3 billion, the Bank’s largest order book to date in the euro
market.

Social Bonds
The Bank’s Social Bond program is focused on meeting thecritical development challenges of Africa, with proceeds
aimed at financing projects with strong social impact on
the continent, targeting affordable basic infrastructure,access to essential services, affordable housing, educationand vocational training, employment generation, healthand healthcare services, food security and socio-economic
advancement and empowerment.

In October 2022, the Bank returned to the USD market underchallenging conditions and raised USD 2 billion with a 5-year
Global Benchmark 4.375 percent due November 2027. This
was the largest 5-year order book amongst peers in the USD
market since late August 2022, demonstrating the Bank’s
ability to adapt its strategy to the market backdrop. Both the
EUR and USD benchmarks garnered strong investor interest
globally. These transactions were complemented by a long
3-year transaction issued in January 2022 in the Sterling publicdomestic market, a new GBP 600 million Global Benchmark due
June 2025, contributing to further expanding and diversifying
the Bank’s investor base.

In 2022, the African Development Bank issued two social
bonds: an AUD 155 million 10.5-year Kangaroo Social Bond
due October 2032 and a EUR 1.25 billion 7-year Social Bond
Benchmark due September 2029. These two transactions
have brought the total issuance under the Bank’s Social Bond
program to USD 7.4 billion (UA 5.6 billion) over ten transactions
since establishing its Social Bond framework in 2017. The
total amount of social bonds outstanding was USD 7.3 billion(UA 5.5 billion) as of 31 December 2022. The Bank remains
the largest MDB issuer of social bonds. More details on theeligible social projects financed by the Bank’s social bonds
are available on the Bank’s social bond webpage: https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/social-bond-program.

Green Bonds

Themed Bonds

Since the establishment of its Green Bond framework in
2013, the Bank has issued twelve green bond transactions
denominated in USD, SEK, AUD, and ZAR for a total amountof USD 2.7 billion (UA 2.0 billion) highlighting its continued
commitment to support climate-resilient and low-carbon
investments on the continent in sectors such as renewableenergy, energy efficiency, clean transportation, biosphereconservation and sustainable water and wastewater
management. The total amount of green bonds outstanding
is USD 576 million (UA 433 million) as of 31 December 2022. In
2022, the Bank issued a SEK 1.5 billion 5-year Green Bond due
February 2027 and a ZAR 200 million 1-year Green Bond due
September 2023 in a private placement format - the Bank’s
inaugural green bond in the South African rand market.
More details on the eligible green projects financed by
the Bank’s green bonds are available on the Bank’s green
bond webpage: https://www.afdb.org/en/topics-and-sectors​/
initiatives​-partnerships​/green​-bonds-program/.

The Bank continued to meet increased demand from Japanese
investors for themed bonds. This demand reflects investors’
preferences for investing in bonds that support social projects
and that meet their investment risk/return objectives. In 2022,
the Bank issued 27 theme bonds aligned with the High 5
operational priorities, for a combined total issued amountof UA 422 million, including 14 “Improve the Quality of Lifefor the People of Africa” bonds, 10 “Feed Africa” bonds, 2“Integrate Africa” bonds, and 1 “Light Up and Power Africa”
bond denominated in various currencies including; Australian
dollar, Brazilian real, Indian rupee, Japanese yen, New Zealanddollar, South African rand, Mexican peso, and Uganda shilling.
Proceeds of these bond issues were included in the ordinary
capital resources of the Bank. Under the terms of the bonds,
an amount equal to the net proceeds will be directed, on a‘best-efforts’ basis, towards projects related to the relevant
themes, subject to and in accordance with the Bank’s lending
standards and guidelines.
A snapshot of the Bank’s activity, over the years, in each of
the sectoral themes financed and the maturity of the relatedbonds is provided in Table 1.2.

6

Financial Report 2022

Table 1.2
Overview of Themed Bond Activity by Sector as at 31 December 2022
(amounts in UA millions)

Total Bonds Issued

Cumulative
Disbursements

Total Bonds
Outstanding

Maturity Range ofBonds Issued
7 to 10 years

Infrastructure

143.6

1,334.0

14.3

Sub-total

143.6

1,334.0

14.3

Improve the quality of life for the people of Africa

543.3

630.2

359.5

1 to 30 years

Feed Africa

481.3

491.6

463.6

1 to 30 years

Light Up & Power Africa

219.3

710.9

218.4

1 to 30 years

Integrate Africa

121.9

255.0

121.9

2 to 30 years

Industrialize Africa

93.5

290.2

93.5

4 to 10 years

1,459.3

2,377.9

1,256.9

Sub-total*
Total

1,602.9

3,711.9

1,271.2*Disbursements for a selected list of projects under AfDB High 5s.

Financial Innovation, Syndications and Co-financing

The Bank continues to pursue and scale-up its (i) renewed
thrust in using co-financing, blended finance, and syndicatedloan structures in financing sovereign and non-sovereign
operations; and (ii) structured finance operations, includingbalance sheet optimization initiatives and the use of innovative
financial products such as guarantees and local currency
financing, among other products, to fulfill its development
mandate.
In 2022, the Bank closed two syndication transactions: theMalicounda project for EUR 115 million and the Singrobohydropower project for EUR 130 million. The Malicounda
project was supported by the OPEC Fund, BADEA, andBOAD for USD 64 million, whereas the Bank provided EUR 51
million. In the Singrobo hydropower project, the Bank, as the
mandated lead arranger, mobilized EUR 90 million from AFC,
DEG, and EAIF and EUR 40 million from its own resources.
The Bank also mustered resources towards lines of credit to
BOAD amounting to EUR 150 million co-financed by CDP Italy
and Findev, respectively at EUR 60 million and EUR 20 million.
Through a collateralized risk participation arrangement with
Norfund the Bank put together a subordinated debt of USD
15 million to CRDB Bank Tanzania.
The Bank executed some asset sell downs in the financial
and energy sectors portfolio for a total of UA 64 million,
with Finnfund, Industrial Development Corporation, andInvestec as the main counterparties. As part of its balance
sheet optimization through institutional investors, the Bank
continued to execute transactions with insurers to provide
credit protection to its assets at project origination. In 2022,
the Board approved several transactions with embedded
insurance cover of up to USD 221 million for projects in thefinancial, transport, industrial, and manufacturing sectors.
In 2022, the volume of active co-financing reached USD
1.746 billion (UA 1.341 billion). Out of this total amount, USD
1.261 billion (UA 969 million) was mobilized for public sector
operations and USD 485 million (UA 373 million) for private
sector operations. Partners such as China’s Africa Growing
Together Fund (AGTF), Japan’s Accelerated Co-financing
Facility for Africa (ACFA) Fund, Islamic Development Bank,OPEC Fund, Agence Française de Développement havecontributed the lion’s share of the current volume of active cofinancing, representing 72 percent of the overall mobilization.
The remaining 28 percent amounting to USD 463 million (UA361 million), was mobilized mainly from multilateral partners
such as BADEA and EIB.

Financial Products

The Bank offers an attractive and diversified menu of financial
product options that allow borrowers to tailor their financing
requirements to their circumstances. The Bank’s financial
products comprise loans (including those denominated inlocal currencies and syndicated loans), lines of credit, agency
lines, guarantees, equity and quasi-equity, trade finance,and risk management products. In addition to the financial
products, the Bank provides technical assistance to its clients
through grant funds. Each of these products is discussed
briefly below.

Loans
The Bank provides loans to its clients on differentiated terms
depending on the classification of the borrower. The Bank
categorizes its standard loans as either Sovereign-Guaranteed
Loans (SGLs) or Non-Sovereign Guaranteed Loans (NSGLs).
SGLs are loans made to Regional Member Countries (RMCs)
or to public sector entities from RMCs supported by the full
faith and credit of the RMC in whose territory the borrower
is domiciled. Multinational institutions are eligible for SGLs
if they are guaranteed by an RMC or by the RMCs in whose
territory or territories the projects will be executed.
NSGLs are loans made either to public sector enterprises,
without the requirement of a sovereign guarantee, or to
private sector enterprises.
The Bank’s loan products have evolved over time, with terms
that are increasingly more responsive to client needs.
In response to borrower demand for a flexible loan productthat facilitates dynamic debt management and easily adapts
to specific maturity and risk profile needs, in March 2016
ADB introduced the Fully Flexible Loan (FFL) for the benefitof its sovereign and sovereign guaranteed borrowers. The
FFL combines a standard loan product with maturity-based
pricing and embedded risk management products. The FFL
can be applied as a (i) regular project finance loan to eligible7African Development Bank

ADB sovereign borrowers, or (ii) policy-based operation (PBO)
specifically to finance public sector reform implementation, or
as a (iii) Results-Based Financing (RBF) where disbursement of
the loan is linked to the achievement of certain results by theborrower.
The maturity-based pricing allows borrowers to choose
up to 25-year maturity and an 8-year grace period against
an ascending Maturity Premium depending on the exact
tenor-grace period combination selected. The embedded
risk management products provide borrowers with two
options: Base rate and or currency conversion. The former
allows borrowers to: (i) fix, unfix and re-fix the Base Rate on
a disbursed portion of the loan and, (ii) to cap or collar theBase Rate on a disbursed portion of the loan. The currency
conversion, on the other hand, allows borrowers to change
their loan (disbursed and /or undisbursed), in part or in full into
any other ADB approved lending currency.
Private sector or Non-Sovereign Guaranteed Loans (NSGLs)
are offered exclusively through the ADB window. NSGLs areoffered in the form of a Fixed Spread Loan (FSL), a standard loan
priced with a risk-based lending spread that is fixed for the lifeof the loan and added to its Base Rate. In addition to financing
corporate loans and project finance, under the FSL, the Bank
may subscribe to debt or subordinated debt instruments issued
by a private enterprise or public sector enterprise in the processof being privatized. The FSL is also used to provide Lines ofCredit and Agency Lines to financial intermediaries and otherthird parties and to provide local currency or synthetic local
currency loans. The FSL is also the loan product underpinning
the syndication business of the Bank.
The Bank offers other loan structures, including parallel and
A/B loan syndications and local currency loans. The Bank canprovide local currency loans in the following RMC currencies:
Botswana pula, Egyptian pounds, Franc CFA (XOF and XAF),
Ghanaian cedis, Kenyan shillings, Nigerian naira, Rwandese
francs, Tanzanian shillings, Ugandan shillings and Zambiankwacha. Lending in these currencies is only offered if the
Bank can fund itself efficiently in the relevant local currency
market on a best-efforts basis. Other currencies can be added
depending on the demand and ability of the Bank to fundthrough the local market. These local currency loans areoffered under the FSL pricing framework with a cost-passthrough principle for the loans to ensure that the overall costof funds is fully covered. Other local currencies that are notapproved lending currencies of the Bank can be available
under deliverable or non-deliverable contracts executed with
the Banks derivatives counterparties.

selection of individual projects for Bank support is delegatedto the intermediaries, which draw on Bank resources to makeloan or equity investments on the Bank’s account in projects
meeting pre-agreed criteria. As part of an agency agreement,
financial intermediaries must commit their own funds ineach investment in parallel with the Bank and supervise theinvestee companies. The financial intermediary acts only in an
agency capacity for the Bank when investing the latter’s funds
and assumes no risk in this regard. The Bank bears the credit
risk of the borrower.

Guarantees
The Bank Group has been providing guarantee products since
2000. The Bank’s guarantee instruments are effective tools toprotect investors and lenders against specific risks, enabling
optimal allocation of risks. Through the guarantee product,
the Bank seeks to attract new sources of financing from third
party local and international lenders/investors, including via
the capital markets potentially resulting in better financing
terms and a reduction of effective financing costs. The Bank’s
guarantees can be classified into two categories: Partial Credit
Guarantees (PCGs) and Partial Risk Guarantees (PRGs).
The PRG protects private lenders and investors against welldefined political risks related to the failure of a government
or a government-related entity to honor certain specified
commitments. The PRG is aimed at incentivizing governments
to undertake policy and fiscal reforms necessary to mitigate
performance-related risks. The PCG covers debt service
on scheduled payments of commercial debt, against all
risks or specific events of defaults. As such, PCGs support
private sector entities, government and SOEs (Applicants) inmobilizing debt (Guaranteed Obligations) from commercial
lenders/investors (Beneficiaries) to finance their activities andprojects.
Guarantees continue to be a critical financial product offering
for the institution across the private sector and low-income
sovereign clients. To stimulate additional private sector
investments in Africa and streamline guarantee operations
across the two lending windows of the Bank Group, the Boardof Directors approved a Revised Guarantees Policy in 2019.
The Revised Guarantees Policy introduces new versions of thefinancial guarantee product, including portfolio guarantees inlocal currency and guarantees without a counter-indemnity,
although commercial pricing of the instrument is required in
the latter case. The policy also permits the Bank to seek reinsurance for transacted guarantees.

Risk Management Products

The development of a dynamic private sector, particularly
small and medium-size enterprises (SMEs) on the continent
is an important objective of the Bank, as is the developmentof private financial institutions (PFIs). To this end the Bank
offers lines of credit to PFIs for on-lending to SMEs and othertargeted sectors. The terms of the lines of credit specify theconditions under which Bank funds will be provided to the PFI
for on-lending. The PFIs bear the credit risks of the sub-loans.

The Bank offers Risk Management Products (RMPs) to its
borrowers only in respect of obligations outstanding to
the Bank or new Bank loans to enable them to hedge their
exposure to market risks, including interest rate, currency
exchange, and commodity price risks, thus allowing them tooptimize their debt management strategies. RMPs offeredby the Bank include interest rate swaps, currency swaps,
commodity swaps and interest rate caps and collars. These
products are available to borrowers at any time during the lifeof the loan.

Agency Lines

Equity and Quasi-Equity Participations

Lines of Credit

The Bank makes resources available for SMEs under agency
arrangements with local financial intermediaries. The
8

In addition to its participation in ADF, the Bank takes equity
positions in qualifying business enterprises in its RMCs as part

Financial Report 2022

of its strategic development financing mandate. The Bank’s
ability to provide risk capital through equity and quasi-equity
is key to its resource mobilization role. The Bank may invest in
equities either directly or indirectly, through appropriate funds
and other investment vehicles. Additionally, it may choose
to invest via quasi-equity instruments, including redeemablepreference shares, preferred stock, subordinated loans,or convertible loans. The use by the Bank of equity andquasi-equity participation as instruments of investment has
the objectives of promoting the efficient use of resources,
promoting African participation, playing a catalytic role inattracting other investors and lenders to financially viable
projects as well as promoting new activities and investment
ideas.

Trade Finance Program

In February 2013, the Board approved a USD 1 billion Trade
Finance Program (TFP) for a four-year initial phase to address
the shortage of trade finance in Regional Member Countries(RMCs). The TFP provides liquidity and risk mitigation
solutions to financial institutions actively involved in tradefinance in Africa through the following funded and unfunded
instruments: (a) Risk Participation Agreement (RPA), (b) Trade
Finance Line of Credit (TFLOC), (c) Soft Commodity Finance
Facility (SCFF), and (d) Transaction Guarantee (TG). In addition
to these, the TFP makes selective use of equity and technicalassistance instruments to enhance the risk-bearing andoperational capacities of local financial institutions (FIs).
The demand for trade finance interventions from RMCs
remains strong. Accordingly, in 2016 the Bank consolidated
and mainstreamed the TFP as a core activity rather than as aprogram with an expiry date. In this regard, a USD 1 billion limit
is now reserved for guarantee products only, while the funded
TFLOC and SCFF instruments are to be treated like the otherlending instruments of the Bank in terms of allocation of funds
for non-sovereign operations.

a) Risk Participation Agreement
The Risk Participation Agreement (RPA) is a funded or nonfunded trade finance product that enables the Bank to sharerisk with a select group of international and regional confirmingbanks who provide documentary credit confirmation services
to African issuing banks to support and expand trade in
Africa. Under the RPA product, the Bank shares trade financecredit risk (generally no more than 50 percent of a tradetransaction exposure) on a portfolio of eligible issuing banktrade transactions of partner confirming banks. RPAs operate
on a portfolio basis and do not require the Bank to sign direct
agreements with the local issuing banks. Under a funded
RPA, the Bank and the RPA bank jointly fund issuing banks
for trade finance activities. For unfunded RPA, the Bank sharesthe credit risks on a portfolio of trade finance operations fromissuing banks.

b) Trade Finance Lines of Credit
The Trade Finance Line of Credit (TFLOC) is similar to theconventional line of credit offered by the Bank to local
financial institutions, except that the TFLOC is used to financeexclusively trade-related transactions in RMCs and has amaximum tenor of 3.5 years. Trade transactions financed by
the TFLOC include, among others, pre-shipment and postshipment financing, capital expenditure, letters of credit

discounting, factoring/forfaiting, import and export tradefinance.
Since most trade transactions have maturities of less than one
year, the intermediary financial institutions are permitted toutilize the line of credit as a revolving credit facility to tradefinance clients until the final maturity of the TFLOC itself, whichin any case will not exceed the stipulated tenor. The facility isavailable to local banks engaged in trade finance in Africa.

c) Soft Commodity Finance Facility
The Soft Commodity Finance Facility (SCFF) is a funded tradefinance product that is used to support mainly the importand export of agricultural commodities and inputs across
RMCs. This includes, for instance, the provision of pre-export
financing to commodity aggregators for the purchase andexport of soft commodities. Commodity finance is usually
structured and has credit protection in such forms as pledgesof underlying commodity, assignment of proceeds, lettersof credit, and private or state guarantees. SCFF is provided
directly to corporate entities such as commodity aggregatorsand related agri-businesses operating across the Agri-value
chain. These entities could include state-owned commodity
boards or agricultural cooperatives that meet the Bank’s
eligibility criteria for private sector borrowing. Intermediaries
such as commodity traders would not be direct counterpartiesof the Bank.

d) Transaction Guarantee
Following approval by the Board of Directors, a complementarytrade finance instrument called Transaction Guarantee (TG)was launched in July 2021. It enables the Bank to provide up
to 100 percent non-payment risk cover to Confirming Banksfor the risk they take on Issuing Banks in Africa for individual
trade finance transactions. The TG instrument is particularly
useful to banks in low-income and transition states where
the availability of trade finance confirmation lines is severely
constrained due to perceived higher risk. The instrument
brings the Bank in line with sister MDBs who all use it as theirmain trade finance instrument.

Other Financial Services
In addition to the products described above, the Bank may
occasionally offer technical assistance and project preparation
facilities through Trust or Special funds to supplement its
financial products for both the public and private sector
windows. The Bank’s technical assistance is primarily focusedon increasing the development outcomes of its operations byraising the effectiveness of project preparation which is vitalin ensuring the best developmental and poverty-reducing
outcomes for projects that receive Bank financing. In addition,technical assistance may aim to foster and sustain efforts increating enabling business environments in order to promoteprivate sector investment and growth.

Risk Management Policies and Processes

The Bank’s development operations are undertaken within
a risk management framework driven by a clearly definedrisk appetite statement, a capital adequacy and exposure
management policy, a credit policy with detailed guidelines, arisk management governance framework, an asset and liability
management authority with detailed guidelines, and an endto-end credit evaluation and underwriting process. The Bank
9

African Development Bank

seeks to minimize its exposure to risks that are not essential toits core business of providing development finance and related
assistance. Accordingly, the Bank’s risk management policies,
guidelines, and practices are designed to reduce exposure tointerest rate, currency, liquidity, counterparty, legal and otheroperational risks, while maximizing the Bank’s capacity toassume the credit risks that arise from its development related
activities and resulting exposure to public and private sector
clients, within approved risk limits.
The Operational Risk Management Framework is approved by
the Board of Directors and is implemented with the support ofa Risk Management Committee (“ORMC”) with senior-level
representation from all Complexes of the Bank. The following
activities underpin operational risk management within theBank:•

An annual operational risk review is conducted
and covers the Bank’s current operational risk
(OR) governance framework, an update on theimplementation of internal controls over financial
reporting (ICFR), monitoring the progress in theimplementation of the Bank’s operational risk (OR)management framework, key emerging trends inoperational risk (OR).

•The annual operational risk and internal control
certification process is also conducted in addition
to the annual certification of internal controls overfinancial reporting (ICFR).

•

The individual business units conduct regular selfassessments of their operational risks (RCSA) and theeffectiveness of their controls.

•Continuous identification and monitoring of key risk
indicators (KRIs) for significant residual risks with thebusiness units. Operational risk awareness sessions
are regularly organized through “OpRisk Bytes andSixers”.

An integrated workflow-based risk management software
platform (ACP) is in place to help all stakeholders involved in
the credit risk assessment process streamline their work andimprove efficiency.
The Bank continues to be well capitalized. The stress testingof its capital adequacy shows that the Bank can withstand anumber of extreme shock scenarios.
The Bank has undertaken several strategic initiatives topreserve its risk-bearing capacity. One of the key achievements
is the revision of some of the Bank’s risk models, related tothe capital adequacy framework. This has led to a substantial
improvement in the Bank’s Risk Capital Utilization Ratio(RCUR), which provides significant headroom for the Bank’s
capital to support its lending trajectory and absorb any
potential adverse events. The risks to the Bank’s balance sheet
are actively monitored on a risk dashboard, which is regularly
updated based on the evolving risk profile of the Banks
operations.
The policies and practices deployed by the Bank to manage
the risks to which it is exposed are described in more detailin note C to the financial statements in this Financial Report.

10

Balance Sheet Optimization

The Balance Sheet Optimization (BSO) Strategic Framework
approved by the Board in May 2020 sets out the key objectivesof implementing BSO activities as follows:a. create additional headroom to achieve the Bank’s High 5
targets through active capital management;b. to reinforce the safety margins that underpin the Bank’s
AAA credit rating by improving the Bank’s prudential
ratios;c. mobilize institutional and private investors to leverage
scarce public resources for development purposes.
Following the approval of the framework, BSO activities havelargely focused on supporting the Bank’s capital management
efforts in line with the Bank’s capital management governance,by building a pipeline of transactions that would improve theBank’s prudential metrics.
The Bank has executed various BSO transactions beginningwith the first MDB Exposure Exchange Agreement (EEA) in2015 and the Room to Run (R2R) transactions executed in2018 consisting of a Synthetic Securitization Transaction (SST)on a reference portfolio of USD 1 billion in non-sovereign
infrastructure loans and a portfolio Credit Insurance (CI) on areference portfolio of USD 500 million of non-sovereign financial
sector loans. Subsequently other risk transfer structures havealso been concluded with an embedded capital consumption
benefit at origination such as the Affirmative Finance Action
for Women in Africa (AFAWA) Risk Sharing Mechanism withFrance and Netherlands.
In 2022, the Bank executed two other portfolio BSO
transactions. The Lusophone Compact Guarantee was signedwith the Government of Portugal for EUR 400 million to
support private sector projects in Portuguese-speaking Africancountries. With a maturity of 15 years the guarantee allows the
Bank to receive cover on private sector transactions for up to
85 percent of the principal on an on-demand basis. The Bankis progressively onboarding new eligible transactions into thisrisk-sharing mechanism. The Lusophone Compact provides
a strategic development framework for the private sector
to accelerate inclusive, sustainable, and diversified growthby crowding in private sector-driven investments targetingtransformative investment opportunities in the beneficiary
countries. This portfolio guarantee transaction is anchoredon three pillars: (i) Risk mitigation instruments to unlock
investments; (ii) Financing for Investments; and (iii) Technical
Assistance for private and PPP projects.
The Room 2 Run Sovereign (R2RS) BSO transaction
was executed in October 2022 with the UK’s Foreign
Commonwealth and Development Office (FCDO) andthree private insurers from the Lloyd’s market. It is a purely
synthetic transaction meaning that the Bank remains thelender of record of the covered loans and guarantees in thereference portfolio. Specifically, R2RS is structured as a credit
protection of up to USD 2 billion on a notional reference
portfolio exposure to eleven (11) regional member countries
selected from the Bank’s portfolio of sovereign assets eligible
to borrow from its non-concessional window.

Financial Report 2022

It has provided the Bank with an estimated additional USD
2 billion in new lending capacity for climate finance. This is
in line with the BSO’s primary objective of increasing theefficient use of the Bank’s risk capital by hedging its portfolio
credit risk and thereby creating additional headroom for the
Bank’s operations. In addition to this primary objective, R2RS
achieves a secondary finance mobilization goal of creating
new pathways that enable Africa’s development projects tobenefit from new sources of private capital.
No default events have occurred under the BSO program, andthe Bank expects its sovereign, sovereign-guaranteed andnon-sovereign exposures to be serviced per loan agreements.
The Bank continues to explore and is working on potential
BSO arrangements with other sovereign and non-sovereigncounterparties and other multilateral development banks.

Financial Reporting

Corporate governance within the Bank is supported byappropriate financial and management reporting. The
Executive Board of Directors makes strategic decisions andmonitors the Bank’s progress toward the achievement of set
goals. While senior management manages the Bank’s day-today operations and activities, the Board provides oversight,
advice and counsel on issues as wide-ranging as long-term
strategy, budgets, human resources, benefits management
and new product development.
Based on the COSO internal control framework, senior
management has put in place a robust and functioning
mechanism to certify the effectiveness of the Bank’s internal
controls over external financial reporting. The President,
the Vice President - Finance and the Financial Controller
sign this annual certification statement. The Bank’s external
auditors also provide a separate attestation. The Bank has acomprehensive system of reporting to the Board of Directors
and its committees, including periodic reporting by the
Office of the Auditor-General to the Audit and Finance (AUFI)
Committee of the Board of Directors.

Internal Audit

The Office of the Auditor-General derives its mandate from theBank’s Financial Regulations and its terms of reference, which
are in line with the Institute of Internal Auditors (IIA) practices.
The IIA defines internal auditing as an independent, objective
assurance and consulting activity designed to add value andimprove an organization’s operations. It helps an organizationaccomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness ofrisk management, control, and governance processes.
In this connection, the Office is responsible for planning,organizing, directing and controlling a broad, comprehensive
program of auditing both internally and externally, including
without limitation, all projects and programs of the Bank
Group. The Office provides all levels of management withperiodic, independent and objective appraisals and audits offinancial, accounting, operational, administrative and otheractivities, including identifying possible means of improving
accountability, efficiency of operations and economy in theuse of resources.
The activities of the Office of the Auditor General are governedby the Institute of Internal Auditors (IIA) Standards, Code of
Ethics and International Professional Practices Framework.

The Office utilizes its resources effectively and efficiently, byconcentrating them on the highest business risks with regard
to the Bank’s risk appetite and most significant areas of theBank. This approach is consistent with the IIA Standards andthe COSO Internal Control Framework. These standards
require the internal audit function to methodologically assess
the pertinent risks to the Bank Group and focus its efforts basedon the anticipated business risks. Such risks are dynamicallyassessed throughout the year, having regard to audit results,
continuous risk assessments and input from the Board’s Audit
and Finance Committee and Senior Management. The Internal
Audit Work Programme is prepared based on an annual risk
assessment and evaluation process, involving quantitative andqualitative analysis and independent professional judgement.
The President and the Board of Directors approve the Annual
Internal Audit Work Programme.
The Auditor General reports regularly to the President, theAudit and Finance Committee and the Board on the activitiesof the Office and informs them on the sufficiency of resources.
The Auditor General, and members of his/her staff, shouldhave unrestricted access to all Bank records, documents,
properties and persons relevant to the subject matter underreview; any limitation to this would be reported to the Boardby the Auditor General. The Auditor General reports to
the President and the Board and performs his duties with
objectivity and independence of mind without any undue
direct or indirect influence.
The President appoints and removes the Auditor General in
consultation with the Board of Directors. The appointmentof the Auditor General is for a period of five years renewableonce and will not be eligible for staff appointment thereafter.
In line with the IIA Standards, the Office ensures processes
exist to underpin quality assurance; and an improvement
programme has been initiated to enhance the value andinsight delivered by the department to the Bank Group.
The Internal Audit Department undertook an independent
External Quality Assessment (EQA) in 2021, which concluded
that the Office of the Auditor General “Generally Conforms”
with the Standards and the IIA Code of Ethics. This result isthe highest rating assigned by the IIA from the scale of threeratings: “Generally Conforms”, “Partially Conforms”, and“Does Not Conform”.

External Auditors

The Board of Governors appoint the Bank’s external auditorson the recommendation of the Board of Directors, for a fiveyear term. Under the Bank rules, no firm of auditors can serve
for more than two consecutive five-year terms. In this regard,
the incumbent auditors for the Bank Group are serving thefirst year of their second term following approval of their reappointment during the 2022 Annual Meetings.
The external audit function is statutory and is regulated by
the International Standards on Auditing (ISA), issued by theInternational Federation of Accountants (IFAC) through theInternational Auditing and Assurance Standards Board. The
external auditors perform an annual audit to enable them toexpress an opinion on whether the Bank’s financial statements
present fairly, in all material respects, the financial position
and the results of the operations of the Bank. They also
examine whether the statements have been presented inaccordance with International Financial Reporting Standards.
11African Development Bank

In addition, as described above, the external auditors also
conduct a comprehensive review and provide an opinion on
the effectiveness of the Bank’s internal controls over financial
reporting. The external auditors provide this attestation asa report separate from the audit opinion. At the conclusionof their annual audit, the external auditors prepare amanagement letter for Senior Management and the Board of
Directors, which is reviewed in detail and discussed with the
Audit and Finance Committee of the Board. The management
letter sets out the external auditors’ observations andrecommendations for improvement on internal controls andother matters, and it includes management’s responses andactions for implementing the auditors’ recommendations.
The performance and independence of the external auditors
is subject to periodic review by the AUFI Committee of theBoard. There are key provisions in the Bank’s policy regarding
the independence of the external auditors, including arequirement for the mandatory rotation of the Engagement
Partner in cases where the term of the audit firm is renewed
for a second and final five-year period. There are stringent
conditions on the provision of non-audit services by incumbent
auditors, including the enforcement of a prohibited list of
non-audit services. The incumbent auditors cannot provide
non-audit services in the banned list without authorizationby the Board. However, services outside the list may becontracted without prior approval, subject to a specified capon the consultancy fee payable and submission of a reporton the services to the Board. The cap on the consultancy fees
and the reporting requirement is aimed at ensuring that theprovision of such non-audit services does not jeopardize theindependence of the audit firm.
A significant development in the external audit space, in recent
years, is the adoption of an expanded audit opinion following the
publication of new and revised auditor reporting standards by
IFAC which, among other benefits, enhances auditor reportingby explaining the basis of the audit opinion and provides more
relevant information to users of financial statements.

Anti-Corruption Regime within the Bank

In accordance with the Office of Integrity and Anti-Corruption(PIAC) terms of reference, PIAC is responsible for enforcing
and promoting an environment of zero tolerance for fraud,corruption, and staff misconduct at the African Development
Bank.
This responsibility covers all operations of the Bank Groupin Regional Member Countries, the Headquarters, and theentire Bank corporate structure.
PIAC activities are implemented underpinned with a riskbased approach to its preventive and investigative mandate.
The Bank, like similar business organizations, in accordancewith international standards, implements a robust integrity
compliance framework to prevent, deter, detect, report, andmitigate against corruption, fraud, and illicit financial flows
risks in Bank-financed operations and activities.

12

The Office of Integrity and Anti-Corruption (PIAC) has
policies, procedures, and guidelines that set out standards
for conducting due diligence assessment in Bank-financed
projects and their counterparties. The procedures also provide
for the management and execution of efficient anti-money
laundering (AML) and counter-terrorist financing activities inline with the Financial Action Task Force (FATF) standards,
where the Bank currently has observer status. As part of
the quality assurance and improvement program, the AML
policies and guidelines provide for the Bank to be subjected
to periodic assessment by relevant external partners, mainly
correspondent banks and development partners.
In fulfillment of its oversight role, PIAC conducts regularBank-wide Integrity Risk Assessments on Money Laundering/
Terrorist Financing/ Illicit Financial Flows, Fraud, Corruption,and Sanctions to ensure that these risks are effectively
monitored and managed. These assessments aim to identify
and assess integrity risks in Bank operations and activities. The
scope of the integrity risk assessment has been incorporated
into the Bank Master Screening Tool (BMST), an automatedscreening tool for tracking sanctions on and adverse media
coverage of clients and counterparties. The BMST enhances
PIAC’s monitoring and oversight ability and helps withproactive identification of integrity risks and mitigating
measures to safeguard the Bank.
In recognition of the importance of the Bank’s integrity risk
management efforts, PIAC, in collaboration with the Delivery,
Performance Management, and Results Department (SNDR),
has launched two (2) mandatory courses to create staff
awareness and enhance knowledge. These courses include
Principles of Due Diligence, which covers the Bank’s policies
and procedures for conducting integrity due diligence checks
on prospective and existing counterparties and Combatting
Money Laundering Course with content on anti-money
laundering risk assessment.
Regional Member Countries (RMCs) have also benefited from
PIAC’s collaboration with the Commonwealth Africa AntiCorruption Center (CAACC), the International Centre for
Asset Recovery (ICAR) of the Basel Institute on Governance,
and the Organization for Economic Co-operation andDevelopment (OECD) to improve skills and provide
specialized trainings to investigators and prosecutors on
topical integrity risks issues.

Performance Management and Monitoring

In managing its operations, the Bank uses quantified
performance measures and indicators that reflect the critical
success factors in its business. These metrics are monitoredcontinuously, and results are used to assess progress attained
against stated objectives and to inform required action to
improve future performance. Management uses various
corporate and business unit measures to monitor andmanage performance. Some of the key financial measures andindicators used by management are discussed in Table 1.3,
together with their relevance to the operations of the Bank.

Financial Report 2022

Table 1.3
Key Financial Performance Indicators: 2022 and 2021

Achievement

Definition

Importance to the business and management

2022

2021

Return on Assets

As a profitability ratio, this measures the profit or return generated from theBank's total assets or capital. It tells how efficiently the Bank generates profit
growth from the capital at its disposal, both debt and equity.

0.63%

0.27%

Average Returnon Liquid Funds

This measures the average return generated or lost due to the investment ofliquid funds. In other words, it measures how profitable the liquid assets are in
generating revenue to the Bank, pending disbursement for project financing.

1.58%

1.07%

Total debt toUsable CapitalThis measures the Bank's financial leverage calculated by dividing its total
debt by usable capital. It indicates the proportion of equity and debt the
Bank uses to finance its operations.

40.30%

42.70%

Weighted Average
Risk Rating- Sovereign

The weighted average risk rating relates to the weighted average rating
for all loans and guarantees within the sovereign portfolio. It measures theSovereign portfolio's overall risk profile and credit quality.

3.15

3.37

Impairment Loss Ratio(Non-Sovereign)This KPI represents the impairment on loans as a proportion of the periodend balances. Granting of credit is the Bank's main purpose and is also
one of the Bank's principal sources of Income and risk. The loan loss ratio
indicates the quality and recoverability of loans granted to non-sovereign
borrowers.

12.90%

11.70%

Risk capital Utilization
Ratio (RCUR)

This metric tests the Bank's capital adequacy and risk-bearing capacity.
A strong capital position over time assures the Bank's ability to lend evenduring crises and withstand adverse non-accrual shocks.

55.94%

84.30%

13

African Development BankFINANCIAL RESULTS

Figure 1.1 Income Trends, 2018–2022(UA millions)

The Bank’s Net Income was UA 175.28 million in 2022,
compared to a net income of UA 41.55 million in 2021. The
increase in 2022 was due to a combination of two factors (i) a
UA 200.11 (179.94 percent) million increase in fair value gains
on borrowings at fair value through profit or loss (FVTPL); and(ii) a UA 67.93 million (4,621.09 percent) increase in currencytranslation gains. This was partially offset by: (i) a 70.92 million(281.43 percent) increase in provisions for Expected Credit Loss
(ECL) on financial instruments held at amortized cost, (ii) UA
68.49 million (16.19 percent) decrease in net interest incomeand (iii) a UA 27.64 million (12.88 percent) increase in otheroperating expenses. Given the Bank’s intention to maintain its
non-trading portfolio positions, the Bank adjusts Net Income
before distributions approved by the Board of Governors forthe impact of volatile elements of gains and losses, such as fairvalue changes in the Bank’s borrowings at FVTPL and related
derivatives and currency translation gains or losses to derive
Allocable Income which is used to make net income allocation
to reserves and development initiatives.

1,000

Net Income and Allocable Income

After the adjustment for volatility, the Bank’s Allocable Income
in 2022 was UA 83.92 million, compared to the UA 209.35
million reported in December 2021.
Figure 1.1 presents the Income trends from 2018 to 2022.

Financial Position

Lending Operations
During 2022, the Bank approved UA 3.32 billion in loans. Net
loan disbursements were the key driver of the UA 592.39 million
increase in net loans outstanding, from UA 20.10 billion at theend of 2021, to UA 20.70 billion as at December 31, 2022.
The gross loan balance increased by UA 0.77 billion (3.73
percent) in 2022 to UA 21.43 billion from UA 20.66 billion in
December 2021. On the composition of the increase in grossloan balance, Sovereign operations increased by UA 0.91
billion (5.17 percent) to UA 18.50 billion in December 2022
from UA 17.59 billion as at 31 December 2021, while NonSovereign Operations (NSOs) decreased by UA 0.15 billion(4.87 percent) to UA 2.93 billion as at 31 December 2022 from
UA 3.08 billion in 2021.
Figure 1.2 presents the Commitments, Disbursements and net
loans outstanding from 2018 to 2022.

ECL allowances on loans and other financial instruments
ECL allowance on loans and other financial instruments at
amortized cost recognized on the balance sheet increased by
UA 96.12 million (11.20 percent) to UA 954.46 million as of 31
December 2022 from the UA 858.34 million reported as at 31
December 2021.

Treasury Operations
Investment Portfolio

The Bank’s investment portfolio increased by UA 1.92 billion,
from UA 9.79 billion as of December 31, 2021, to UA 11.71
billion as of December 31, 2022. The increase in the liquid
asset portfolio is primarily due to additional investmentsfrom cash balances and proceeds from capital subscriptions.
14

Income on Loans and Investments

800

600
Interest Expenses

400

200

Administrative Expenses

Allocable Income0

Net Income after distributions

2018

2019

2020

2021

2022

The investments remain concentrated within the upper endof the credit spectrum, with 45.7 percent rated AAA, 38.6
percent rated between AA- and AA+, and 15.7 percent rated
between A- and A+, reflecting the Bank’s objective of capitalpreservation and its preference for high-quality investments.

Borrowing Portfolio
The Bank raised UA 6.7 billion in medium and long-term debt
in 2022 and repaid UA 5.7 billion, resulting in a net cash inflow
of UA 1 billion. The funds raised financed lending operations
and satisfied liquidity requirements. The borrowing portfolio
decreased by UA 0.87 billion, from UA 25.12 billion as ofDecember 31, 2021, to UA 24.25 billion as of December 31,
2022. The debt issuances were diversified in terms of investor
types and location, with an average maturity between fourand five years.

Equity Participation Portfolio
The Bank takes equity positions in privately owned productive
enterprises and financial intermediaries, public sector
companies that are being privatized or regional and subregional institutions. The Bank’s objective in such equity
investments is to promote the economic development of
its Regional Member Countries and the development of
their private sectors. The Bank’s equity participation is also
intended to promote the efficient use of resources, promoting
African participation, playing a catalytic role in attracting otherinvestors and lenders, and mobilizing the flow of domestic
and external resources to financially viable projects, which
also have significant economic merit. These investments
are classified and measured at Fair Value through Other
Comprehensive Income (FVOCI).
The Bank’s Equity Participation increased by UA 60.64 million(6.17 percent) to reach UA 1.04 billion from UA 983.20 million
as at 31 December 2021. This increase resulted from the net
disbursements of UA 58.50 (higher capital disbursements of
UA 88.84 million compared to capital returns or repayments of
UA 30.34 million) in the year.

Financial Report 2022

Figure 1.2 Commitments and Disbursements and Net Loans Outstanding, 2018–2022(UA millions)

Commitments and Disbursements

Net Loans Outstanding

5

21

4

Net Commitments

3

20

2
Gross Disbursements

1

19
Net Disbursements

0

–1

2018

2019

2020

2021

2022

Fair value or mark-to-market (MTM) adjustments on equity
participation instruments led to a loss of UA 31.80 million,
reversing gains of UA 39.39 million reported in 2021. This loss
is due to negative net asset valuations and losses on investee
companies.
Dividend income decreased by UA 9.67 million (40.53 percent)to UA 14.19 million from UA 23.86 million in December 2021
due to lower dividends declared and received from investee
companies and institutions.

Capital and Reserves
The Bank’s authorized share capital stood at UA 180.64 billion
as at December 31, 2022 of which subscribed capital amounts
to UA 148.77 billion and paid-in capital UA 6.37 billion.
The paid-in capital increased by UA 0.66 billion to UA 6.37
billion as at 31 December 2022 from UA 5.7 billion as at 31
December 2021. This increase was due to funds received in
respect of GCI V, GCI-VI, and GCI-VII in capital subscriptions
payment by member countries.
The Bank’s reserves increased by UA 0.52 billion to UA 3.67
billion at the end of 2022 from UA 3.15 billion at the end of
2021. Total Equity increased by UA 1.17 billion from UA 8.71
billion to UA 9.88 billion in 2022 due to the net positiveeffect of the increase in capital subscriptions and the total
comprehensive income reported for the year.
The Bank continues to maintain a strong capital position.
Despite the ongoing challenges in its operating environment,
the Bank continues to generate sufficient levels of Income
to facilitate contributions to other development initiatives
in Africa on behalf of its shareholders. The Bank’s reserves,
plus accumulated loan loss provisions on outstanding loan
principal and charges, increased to UA 4.62 billion at the endof 2022, up from UA 4.01 billion at the end of 2021, an increaseof 15.21 percent.

18

2018

2019

2020

2021

2022

Total Assets

As of December 31, 2022, total assets grew by 5.2 percent to UA
38.22 billion compared with UA 36.33 billion in December 31,
2021. The growth was primarily due to the increase in treasury
investments, net loans outstanding and equity participation
assets and the decrease in borrowings from mark-to-market
gains due to an increase in interest rates. The growth isfinanced by the increase in equity (capital subscriptions andreserves) during the year.

Financial Performance

The Bank’s Net Income was UA 175.28 million in 2022,
compared to a net income of UA 41.55 million in 2021. The
Bank’s Other Comprehensive Income (OCI) for the year ended
31 December 2022 increased by UA 159.55 million (86.41
percent) to UA 344.20 million, compared to UA 184.65 million
in 31 December 2021. The increase resulted principally fromremeasurement gains on defined benefit liabilities and gains
on borrowings at FVTPL arising from own credit risk.
Total Comprehensive Income for the year ended 31 December
2022 increased by UA 293.28 million (129.66 percent) to UA
519.47 million, compared to UA 226.19 million reported in
December 2021.

Results from Lending Activities

Loan Income

Under the Bank’s pricing policy, lending rates are based on thecost of the borrowings funding these loans. After the effect ofrelated swaps, the loan and borrowing portfolios are basedon variable interest rates, and the portion of the loan portfolio
funded by equity is therefore sensitive to changes in interest
rates.
The Bank’s 2022 total income from loans was UA 521.57 million,
an increase of UA 173.33 million compared with UA 348.24
million in 2021. The increase was mainly driven by the modest
growth in outstanding loans and the effect of the increasing15

African Development Bank

average interest rate environment on the portion of the loan
portfolio sensitive to interest rate movements.
Interest income on Sovereign loans increased by 65.27 percent
to UA 373.24 million in 2022 from UA 225.83 million in 2021.
Non-sovereign loans generated UA 159.45 million in interest
income in 2022, representing an increase of 11.60 percent
from UA 142.88 million earned in 2021.
In 2022, loan interest income, net of funding costs was UA
153.31 million, a decrease of UA 102.74 million over UA 256.05
million in 2021. The decline in loan interest income net offunding costs was primarily due to the increase in funding
costs attributable to the rise in market interest rates.

Results from Investing activities
Investment Income

Interest revenue from treasury investments was UA 218.16
million in 2022, compared with UA 129.34 million in 2021. The
significant increase in treasury investment income is mainly
a result of higher interest rates in the markets, albeit largely
offset by higher funding costs. Nevertheless, the Treasury
investment portfolios outperformed their weighted averagebenchmark by 0.22 percent during the year.

Net Interest Income
The net interest income represents the difference after
netting off the interest expense on borrowings from the sumof the interest income on loans and treasury investments. It
decreased by UA 68.49 million (16.19 percent) to UA 354.55
million in December 2022 from UA 423.04 million recorded
in December 2021. The reduction in Net interest income is
primarily attributable to (i) lower margins on the trading
portfolio; (ii) a decline in the size of the NSO portfolio; and (iii)
early repayment of high fixed-rate loans in 2021.
Consequent to the reduction of Net Interest Income, the Net
interest margin (NIM) decreased to 1.12 percent comparedto 1.24 percent, reflecting the lower interest margins realized
during the year.

Expenses

Interest Expenses
Interest expense on Borrowings in 2022 increased by UA
282.94 million to UA 353.99 million from UA 71.05 million
in 2021. This increase in borrowing expenses is attributable
to the steep rise in market interest rates, driven by central
banks’ policies to curb inflationary pressures. Specifically, theincrease in interest expense on borrowings is attributable tothe increase in USD market interest rates from 0.15 percent in
2021 to 3.34 percent in 2022.

Non-Interest Expenses
The Bank’s net non-interest expenses are primarily comprisedof administrative expenses. The Bank Group administrative
budget constitutes a single resource envelope that funds the
combined work programs of the Bank Group. The allocationof administrative expenses between AfDB, ADF and NTF isbased on an agreed cost-sharing formula driven primarily
by the staff time spent on individual entity’s work program
deliverables.

1

16

Total Bank Group administrative expenses increased by 15.39
percent from UA 393.36 million in 2021 to UA 453.88 million
in 2022. Personnel expenses (including consultancy), which
represented 82 percent of the total administrative expenses in20221, increased by 12.95 percent, while other administrative
expenses, primarily missions, and meetings, which represented
18 percent of total administrative expenses, increased by
67.62 percent.
The increase in personnel expenses compared to 2021
was mainly due to a 49.60 percent increase in consultancy
expenses, as additional consultancy was required to
implement key priorities of the Bank’s work programme,
and a 6 percent increase in salaries and benefits, mainly due
to an increase in staff at post and the annual performancebased salary adjustment. The increase in other administrative
expenses is primarily due to the lifting of Covid-19 travel andmeeting restrictions in 2022, compared to low expenditurelevels in 2021. The overall budgeted expenditure remained
within the approved administrative budget in 2022.
In compliance with the Bank’s approved cost containment
framework, Bank Group administrative expenditure in
2023 is budgeted to increase by 2.9 percent. Management
will continue exploring and implementing effective andtransparent cost management strategies to contain thegrowth in administrative expenditure.

Provision for losses on loans and other exposures
In 2022, the Bank recorded provisions of UA 96.12 million forlosses on loans and other exposures under IFRS 9 Expected
Credit Losses (ECL) methodology. The increase in the 2022
provisioning requirement was largely due to changes to theLoss Given Default (LGD) model for Sovereign Loans andadditional ECL on non-Sovereign loans, arising primarily fromloan migration between stages 1 and 2, and the effect ofoverlay adjustments requested by the Credit Risk Committee.
The accumulated provision for losses on loans and otherexposures of UA 954.46 million as at December 31, 2022 was
3.27 percent of total exposures, compared with the prioryear when it was UA 858.34 million and 3.08 percent of total
exposures. See Note C to Financial Statements for details of
the Bank’s risk management policies and procedures.

Unrealized mark-to-market gains/losses on nontrading portfolios
The unrealized mark-to-market gains and losses mainly relate
to the treasury investments at amortized cost, borrowings,
and other asset and liability management (ALM) portfolios.
Since these are non-trading portfolios, any unrealized markto-market gains and losses associated with these positions
are adjusted out of reported net Income to arrive at allocable
Income. As a result, from a long-term financial sustainability
perspective, income allocations are broadly based onamounts that have been realized. For 2022, UA 88.90 million of
net unrealized mark-to-market gains (2021: loss of UA 111.21
million) were excluded from reported net Income to arrive at
allocable Income.
The borrowing portfolio decreased to UA 24.25 billion as
at 31 December 2022, compared with UA 25.12 billion as at

When the provisions for actuarial valuations on the staff retirement and medical benefit plans are excludedFinancial Report 2022

31 December 2021. The decrease was caused by the effect offair value and currency translation gains on borrowings.

Figure 1.3 Lending Status, 2018–2022
A(UA millions)

Currency translation adjustment gains/losses

10,000

The appreciation of the USD against the UA and major trading
currencies led to an increase in currency translation gains, froma loss of UA 1.48 million in 2021 to a gain of UA 66.46 million
in 2022, making unrealized currency translation gains/losses
relating to non-functional currencies a main driver of the net
Income for the year. Since these unrealized gains/losses relate toasset/liability positions still held by the Bank, they are excluded
from reported net Income to arrive at allocable Income.

Board of Governors-approved Net income allocation
Net income allocation decisions are based on allocable
Income. Management recommends to the Board allocations
out of net Income at the end of each fiscal year to augment
reserves and support developmental activities. The key
differences between allocable Income and reported net
Income relate to unrealized mark-to-market gains and losseson the Bank’s non-trading portfolios and expenses related
to Board of Governors-approved and other transfers. All theadjustments between reported Income and net Income arerecommended by management and approved by the Board.
In 2022, the Board of Governors approved distributions of
UA 64 million from 2021 net Income and surplus to various
development initiatives in Africa, compared to UA 55 million
approved in 2021. The beneficiaries of these distributions arelisted in Note K to the financial statements. In accordance with
the Bank’s accounting policies, such distributions are reported
as expenses in the year the Board of Governors approves
them. The Boards of Directors have also agreed to recommend
to the Board of Governors, at its 2023 Annual Meetings,
distributions totaling UA 46 million from 2022 net income
and surplus account towards funding various development
initiatives its RMCs. If approved by the Board of Governors,
such distributions and any others that may be approved
during 2023 will be reported as expenses in the 2023 financial
statements, in line with the prevailing accounting practice.

Investments

The Bank has an established conservative investment strategy,
prioritizing capital preservation, liquidity of investment, andreturns on investments, in that order. The Bank’s liquid assets
are tranched into three portfolios: operational portfolio,
prudential portfolio held for trading (fair value), and an
equity-backed portfolio held at amortized cost. Each has abenchmark that reflects the cash flow and risk profile of its
assets and funding sources. These benchmarks are 1-month
LIBID for the operational portfolio and 6-month mark-tomarket LIBOR, resetting on February 1 and August 1 for theprudential portfolio. The operational and prudential portfolios
are held for trading and are fair-valued. The equity-backed
portfolio is managed against a repricing profile benchmark
with 10 percent of the Bank’s net assets repricing uniformly
over a period of 10 years.
The Bank’s cash and treasury investments as of December 31,
2022 totaled UA 15.01 billion, compared to UA 13.42 billion
at the end of 2021. Investment income for 2022 amounted to
UA 218.16 million representing a return of 1.58 percent on anaverage liquidity of UA 13.82 billion (compared to an income
2

Loans Approved*
Disbursements

Undisbursed Balances

8,000

6,000

4,000

2,000

0

2018

2019

2020

2021

2022

* Excludes approvals of special funds and equity participation but includes
guarantees.

of UA 129.34 million, representing a return of 1.07 percent, on
an average liquidity of UA 12.13 billion in 2021). Overall, theportfolios at fair value outperformed their average benchmarksin the key currencies during the year despite difficult market
conditions.
The bulk of the Bank’s liquid assets is denominated incurrencies of the Special Drawing Rights’ basket. It should be
noted that the value of one SDR is equivalent to one UA. The
Bank’s Asset and Liability Management Guidelines require
mitigation of foreign exchange risk, and as such the currencycomposition of the Bank’s net assets and the Special Drawing
Right’s basket are aligned regularly. The Bank also holds assets
in non-SDR currencies such as the Swiss Franc, the Canadian
Dollar and the South African Rand.

Managing Investment Performance

The year 2022 was marked by the highest inflation in decades
and a strong response from central banks across the globe in
the form of monetary policy tightening. In the US, the Federal
Reserve (Fed) raised the target range for the federal funds by
425 bps to between 4.25 percent and 4.50 percent, while in
the Euro zone, the European Central Bank (ECB) raised thedeposit facility rate to 2.00 percent (+250 bps).
In the first half of the year, the US economy added nearly 1.7
million jobs and recovered 93 percent of the jobs lost at thestart of the pandemic. The unemployment rate declined to
3.6 percent, a level not far from a record pre-crisis low of 3.5
percent. Meanwhile, the consumer price index for March roseby 8.5 percent, the highest level in 41 years leading the Fed toincrease policy rates for the first time in more than three years.
In the Eurozone, the economic outlook deteriorated sharply
after Russia’s invasion of Ukraine2 causing disruptions in supply
chains and higher energy prices.

Algeria, China, Egypt, Eswatini, Namibia, Nigeria and South Africa entered a reservation and proposed “Russia-Ukraine Conflict”.

17African Development Bank

In the second half of the year, the Federal Reserve raised its
target range for the federal funds rate again, twice, by 0.75
percent. Meanwhile, the ECB raised its policy rates for the firsttime in 11 years in July, then in September by 0.5 percent and0.75 percent respectively, despite recession concerns. In theUK, the Bank of England’s (BoE) restrictive monetary policy
combined with the perspective of unfunded tax giveaways andan unbalanced budget caused upheavals in the UK financial
markets. In response, the BoE announced an emergency
bond-buying program to quell markets. In China, the industrial
activity contracted, disrupted by weakening demand, power
shortages and lockdowns in major cities due to the Zero-Covid
policy. In the final quarter of 2022, despite inflation pressureseasing in the US and growth faltering, Federal Open Market
Committee (FOMC) members continued to exercise caution
and shared the near-uniform view that additional monetary
tightening was needed.

Figure 1.4 Outstanding Loan Portfolio by Product Type,
31 December 2022
(Percent)

The challenging macroeconomic environment triggered highlevels of volatility in the financial markets. Nevertheless, theTreasury investment portfolios outperformed their weighted
average benchmark by 0.22 percent over the year.

Figure 1.5 Loan Disbursements and Repayments,
2018–2022
A(UA millions)

Challenging market conditions are expected to continue
into 2023 as the risk of recession in developed economies
increases. Central bank policies are expected to remain
data dependent and thus could change very quickly if
conditions warrant. In this context, the Bank will continue
to maintain a conservative investment strategy, prioritizing
capital preservation and liquidity. The Bank will continue totarget high-quality liquid assets with shorter maturities, with afocus on secured investments where possible to maintain theliquidity of its investments.

47%

Structured

44%

Floating Rate

8%

Fixed Rate

1%

4,000

Discontinued
Products

Loan Charges Paid

Principal Loan Repayments
Disbursements

3,000

2,000

Loan Portfolio

The Bank makes loans to its regional member countries andpublic sector enterprises guaranteed by the government.
Loans are also extended to private sector enterprises without
a government guarantee.
Cumulative loans signed, net of cancellations, as at December
31, 2022 amounted to UA 59.72 billion. This represents anincrease of UA 3.44 billion over the balance at December
31, 2021 which stood at UA 56.28 billion. Figure 1.3 presents
the evolution of loans approved, disbursed and undisbursedbalances, from 2018 to 2022.
Total net disbursed and outstanding loans as at December 31,
2022 was UA 20.69 billion, representing an increase of UA 0.59
billion over the UA 20.10 billion outstanding as at the end of
2021. Undisbursed balances of signed loans at December 31,
2022 totaled UA 9.25 billion, which is an increase of UA 0.45
billion over the UA 8.80 billion undisbursed loans at December
31, 2021.
The number of active loans as at December 2022 was 520,
while 861 loans amounting to UA 20.46 billion had been fully
repaid. A breakdown of the outstanding loan portfolio byproduct type is presented in Figure 1.4.

Disbursements
Loan disbursements during 2022 amounted to UA 2.44 billion,
compared to UA 1.68 billion in 2021. At December 31, 2022,
cumulative disbursements (including non-sovereign loans)
18

1,000

0

2018

2019

2020

2021

2022

amounted to UA 50.12 billion. 1,141 loans were fully disbursed,
amounting to UA 44.47 billion, representing 88.73 percent of
cumulative disbursements. Loan disbursements in 2022 bycountry are shown in Table 1.4.

Repayments
In 2022, principal loan repayments amounted to UA 1.88
billion compared to UA 2.14 billion realized in 2021. As at
December 31, 2022, cumulative repayments were UA 28.90
billion compared to UA 26.80 billion as at December 31, 2021.
Figure 1.5 shows the evolution of loan disbursements andrepayments for the period 2018-2022.

Outlook for 2023

During 2022, economic growth declined worldwide, with theglobal economy projected to fall into recession – indicating
a gloomy 2023 outlook for most economies recovering at
varying degrees from the lingering effects of the COVID-19
pandemic. Global inflation has been stubbornly high andFinancial Report 2022

Table 1.4
Loan Disbursements by Country(UA millions)

Country

2022

2021

Angola

36.51

29.05

Benin

21.77

1.12

Botswana

99.24

27.66

Burkina Faso

6.40

2.63

Cabo Verde

25.06

25.80

Cameroon

144.25

89.99

Congo

11.37

11.60

Côte d’Ivoire

284.38176.53

Democratic Republic of Congo

5.82

-

Egypt

42.43

213.80Equatorial Guinea

2.08

2.34

Eswatini

66.17

17.16

Ethiopia

9.78

16.22

Gabon

58.13

22.20

Ghana

-

8.80

Kenya

255.42204.71

Mauritania

7.82

-

Morocco546.38179.91

Namibia144.13113.40

Nigeria

100.9847.88

Rwanda

13.70

12.43

Senegal110.71138.74Seychelles

2.94

15.61

South Africa

58.66

68.98

Tanzania

133.07

73.07

Tunisia

34.67

85.21

Uganda

61.13

33.56

Zambia

56.56

47.52

Multinational

101.8211.96

2,441.38

1,677.88

TOTAL

Central Banks have raised interest rates sharply to curb its
impact. This policy tightening has moderated price instability
in some economies, although it has worsened global financial
conditions, it triggered a cost of living and operations crises
and leading to a slowdown in global economic activities.
Geopolitical tensions have also caused a sharp rise in theprices of commodities and disrupted global supply chains,intensifying inflation and global distress.
Against this backdrop, in their latest economic outlook
reports published in January 2023, both the IMF and theWorld Bank forecast global economic growth in 2023 to slow
down, which suggests that the global economic recovery
remains fragile.
However, there are strong indications that global inflation
will likely moderate over the year but remain well above preCOVID-19 rates, which may help stabilize economic growthin 2023.

Based on the macroeconomic performance and outlook reportpublished by the Bank in January 2023, Africa’s GDP growth isprojected to average about 4 percent in 2023 and 2024. Thisis higher than the projected world averages of 2.9 percent
and 3.1 percent, respectively. However, there are downside
factors for the continent which include spillovers from risinggeopolitical tensions, emerging climate change risks, and thelingering impact of the COVID-19 pandemic, which have been
amplified by the tightening global financial conditions andthe associated increase in domestic debt service costs. These
economic downside factors could put further pressure on
exchange rates and elevate debt vulnerabilities and domestic
inflation, threatening food and energy security in most Africancountries.
The attainment of economic growth in 2023 and 2024 for
Africa will require greater public policy attention to priority
sectors (e.g., health, agriculture, power, and education)
to contain the leftover effects of COVID-19. Moderationof the tough monetary policies aimed at curbing inflation,
reducing the cost of production and living, driven bysound fiscal management policies to optimize public debt
and development of adaptation strategies to minimize
disruptions to livelihood from climate change, will also
require prioritization. Overall, despite the headwinds in 2022,
African economies remain resilient with a stable economic
outlook for 2023 and 2024.
The Bank’s lending operations is expected to continue tobear the brunt of the leftover effects of the pandemic andassociated increases in credit risk parameters (as result of,among others, changes in ECL estimation parameters likeloss given default and probability of default, higher inflationand interest rates). Having led to the significant increase inreported ECLs in 2022, their impact is expected to persist into
the new year. The higher credit risk of borrowers reflects a
reduction in the capacity of borrowers to meet their maturing
obligations (e.g., increased interest payments arising from therising interest rates), raising concerns for delayed payments
and or payment actual defaults. As a result, the ECL allowance
is expected to increase into 2023.
To ensure delivery on its development mandate, the Bank willcontinue to monitor and manage the impact of these factors
on its lending volume, the timing of loan repayments, andinvestment returns.
The Bank’s strategic focus on key operational priorities
continues to provide a unifying framework for the effective
and accelerated delivery of its mandate and improved
performance in the coming year and beyond. Management
will continue to monitor and take appropriate actions tomanage its business, market and financial risks. Additionally,
the application of appropriate risk management adjustmentson its exposures, and accurate reporting of the lingering
effects of COVID-19 in financial statements as they become
known and estimable will be emphasized.
The Bank remains well-capitalized and well-provisioned for
impairment with a strong balance sheet and liquidity position.
This, together with its resilient business model, strengthened
and optimized balance sheet, and tightened risk tolerance, is
expected to deliver a meaningful improvement in returns in
2023 despite the lingering impact of the pandemic.

19Financial Report 2022

African Development Bank
Financial Statements
Year ended 31 December 2022
Balance Sheet

22

Income Statement

23Statement of Other Comprehensive Income

23

Statement of Changes in Equity

24

Statement of Cash Flows

25

Notes to the Financial Statements

26

Independent Auditor’s Report

112

21

African Development Bank

Balance sheet
as at 31 December 2022
(UA thousands)

ASSETS

2022

2021

CASH

2,830,737

3,303,139

1,143

1,142

11,712,627

3,518,204
6,275,696
9,793,900

924,352

825,944

1,323,224

223,319
954,910
1,178,229

21,344,731

20,102,393
48,516983,204
21,134,113

84,41088,430320
88,75038,221,224

36,325,217

2022

2021

1,230,966

251,408
854,516
1,105,924

228,431448,664

2,624,884

949,004

24,254,207

24,801,331
314,374
25,115,705

28,338,488

27,619,297

6,212,075

5,710,568(155,837)
5,554,731

3,670,661
9,882,736

3,151,189
8,705,920

38,221,224

36,325,217

DEMAND OBLIGATIONSTREASURY INVESTMENTS (Note E)
Treasury investments at fair value
Treasury investments at amortized cost

4,691,711
7,020,916

DERIVATIVE ASSETS (Note F)
ACCOUNTS RECEIVABLE (Note G)
Accrued Income and Charges receivable on loans
Other Accounts Receivable
DEVELOPMENT FINANCING ACTIVITIESLoans, net (Note C & G)
Hedged Loans - Fair value adjustment (Note F)
Equity participations (Note H)
OTHER ASSETS
Property and Equipment and Intangible Assets (Note I)
Miscellaneous

501,710
821,514

20,695,328(394,435)
1,043,838

84,121289

TOTAL ASSETS
The accompanying notes to the financial statements form part of this statement.

LIABILITIES AND EQUITYACCOUNTS PAYABLE
Accrued Financial Charges
Other Accounts Payable

527,025
703,941

EMPLOYEE BENEFIT LIABILITIES (Note P)
DERIVATIVE LIABILITIES (Note F)
BORROWINGS (Note J)
Borrowings at fair value
Borrowings at amortized cost

24,006,353
247,854

TOTAL LIABILITIESEQUITY (NOTE K)
CapitalSubscriptions paid
Cumulative Exchange Adjustment on Subscriptions (CEAS)
Subscriptions Paid (net of CEAS)
Reserves
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY
The accompanying notes to the financial statements form part of this statement.

22

6,366,244(154,169)

Financial Report 2022

Income statement
for the year ended 31 December 2022
(UA thousands)

2022

2021

OPERATIONAL INCOME & EXPENSES
Income from:
Loans and related derivatives (Note L)
Treasury investments and related derivatives (Note L)
Equity Participation Investments (Dividends)
Other Securities
Total Income from Loans and Treasury Investments

521,566
218,162
14,1856,889
760,802348,244
129,340
23,8595,530
506,973

Borrowing expenses (Note N)
Interest and amortized issuance costs
Net interest on borrowing-related derivatives(353,990)(418,133)
64,143(71,048)(393,781)
322,733

88,900(111,213)Net Impairment (charges)/write-back (Note G)
Loan principal
Loan charges
Impairment write-back/(charges) on Financial Guarantees
Impairment write-back/(charges) on Treasury Investments
Impairment write-back/(charges) on Equity Accounted Investments (Note H)
Currency translation gains/(losses)
Other income (Note M)
Net operational income(97,017)(172,695)
75,678872
28
1,531
66,457
13,990481,573(24,969)(62,047)
37,078
(164)
(65)
(264)
(1,475)
13,432311,207

OTHER OPERATING EXPENSES
Administrative expenses (Note O)
Depreciation and Amortization (Note I)
Sundry expenses
Total Other Operating Expenses(207,164)(29,091)(6,040)(242,295)(174,549)(32,748)(7,364)(214,661)

Net Income before distributions approved by the Board of Governors

239,278

96,546

Distributions of income approved by the Board of Governors(64,000)(55,000)

NET INCOME FOR THE YEAR

175,278

41,546

2022

2021

NET INCOME FOR THE YEAR

175,278

41,546OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Net (losses)/gains on Equity Investments at FVOCI
Unrealized gains/ (losses) on borrowings at fair value arising from ‘own credit’
Re-measurements of defined benefit liability
Total items that will not be reclassified to profit or loss

(31,801)
92,623283,373
344,195

39,388(38,248)
183,508
184,648

Total other comprehensive income for the year

344,195

184,648

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

519,473

226,194

Gains/(losses) on borrowings at FVTPL and related derivatives (Note N)

The accompanying notes to the financial statements form part of this statement.

Statement of other comprehensive income
for the year ended 31 December 2022
(UA thousands)

The accompanying notes to the financial statements form part of this statement.

23

African Development Bank

Statement of changes in equity
for the year ended 31 December 2022
(UA thousands)

Reserves
Net Gains/(losses) on
Unrealized
Financial Assets Gains/ (Losses)
at Fair Value on Fair-Valued
Remeasurement through Other
Borrowings
Retainedof Defined Comprehensive
Arising from
Earnings
Benefit Plan
Income “Own Credit”

CapitalSubscriptions
Paid

Cumulative
Exchange
Adjustment
on
Subscriptions

Balance at 1 January 2021

5,081,209(148,208)

3,228,367(397,945)

43,23851,334

7,857,995

Net income for the year‑‑

41,546‑‑‑

41,546

Net fair value gains on financial
assets at FVOCI

‑

‑

‑

‑

39,388‑39,388

Unrealized losses on borrowings at
FVTPL arising from ‘own credit’

‑

‑

‑

‑

‑

(38,248)(38,248)

Remeasurements of defined benefit
liabilities

‑

‑

‑

183,508‑‑

183,508

Total other comprehensive income

‑

‑

‑

183,508

39,388(38,248)

184,648

Total Comprehensive income for the
year

‑

‑

41,546

183,508

39,388(38,248)

226,194

629,359

‑

‑

‑

‑

‑

629,359

Total
EquityOther comprehensive income:Net increase in paid-up capital
Net conversion loss on new
subscription
Transfers to retained earnings(7,629)(7,629)‑‑20,217‑(20,217)‑‑5,710,568(155,837)

3,290,130(214,437)

62,40913,086

8,705,920‑‑

175,278‑‑‑

175,278

Net fair value losses on financial
assets at FVOCI

‑

‑

‑

‑

(31,801)‑(31,801)

Unrealized gains on fair-valued
borrowings arising from ‘own credit’

‑

‑

‑

‑

‑

92,62392,623Remeasurements of defined benefit
liability‑‑‑

283,373‑‑283,373

Total other comprehensive income

‑

‑

‑

283,373(31,801)

92,623

344,195

Total Comprehensive income for the year‑‑

175,278

283,373(31,801)

92,623

519,473655,676

‑

‑

‑

‑

‑

655,676

‑

1,668

‑

‑

‑

‑

1,668

6,366,244(154,169)

3,465,408

68,93630,608105,7099,882,736

Balance at 31 December 2021
Net income for the year
Other comprehensive income:Net increase in paid-up capital
Net conversion gains on new
subscription
Balance at 31 December 2022

The accompanying notes to the financial statements form part of this statement.

24

Financial Report 2022

Statement of cash flows
for the year ended 31 December 2022
(UA thousands)

2022

2021

175,278

41,54629,091(39)
97,017(64,481)
9,321
(28)
(872)
(1,531)
1,120(88,900)(66,457)
101
58,635(202,713)
275,617(220,233)
90,65091,57632,748(25)
24,96935,561
16,401
65
164
264
6,155
111,2131,475
241(171,617)
90,314
12,884(184,261)(87,817)(69,720)

CASH FLOWS FROM:OPERATING ACTIVITIES:Net income for the year
Adjustments to reconcile net income to net cash provided by Operating Activities:
Depreciation and amortization
Gains on disposal of Property and equipment
Net impairment on Loan Principal and Charges
Unrealized (gains)/losses on Treasury Investments and related derivatives
Amortization of discount or premium on Treasury Investments at amortized cost
Impairment (write-back)/provision on Treasury Investments
Impairment (write-back)/provision on Financial Guarantees(Income)/Losses on Equity Accounted Investments
Amortization of Borrowing issuance costs
Unrealized (gains)/losses on Borrowings at fair value and derivatives
Currency translation (gains)/losses
Share of losses on Equity Accounted Investments
Net movements in Derivatives

Changes in Accrued Income on Loans
Changes in Accrued Financial Charges
Changes in Employee Benefits Liabilities
Changes in Other Accounts Receivables and Payables
Net cash used in operating activities
INVESTING, LENDING AND DEVELOPMENT ACTIVITIES:
Disbursements on Loans
Repayments of Loans
Investments maturing after 3 months of acquisition:
Treasury investments at fair value through profit and loss
Treasury investments at amortized cost
Acquisition of Property and Equipment
Disposal of Property and Equipment
Disbursements on Equity Participations
Repayments on Equity Participations
Net cash used in investing, lending and development activities(2,441,403)
1,882,943(1,677,884)
2,137,661(1,026,260)(339,604)(24,793)49(88,837)
30,343(2,007,562)

18,031(505,018)(16,939)40(56,199)
65,664(34,644)FINANCING ACTIVITIES:New borrowings
Repayments on borrowings
Payments of lease liabilities
Cash from capital subscriptions
Net cash generated from financing activities

6,821,291(5,726,077)(8,589)657,344
1,743,969

6,524,317(5,767,960)(14,528)
621,731
1,363,560

Net increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of year

(172,017)(153,140)
3,623,543
3,298,386

1,259,196(91,946)2,456,293
3,623,543

COMPOSED OF:
Investments maturing within 3 months from acquisition:
Investments at fair value through profit and loss
Cash
Cash and cash equivalents at the end of the year

467,649
2,830,737
3,298,386

320,404
3,303,139
3,623,543(78,374)
747,230
14,185(58,164)594,545
23,859(186,963)
181,426
115,394

225,446(156,971)
129,051

SUPPLEMENTARY DISCLOSURE
1. Movement resulting from exchange rate fluctuations:Interest paid
Interest received
Dividend received
2. Movement resulting from exchange rate fluctuations:
Loans
Borrowings
Currency swaps
The accompanying notes to the financial statements form part of this statement.

25

African Development Bank

Notes to the Financial Statements
for the year ended 31 December 2022
NOTE A – Operations and affiliated organizations
The African Development Bank (ADB or the Bank) is a multilateral development finance institution dedicated to the economic
and social progress of its regional member states. The Bank’s Headquarters is located in Abidjan, Côte d’Ivoire. The Bank financesdevelopment projects and programs in its regional member states, typically in cooperation with other national or international
development institutions. In furtherance of this objective, the Bank participates in the selection, study and preparation of projects
contributing to such development and, where necessary, provides technical assistance.
The Bank also promotes investments of public and private capital in projects and programs designed to contribute to theeconomic and social progress of the regional member states. The activities of the Bank are complemented by those of theAfrican Development Fund (ADF or the Fund), which was established by the Bank and certain countries; and the Nigeria TrustFund (NTF), which is a special fund administered by the Bank. The ADB, ADF, and NTF each have separate and distinct assets
and liabilities. There is no recourse to the ADB for obligations in respect of any of the ADF or NTF liabilities. The ADF wasestablished to assist the Bank in contributing to the economic and social development of the Bank’s regional members, topromote cooperation and increased international trade particularly among the Bank’s members, and to provide financing on
concessional terms for such purposes.
In accordance with Article 57 of the Agreement establishing the Bank, the Bank, its property, other assets, income and its
operations and transactions shall be exempt from all taxation and customs duties. The Bank is also exempt from any obligation
to pay, withhold or collect any tax or duty.

NOTE B – Summary of significant accounting policies
The Bank’s individual financial statements are prepared in accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB). These financial statements have been prepared under thehistorical cost convention except for certain financial assets and financial liabilities that are carried at fair value.
The significant accounting policies applied in the preparation of the financial statements are summarized below.

Revenue Recognition

Interest income is accrued and recognized based on the effective interest rate for the time such instrument is outstanding andheld by the Bank. The effective interest rate is the rate that discounts the estimated future cash flows through the expected life of
the financial asset to the asset’s net carrying amount. Interest income is recognized on loans and treasury investments.
Fee and commission income and expenses are recognized in the income statement when due in line with the contract, giving
rise to the income or expenses.
Realized and unrealized fair value gains or losses are recognized in the income statement on financial assets and financial liabilities(including derivatives) classified as measured at fair value through profit or loss (FVTPL).
Dividends are recognized on equity participation instruments measured at fair value through other comprehensive income(FVOCI) when the Bank’s right to receive the dividends is established.

Functional and Presentation Currencies

The Bank conducts its operations in the currencies of its member countries. As a result of the application of IAS 21 revised, “The
Effects of Changes in Foreign Exchange Rates”, the Bank prospectively changed its functional currency from the currencies of
all its member countries to the Unit of Account (UA) effective 1 January 2005, as it was concluded that the UA most faithfully
represented the aggregation of economic effects of events, conditions and the underlying transactions of the Bank conductedin different currencies.
The UA is also the currency in which the financial statements are presented. The value of the Unit of Account is defined in
Article 5.1 (b) of the Agreement establishing the Bank (the Agreement) as equivalent to one Special Drawing Right (SDR) of theInternational Monetary Fund (IMF) or any unit adopted for the same purpose by the IMF.
The IMF formally approved the inclusion of the Chinese Renminbi Yuan (CNY) in its Special Drawing Rights (SDR) basket witheffect from 1st October 2016 with a weight of 10.92 percent. In line with the Bank’s policy, Management approved the executionof currency exchange transactions to align the net assets composition of the Bank to the SDR.

26

Financial Report 2022

Currency Translation

Income and expenses are translated to UA at the rates prevailing on the date of the transaction. Monetary assets and liabilities
are translated into UA at rates prevailing at the balance sheet date. The rates used for translating currencies into UA at 31
December 2022 and 2021 are reported in Note T. Non-monetary assets and liabilities are translated into UA at historical rates.
Currency translation changes (gains or losses) are recognized in the income statement in the determination of net income.
Capital subscriptions are recorded in UA at the rates prevailing at the time of receipt. When currencies are translated into othercurrencies, the resulting gains or losses are recognized in the Income statement.
The currency translation changes arising from capital subscription payments are reported in the equity component of the Balance
sheet as the Cumulative Exchange Adjustment on Subscriptions (CEAS) as it arises from transactions with member countries.
This currency translation gains or losses represents the difference between the UA amount at the predetermined rate and the UA
amount using the rate at the time of receipt.

Member Countries’ Subscriptions

The Bank classifies financial instruments as financial liabilities or equity instruments in accordance with the substance of thecontractual arrangements of the instruments and the definition under IAS 32. Issued financial instruments or their components
are classified as liabilities if the contractual arrangements result in the Bank having a present obligation to either deliver cash or
another financial asset to the holder of the instrument. If this is not the case, the instrument is generally classified as an equity
instrument and the proceeds included in equity, net of transaction costs.
The Bank’s member countries’ subscriptions meet the conditions for classification as equity with features of puttable financial
instruments that include contractual obligations for repurchase or redemption for cash or another financial asset when certain
conditions are met.
Although the Agreement establishing the ADB allows for a member country to withdraw from the Bank, no member has everwithdrawn its membership voluntarily, nor has any member indicated to the Bank that it intends to do so. The stability in themembership reflects the fact that the members, who constitute both African and non-African countries, are committed to the
purpose of the Bank to contribute to the sustainable economic development and social progress of its Regional Member
Countries individually and jointly. Accordingly, as of 31 December 2022, the Bank did not expect to distribute any portion of its
net assets due to member country withdrawals.
In the unlikely event of a withdrawal by a member, the Bank shall arrange for the repurchase of the former member’s shares.
The repurchase price of the shares is the value shown by the books of the Bank on the date the country ceases to be a member,hereafter referred to as “the termination date”. The Bank may partially or fully offset amounts due for shares purchased against
the members liabilities on loans and guarantees due to the Bank.
The former member would remain liable for direct obligations and contingent liabilities to the Bank for so long as any parts of
the loans or guarantees contracted before the termination date are outstanding. If at a date subsequent to the termination date,it becomes evident that losses may not have been sufficiently taken into account when the repurchase price was determined, theformer member may be required to pay, on demand, the amount by which the repurchase price of the shares would have been
reduced had the losses been taken into account when the repurchase price was determined.
In addition, the former member remains liable on any call, subsequent to the termination date, for unpaid subscriptions, to theextent that it would have been required to respond if the impairment of capital had occurred and the call had been made at thetime the repurchase price of its shares was determined.
In the event that a member were to withdraw, the Bank may set the dates in respect of payments for shares repurchased. If, forexample, paying a former member would have adverse consequences for the Bank’s financial position, the Bank could defer
payment until the risk had passed, and indefinitely if appropriate. Furthermore, shares that become unsubscribed for any reason
may be offered by the Bank for purchase by eligible member countries, based on the share transfer rules approved by the Boardof Governors. In any event, no payments shall be made until six months after the termination date.
If the Bank were to terminate its operations, all liabilities of the Bank would first be settled out of the assets of the Bank and then,if necessary, out of members’ callable capital, before any distribution could be made to any member country. Such distribution is
subject to the prior decision of the Board of Governors of the Bank and would be based on the pro-rata share of each member
country.

Employee Benefits
Short term employee benefits
Short-term benefits (such as wages, salaries, bonuses etc.) are employee benefits expected to be settled within 12 months of thebalance sheet date. Short-term employee benefits are expensed in the profit or loss as the related service is provided. A liability
is recognized for the amount expected to be paid if the Bank has a present legal or constructive obligation to pay this amount asa result of past service provided by the employee and the obligation can be estimated reliably.

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African Development Bank

Post-employment benefits
The Bank operates a post-employment benefit plan that combines the features of a defined benefit (DB) and a defined
contribution (DC) plan into a hybrid pension structure which are explained below.

Defined Contribution Plans
Under the defined contribution plan component of the hybrid pension scheme, the Bank and its employees pay fixed contributions
to an externally administered fund with investment-grade credit rating, on behalf of the participants. The retirement benefits ofthe participants depend solely on the contributions made and the plan’s investment performance. The Bank has no legal orconstructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.
The contributions are recognized as pension expense in the income statements when they are due. Contributions not yet
transferred to the fund are recorded in accounts payable on the balance sheet and are transferred within the shortest possible
time frame.

Defined Benefit Plans
The Bank also operates a Staff Retirement Plan (SRP) as part of the hybrid pension scheme, which is accounted for as a defined
benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receiveon retirement, usually dependent on one or more factors such as accrual rate, age, contribution years of service and average
remuneration. The liability recognized in the balance sheet in respect of defined benefit is the present value of the defined
benefit obligation at the balance sheet date less the fair value of plan assets.
The calculation of the cost of providing benefits for the DB is performed annually by a qualified actuary using the Projected Unit
Credit Method. Upon reaching retirement age, pension is calculated based on the average remuneration for the final three yearsof pensionable service and the pension is subject to annual inflationary adjustments.
Remeasurement of the net defined benefit obligation, which comprise actuarial gains and losses as well as the differences
between expected and real returns on assets are recognized immediately in other comprehensive income in the year they occur.
Net interest expense and other expenses related to the defined benefit are recognized in the income statement.
When benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or thegain or loss on curtailment is recognized immediately in profit or loss. The Bank recognizes gains and losses on settlement of adefined benefit plan when the settlement occurs.

Medical Benefit Plan
The Bank also operates a defined Medical Benefit Plan (MBP), which provides post-employment healthcare benefits to eligible
former staff, including retirees. Membership of the MBP includes both staff and retirees of the Bank. The entitlement to thepost-retirement healthcare benefit is usually conditional on the employee contributing to the Plan up to retirement age and thecompletion of a minimum service period.
The expected costs of these benefits derive from contributions from plan members as well as the Bank and are accrued over theperiod of employment and during retirement. Contributions by the Bank to the MBP are charged to expenses and included in
the income statement.
The MBP Board, an independent body created by the Bank, determines the adequacy of the contributions and is authorized torecommend changes to the contribution rates of both the Bank and plan members.
The liability recognized in the balance sheet in respect of MBP is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets. The calculation of the cost of providing benefits for the MBP is performed
annually by a qualified actuary using the Projected Unit Credit Method.
Remeasurement of the net defined benefit obligation, which comprise actuarial gains and losses as well as the differences
between expected and real returns on assets are recognized immediately in other comprehensive income in the year they occur.
Net interest expense and other expenses related to the MBP are recognized in the profit or loss.
The effect of changes in accounting policies and further details of the Bank’s employee benefits are included in Note P – Employee
Benefits.

Financial Instruments

Financial assets and financial liabilities are recognized on the Bank’s balance sheet when the Bank assumes related contractual
rights or obligations. All financial assets and financial liabilities are initially recognized at fair value plus for an item not at fair value
through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition or issue.

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Financial Report 2022

1) Financial Assets
In accordance with IFRS 9, the Bank manages its financial assets in line with the applicable business model and accordingly,classifies its financial assets into the following categories: financial assets at amortized cost; financial assets at FVTPL; and financial
assets at FVOCI.
In line with the Bank’s business model, financial assets are held either for the stabilization of income through the managementof net interest margin or for liquidity management. The Bank’s investments in the equity of enterprises, whether in the private
or public sector is for the promotion of economic development of its member countries and not for trading to realize fair valuechanges. Management determines the classification of its financial assets at initial recognition.

i) Financial Assets at Amortized Cost
A financial asset is classified as at “amortized cost” only if the asset meets two criteria: the objective of the Bank’s business model
is to hold the asset to collect the contractual cash flows; and the contractual terms give rise on specified dates to cash flowsthat are solely payments of principal and interest on the principal outstanding. The nature of any derivatives embedded in debt
investments are considered in determining whether the cash flows of the investment are solely payment of principal and intereston the principal outstanding and are not accounted for separately.
Financial assets other than those classified at amortized cost are classified as measured at fair value through profit or loss or othercomprehensive income, as appropriate, if either of the two criteria above is not met.
Financial assets at amortized cost include, cash and cash equivalents, some loans and receivables on amounts advanced toborrowers and certain debt investments that meet the criteria of financial assets at amortized cost. Receivables comprise demandobligations, accrued income and receivables from loans and investments and other amounts receivable. Loans and receivables
meeting the two criteria above are carried at amortized cost using the effective interest method.
Loan origination and similar fees are deferred and recognized over the life of the related loan or financial product as an adjustmentof the yield. The amortization of origination fee for loans and related financial products is included in income under the relevant
category, as appropriate.
Loans that have a conversion option that could potentially change the future cash flows to no longer represent solely payments
of principal and interest are measured at FVTPL as required by IFRS 9. The fair value is determined using the expected cash
flows model with inputs including interest rates and the borrower’s credit spread estimated based on the Bank’s internal rating
methodology for non-sovereign loans.
Investments classified as financial assets at amortized cost include non-derivative treasury investments with fixed or determinable
payments and fixed maturities. These investments are carried and subsequently measured at amortized cost using the effective
interest method.

ii) Financial Assets at Fair Value through Profit or Loss
Financial assets that do not meet the amortized cost criteria as described above are measured at FVTPL. This category includes
all treasury assets held for resale to realize short-term fair value changes as well as certain loans for which either of the criteria
for recognition at amortized cost is not met. Realized and unrealized gains or losses on these financial assets are reported in theincome statement in the period in which they arise. Derivatives are also categorized as financial assets at FVTPL.
In addition, financial assets that meet amortized cost criteria can be designated and measured at FVTPL. A debt instrument
may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement
or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains and losses on them on
different bases.

iii) Financial Assets at Fair Value through Other Comprehensive Income
On initial recognition, the Bank can make an irrevocable election (on an instrument-by-instrument basis) to designate investmentsin equity instruments not held for trading as financial assets measured at FVOCI.
Equity investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value withgains and losses arising from fair value measurement recognized in other comprehensive income and transferred to appropriate
reserve in equity. The cumulative gains or losses in equity are not reclassified to profit or loss on disposal of the equity investments
but may be reclassified to retained earnings. No impairments are recognized in the income statement. Dividends earned fromsuch investments are recognized in profit and loss unless the dividends clearly represent a repayment of part of the cost of theinvestment, in which case, it is recognized against the carrying amount of the equity investment.

iv) Financial Guarantee Contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for an
incurred loss because a specified debtor fails to make payments when due in accordance with the terms of a specified debt
instrument. The Bank issues such financial guarantee contracts - which are not managed on a fair value basis - to its clients
including banks, financial institutions and other parties. IFRS 9 requires written financial guarantee contracts that are managed
29

African Development Bankon a fair value basis to be designated at FVTPL. However, financial guarantee contracts that are not managed on a fair value
basis are initially recognized in the financial statements at fair value. Subsequent to initial recognition, these financial guarantees
are measured at the higher of the amount initially recognized less cumulative amortization, and the loss allowances determined
under IFRS 9.
Where the Bank is the buyer or holder of a transaction (e.g. credit protection or similar activities) that meets the definition of afinancial guarantee contract, it determines whether the financial guarantee contract is an integral element of a debt instrument
or pool of debt instruments or not. When the purchased financial guarantee contract is integral to the debt instrument, it isaccounted for in the ECL estimation of the debt instrument and not as a contract to be accounted for separately.
The Bank applies the derecognition principles when it issues and holds transactions that meet the definition of a financial
guarantee contract.

Recognition and Derecognition of Financial Assets

Regular way purchases and sales of financial assets are recognized and derecognized on a trade-date basis, which is the date on
which the Bank commits to purchase or sell the asset. Loans are recognized when cash is advanced to the borrowers. Financial
assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction costs.
The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of thefinancial assets are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownershipand it does not retain control of the financial asset. Any interest in the transferred financial assets that qualify for derecognition
that is created or retained by the Bank is recognized as a separate asset or liability on the Balance sheet.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocatedto the portion of the asset derecognized) and the sum of (i) the consideration received (including any new asset obtained less any
new liability assumed) and (ii) any cumulative gain or loss that had been recognized in OCI is recognized in the income statement.
Any cumulative gain/loss recognized in OCI and retained in the reserve in respect of equity instruments designated as at FVOCI
is not recognized in profit or loss on derecognition of such instruments.
During the course of its development activities, the Bank enters into transactions (for example - sale and repurchase agreements,
credit protection or financial guarantee contracts etc.) whereby it transfers financial assets recognized on its Balance sheet, but
retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, thetransferred assets are not derecognized on the Balance sheet.

Securities Purchased under Resale Agreements, Securities Lent under Securities Lending Agreements andSecurities Sold under Repurchase Agreements and Payable for Cash Collateral Received

Securities purchased under resale agreements, securities lent under securities lending agreements, and securities sold under
repurchase agreements are recorded at market rates. The Bank receives securities purchased under resale agreements, monitors
the fair value of the securities and, if necessary, closes out transactions and enters into new repriced transactions. The securities
transferred to counterparties under the repurchase and security lending arrangements and the securities transferred to the Bank
under the resale agreements do not meet the accounting criteria for treatment as a sale.
Therefore, securities transferred under repurchase agreements and security lending arrangements are retained as assets on the
Bank balance sheet, and securities received under resale agreements are not recorded on the Bank’s Balance Sheet. In cases
where the Bank enters into a “reverse repo” – that is, purchases an asset and simultaneously enters into an agreement to resell
the same at a fixed price on a future date – a receivable from reverse repurchase agreement and an obligation under repurchaseis recognized in the statement of financial position. However, the underlying asset is not recognized in the financial statements.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term, highly liquid investments that arereadily convertible to a known amount of cash, are subject to insignificant risk of changes in value and have a time to maturity
upon acquisition of three months or less.

2) Financial Liabilities
Borrowings
In the ordinary course of its business, the Bank borrows funds in the major capital markets for lending and liquidity management
purposes. The Bank issues different debt instruments denominated in various currencies, with differing maturities at fixed orvariable interest rates. The Bank’s borrowing strategy is driven by three major factors, namely: timeliness in meeting cash flow
requirements, optimizing asset and liability management with the objective of mitigating exposure to financial risks, and providing
cost-effective funding.
In addition to long and medium-term borrowings, the Bank also undertakes short-term borrowing for cash and liquidity
management purposes only. Borrowings not designated at fair value through profit or loss are carried on the balance sheet at30

Financial Report 2022

amortized cost with interest expense determined using the effective interest method. Borrowing expenses are recognized in
profit or loss and include the amortization of issuance costs, discounts and premiums, which is determined using the effective
interest method. Borrowing activities may create exposure to market risk, most notably interest rate and currency risks.
The Bank uses derivatives and other risk management approaches to mitigate such risks. Details of the Bank’s risk management
policies and practices are contained in Note C to these financial statements. Certain of the Bank’s borrowings obtained prior to
1990, from the governments of certain member countries of the Bank, are interest-free loans.

Financial Liabilities at Fair Value through Profit or Loss
This category has two sub-categories: financial liabilities held for trading, and those designated at FVTPL at inception. Derivatives
are categorized as held-for-trading. The Bank applies fair value designation primarily to borrowings that have been swapped into
floating-rate debt using derivative contracts. In these cases, the designation of the borrowing at fair value through profit or loss
is made in order to significantly reduce accounting mismatches that otherwise would have arisen if the borrowings were carriedon the balance sheet at amortized cost while the related swaps are carried on the balance sheet at fair value.
In accordance with IFRS 9, fair value changes in the Bank’s financial liabilities that are designated as at FVTPL are presented asfollows:•

the amount of change in the fair value that is attributable to changes in the Bank’s “own credit risk” are presented in
OCI; and•the remaining amount of change in the fair value is presented in profit or loss.

Amounts presented in OCI are never reclassified to profit or loss when the liability is settled or derecognized. However, the Bank
may transfer the cumulative gain or loss within equity i.e., to retained earnings.

Other Liabilities
All financial liabilities that are not derivatives or designated at FVTPL are recorded at amortized cost. These include certain
borrowings, accrued finance charges on borrowings and other accounts payable and liabilities. Financial liabilities are
derecognized when they are discharged or cancelled or when they expire.

Derivatives

The Bank uses derivative instruments in its portfolios for asset/liability management, cost reduction, risk management andhedging purposes. These instruments are mainly cross-currency swaps and interest rate swaps. The derivatives on borrowings areused to modify the interest rate or currency characteristics of the debt the Bank issues. This economic relationship is establishedon the date the debt is issued and maintained throughout the terms of the contracts. The interest component of these derivatives
is reported as part of borrowing expenses.
The Bank classifies all derivatives at fair value, with all changes in fair value recognized in the income statement. When the criteria
for the application of the fair value option are met, then the related debt is also carried at fair value with changes in fair value
recognized in the income statement.
The Bank assesses its hybrid financial assets (i.e. the combined financial asset host and embedded derivative) in its entirety todetermine their classification. A hybrid financial asset is measured at amortized cost if the combined cash flows represent solely
principal and interest on the outstanding principal; otherwise it is measured at fair value. As at 31 December 2022, the Bank had
hybrid loans that were measured at fair value in accordance with IFRS 9.
Derivatives embedded in financial liabilities or other non-financial host contracts are treated as separate derivatives when theirrisks and characteristics were not closely related to those of the host contract and the host contract was not carried at fair value
with unrealized gains or losses reported in profit or loss. Such derivatives are stripped from the host contract and measured at fairvalue with unrealized gains and losses reported in profit or loss.

Derivative Credit Valuation (CVA) and Funding Valuation Adjustment (FVA)

Valuation adjustment for counterparty and funding risk (CVA/FVA) is recognized on derivative financial instruments to reflect the
impact on fair value of counterparty credit risk and the Bank’s own credit quality. This adjustment takes into account the existing
compensating agreements for each of the counterparties. The CVA is determined on the basis of the expected positive exposureof the Bank vis-à-vis the counterparty, the FVA is calculated on the basis of the expected negative exposure of the Bank vis-à-vis
the counterparty, and the funding spreads, on a counterparty basis. These calculations are recognized on the life of the potential
exposure and concentrates on the use of observable and relevant market data.

Hedge Accounting

The Bank applies fair value hedge accounting to interest rate swaps contracted to hedge the interest rate risk exposure associatedwith its fixed rate loans. Under fair value hedge accounting, the change in the fair value of the hedging instrument and thechange in the fair value of the hedged item attributable to the hedged risk are recognized in the income statement. On adopting31

African Development BankIFRS 9, the Bank’s policy choice is to continue applying the requirements of IAS 39 regarding hedge accounting until when the
proposed “Financial Instruments: Accounting for Dynamic Risk Management’ standard is completed and mandatorily effective.
At inception of the hedge, the Bank documents the relationship between the hedging instrument and the hedged item, alongwith its risk management objectives and its strategy for undertaking the hedge transactions. Furthermore, at the inceptionof the hedge and on an ongoing basis, the Bank documents whether the hedging instrument is highly effective in offsettingchanges in fair values of the hedged item attributable to the hedged risk. Hedge accounting is discontinued when the Bank’s risk
management objective for the hedging relationship has changed, when the hedging instrument expires or is sold, terminated,or exercised, or when it no longer qualifies for hedge accounting except where the reason for the discontinuation is directly
linked to the IBOR reforms amendments of IFRS 9 and IAS 39. The cumulative fair value adjustment to the carrying amount of thehedged item arising from the hedged risk is amortized to profit or loss from that date.

Impairment of Financial Assets

The Bank applies a three-stage approach to measuring expected credit losses (ECLs) for the following categories of financial
assets: Debt instruments measured at amortized cost, Loan commitments, financial guarantee contracts and Treasury investments
held at amortized cost.
Financial assets migrate through the following three stages based on the change in credit risk since initial recognition:i) Stage 1: 12-months ECLStage 1 includes financial assets that have not had a significant increase in credit risk (SICR) since initial recognition. The Bank
recognizes 12 months of ECL for stage 1 financial assets. In assessing whether credit risk has increased significantly, the Bank
compares the risk of a default occurring on the financial asset as at the reporting date, with the risk of a default occurring on thefinancial asset as at the date of its initial recognition.

ii) Stage 2: Lifetime ECL – not credit impaired
Stage 2 comprises financial assets that have had a significant increase in credit risk since initial recognition, but for which there
is no objective evidence of impairment. The Bank recognizes lifetime ECL for stage 2 financial assets. For these exposures, theBank recognizes an allowance amount based on lifetime ECL (i.e. an allowance amount reflecting the remaining lifetime of thefinancial asset). A significant increase in credit risk is considered to have occurred when contractual payments are more than 30days past due and the amount overdue is more than UA 25,000 for sovereign and non-sovereign loans or where, in the case ofnon-sovereign loans, there has been a rating downgrade since initial recognition.

iii) Stage 3: Lifetime ECL – credit impaired
Included in stage 3, are assets that have been categorized as credit impaired. The Bank recognizes lifetime ECL for all stage
3 financial assets, as a specific provision. A financial asset is classified as credit impaired when one or more events that have a
detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition.
Evidence of impairment includes indications that the borrower is experiencing significant financial difficulties, or a default or
delinquency has occurred. A default occurs with regard to an obligor when either or both of the following have taken place:•

The Bank considers that the obligor is unlikely to pay its credit obligations in full, without recourse by the Bank to actions
such as realizing security; or•

The obligor is past due by more than 180 days for sovereign loans and more than 90 days for non-sovereign loans
provided that the amount overdue is more than UA 25,000.

Interest revenue is calculated by applying the effective interest rate to the amortized cost (net of the applicable impairment loss
provision) for impaired financial assets falling under stage 3. For assets falling within stage 1 and 2 interest revenue is recognizedon the gross carrying amount.
When the Bank has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous
reporting period but determines at the current reporting date that criteria for recognizing the lifetime ECL is no longer met i.e.,
cured, the Bank measures the loss allowance at an amount equal to 12-month ECL at the current reporting date. A financial
asset is considered cured (i.e., no longer impaired) when all past due amounts, including interest, have been recovered, and it isdetermined that the principal and interest are fully collectable in accordance with the original contractual terms or revised market
terms of the financial instrument with all criteria for the impaired classification having been remedied.

Determining the stage for impairment
At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for exposures since initialrecognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date ofinitial recognition. The Bank considers reasonable and supportable information that is relevant and available without undue costor effort for this purpose. Refer to Note C Risk Management Policies and Procedures.

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Financial Report 2022

An exposure will migrate through the ECL stages as asset quality deteriorates or improves. For both non- sovereign and sovereignloans, a significant increase in credit risk is considered to have occurred when the rating at reporting date has been downgradedor contractual payments are more than 30 days past due and the overdue amount is higher than UA 25,000. Except that in thecase of sovereign loans both the rating downgrade and 30 days overdue must occur at the same time with the overdue amounts
exceeding the limit.
If, in a subsequent period, asset quality improves and any previously assessed significant increase in credit risk since originationis reversed, then the provision for doubtful debts reverts from lifetime ECL to 12-months ECL. Exposures whose credit rating
remains within the Bank’s investment grade criteria are considered to have a low credit risk even where their credit rating has
deteriorated.
When there is no reasonable expectation of recovery of an asset, it is written off against the related provision. Such assets are
written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off reduce the amount of the expense in the income statement.

Measurement of ECLs
ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:
Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls over the expected lifeof the financial asset discounted by the effective interest rate. The cash shortfall is the difference between the cash flows due tothe Bank in accordance with the contract and the cash flows that the Bank expects to receive.
Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and thepresent value of estimated future cash flows discounted by the effective interest rate.
Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Bank
if the commitment is drawn down and the cash flows that the Bank expects to receive.
Financial guarantee contracts: as the expected payments to reimburse the holder less any amounts that the Bank expects torecover.
ECLs are recognized using a loss allowance account and recognized in the profit and loss.
For further details on how the Bank calculates ECLs including the use of forward-looking information, refer to the Credit qualityof financial assets section in Note C Risk Management Policies and Procedures.

Offsetting of Financial Instruments

Financial assets and liabilities are offset and reported on a net basis when there is a current legally enforceable right to off-set therecognized amount. A current legally enforceable right exists if the right is not contingent on a future event and is enforceable
both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties
and there is an intention on the part of the Bank to settle on a net basis, or realize the asset and settle the liability simultaneously.
The Bank discloses all recognized financial instruments that are set off and those subject to an enforceable master netting
arrangement or similar agreement, irrespective of whether they are offset. Information relating to financial assets and liabilities
that are subject to offsetting, enforceable master netting arrangement is provided in Note C Risk Management Policies andProcedures.

Fair Value Disclosure

In active markets, the most reliable indicators of fair value are quoted market prices. A financial instrument is regarded as quoted
in an active market if quoted prices are regularly available from an exchange, dealer, broker, industry group, pricing service orregulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If theabove criteria are not met, the market is regarded as being inactive.
Indications that a market might be inactive include when there is a wide bid-offer spread or significant increase in the bid-offer
spread or there are few or no recent transactions observed in the market. When markets become illiquid or less active, market
quotations may not represent the prices at which orderly transactions would take place between willing buyers and sellers
and therefore may require adjustment in the valuation process. Consequently, in an inactive market, price quotations are notnecessarily determinative of fair values.
Considerable judgment is required to distinguish between active and inactive markets. Fair value is the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices
or dealer price quotations. For all other financial instruments, the Bank measures fair values using other valuation techniques thatincorporate the maximum use of market data inputs.
The objective of the valuation techniques applied by the Bank is to arrive at a reliable fair value measurement. Other valuation
techniques include net present value, discounted cash flow analysis, option pricing models, comparison to similar instruments
33

African Development Bankfor which market observable prices exists and other valuation models commonly used by market participants. Assumptions
and inputs used in valuation techniques include risk free and benchmark interest rates, credit spreads and other premiums
used in estimating discount rates, bond and equity prices, foreign currency exchange rates and expected price volatilities andcorrelations.
The Bank uses widely recognized valuation models for measuring the fair value of common and simpler financial instruments,
like interest rate and currency swaps that use only observable market data and require minimum management judgment andestimation. Availability of observable market prices and model inputs reduces the need for management judgment and estimation
and also reduces the uncertainty associated with the measurement of fair value. Observable market prices and inputs available
vary depending on the products and markets and are subject to changes based on specific events and general conditions in thefinancial markets.
Where the Bank measures portfolios of financial assets and financial liabilities on the basis of net exposures, it applies judgment
in determining appropriate portfolio level adjustments such as bid-ask spread. Such judgments are derived from observable bidask spreads for similar instruments and adjusted for factors specific to the portfolio.
The following three hierarchical levels are used for the measurement of fair value:
Level 1:

Quoted prices in active markets for the same instrument (i.e., without modification or repackaging).

Level 2:

Quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all
significant inputs are based on observable market data. Included in this category are instruments valued using
quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments
in markets that are considered less than active, or other valuation techniques where all significant inputs are
directly or indirectly observable from market data.

Level 3:

Valuation techniques for which significant input is not based on observable market data and the unobservable
inputs have a significant effect on the instrument’s valuation. Instruments that are valued based on quoted
market prices for similar instruments where significant unobservable adjustments or assumptions are required
to reflect differences between the instruments are included in this category.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on thebasis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significanceof an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. A valuation input
is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external
evidence demonstrating an executable exit price.
The methods and assumptions used by the Bank in measuring the fair values of financial instruments are as follows:
Cash: The carrying amount is the fair value.
Investments: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable instruments.
Borrowings: Fair values of the Bank’s borrowings are based on market quotations when possible or valuation techniques basedon discounted cash flow models using London Interbank Offered Rate (LIBOR) market-determined discount curves adjusted by
the Bank’s credit spread. Credit spreads are obtained from market data as well as indicative quotations received from certain
counterparties for the Bank’s new public bond issues. The Bank also uses systems based on industry standard pricing models andvaluation techniques to value borrowings and their associated derivatives.
The models use market-sourced inputs such as interest rates, yield curves, exchange rates and option volatilities. Valuation
models are subject to internal and periodic external reviews. When a determination is made that the market for an existing
borrowing is inactive or illiquid, appropriate adjustments are made to the relevant observable market data to arrive at the Bank’s
best measure of the price at which the Bank could have sold the borrowing at the balance sheet date.
For borrowings on which the Bank has elected fair value option, the portion of fair value changes on the valuation of borrowings
relating to the credit risk of the Bank is reported in Other Comprehensive Income in accordance with IFRS 9.
Equity investments: The Bank holds direct equity in various enterprises and private funds which may be listed or unlisted. All equity
investments held by the Bank are measured at fair value in line with IFRS 9. Where, as in the case of private funds, the underlying
assets are periodically valued by fund managers or independent valuation experts using market practices, Management has
concluded that these valuations are representative of fair value.
Where such valuations are unavailable, the percentage of the Bank’s ownership of the net asset value of such funds is deemed
to approximate the fair value of the Bank’s equity participation. The fair value of investments in listed enterprises is based on thelatest available quoted bid prices.
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Financial Report 2022

Derivative financial instruments: The fair values of derivative financial instruments are based on market quotations where possible
or valuation techniques that use market estimates of cash flows and discount rates. The Bank also uses valuation tools based on
industry standard pricing models and valuation techniques to value derivative financial instruments.
The models use market- sourced inputs such as interest rates, yield curves, exchange rates and option volatilities. All financial
models used for valuing the Bank’s financial instruments are subject to both internal and periodic external reviews.
Loans: The Bank does not sell its sovereign loans, nor does it believe there is a comparable market for these loans. The Bank’sloan assets, except for those at fair value, are carried on the balance sheet at amortized cost. The fair value of loans carried atamortized cost are deemed to approximate their carrying value net of the impairment losses based on the expected credit loss
model and represents Management’s best measures of the present value of the expected cash flows of these loans.
The fair valuation of loans has been measured using a discounted cash flow model based on year-end market lending rates in
the relevant currency including impairment, when applicable, and credit spreads for non- sovereign loans. In arriving at its best
estimate Management makes certain assumptions about the unobservable inputs to the model, the significant ones of which are
the expected cash flows and the discount rate. These are regularly assessed for reasonableness and impact on the fair value ofloans.
An increase in the level of forecast cash flows in subsequent periods would lead to an increase in the fair value and an increasein the discount rate used to discount the forecast cash flows would lead to a decrease in the fair value of loans. Changes in fairvalue of loans carried at fair value through profit and loss are reported in the income statement.

Valuation Processes Applied by the Bank

The fair value measurements of all qualifying treasury investments, borrowings, loans and equity investments are reported to andreviewed by the Assets & Liabilities Management Committee (ALCO) in line with the Bank’s financial reporting policies.
Where third-party information from brokers or pricing experts are used to measure fair value, documents are independently
assessed and evidence obtained from the third parties to support the conclusions.
The assessment and documentation involves ensuring that (i) the broker or pricing service provider is duly approved for use inpricing the relevant type of financial instrument; (ii) the fair value arrived at reasonably represents actual market transactions;(iii) where prices for similar instruments have been adopted, that the same have been, where necessary, adjusted to reflect thecharacteristics of the instrument subject to measurement and where a number of quotes for the same financial instrument havebeen obtained, fair value has been properly determined using those quotes.

Day One Gain or Loss

At initial recognition, the Bank determines fair value of its financial instruments in line with the requirements of IFRS 13. As a result,when the Bank issues a new financial asset or financial liability, it measures the financial asset or financial liability at fair value, plus
or minus (in the case of a financial asset or financial liability not at fair value through profit or loss) transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial liability. The best evidence of fair value of a financial
instrument at initial recognition is normally the transaction price, that is, the fair value of the consideration given or received.
However, where the fair value of the financial asset or financial liability at initial recognition differs from the transaction price,commonly referred to as day one gain or loss, IFRS requires the Bank to determine the fair value at initial recognition andany gains or losses between the fair value measure at initial recognition and the transaction price is recognized in the income
statement as follows;•

if that fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e., a Level 1 input) or
based on a valuation technique that uses only data from observable markets, the Bank recognizes any difference between
the fair value at initial recognition and the transaction price immediately as a gain or loss in the income statement.

•in all other cases, the difference between the fair value at initial recognition and the transaction price is deferred. Afterinitial recognition, the Bank recognizes that deferred difference as a gain or loss in the income statement only to theextent that it arises from a change in a factor (including time) that market participants would take into account when
pricing the asset or liability.

Subsequent to initial recognition, these financial instruments are measured at fair value and the resulting gains or losses arerecognized in the income statement at the end of the reporting period, with an adjustment for the day one gain or loss.

Investment in Associates

Under IAS 28, “Investments in Associates and Joint Ventures”, the ADF and any other entity in which the Bank has significant
influence are considered associates of the Bank. An associate is an entity over which the Bank has significant influence, but notcontrol, over the entity’s financial and operating policy decisions. The relationship between the Bank and the ADF is describedin more detail in Note H.

35

African Development BankIAS 28 requires that the equity method be used to account for investments in associates. Under the equity method, an investment
in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor’s shareof the profit or loss of the investee after the date of acquisition.
The investor’s share of the profit or loss of the investee is recognized in the investor’s income statement. The subscriptions by
the Bank to the capital of the ADF occurred between 1974 and 1990. At 31 December 2022, such subscriptions cumulatively
represented less than 1 percent of the economic interest in the capital of the ADF.
Although ADF is a not-for-profit entity and has never distributed any dividend to its subscribers since its creation in 1972, IAS 28
require that the equity method be used to account for the Bank’s investment in the ADF. Furthermore, in accordance with IAS 36,
the net investment in the ADF is assessed for impairment, and any impairment losses (or impairment reversals) are recognized in
the income statements. Cumulative losses as measured under the equity method are limited to the investment’s original cost as
the ADB has not guaranteed any potential losses of the ADF.

Property and Equipment

Property and equipment is measured at historical cost less depreciation. Historical cost includes expenditure directly attributable
to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and thecost of the item can be measured reliably. Repairs and maintenance are charged to the income statement when they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to amortize the difference
between cost and estimated residual values over estimated useful lives. The estimated useful lives are as follows:•

Buildings: 15–20 years•

Fixtures and fittings: 6–10 years•

Furniture and equipment: 3–7 years•

Motor vehicles: 5 years•

Right-of-use assets: over the shorter of the estimated useful life and lease term.

The residual values and useful lives of assets are reviewed periodically and adjusted if appropriate. Assets that are subject toamortization are reviewed annually for impairment. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higherof the asset’s fair value less costs to disposal and its value in use. Gains and losses on disposal are determined as the difference
between proceeds and the asset’s carrying amount and are included in the income statement in the period of disposal.

Intangible Assets

Intangible assets include computer systems software and are stated at historical cost less amortization. An intangible asset isrecognized only when its cost can be measured reliably, and it is probable that the expected future economic benefits attributable
to it will flow to the Bank. Amortization of intangible assets is calculated using the straight-line method to write down the cost ofintangible assets to their residual values over their estimated useful lives of 3–5 years.

LeasesAs a lessee, the Bank has several contracts for its offices in the headquarters and certain member countries that conveys the rightto use the offices (the underlying asset) for a period in exchange for consideration. Under such agreements, the contract contains
an explicitly identified asset and the Bank has the right to obtain substantially all of the economic benefits from use of the offices
throughout the period of the lease.
At lease commencement date, the Bank recognizes a right-of-use asset and a lease liability on the balance sheet. Right-of-use
assets are measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments
relating to that lease.
On the statement of financial position, right-of-use assets have been included in property, plant and equipment and leaseliabilities have been included in Other Accounts Payable. The Bank depreciates the right-of-use assets on a straight-line basis
over the shorter of its estimated useful life and the lease term.
At the commencement date, the Bank measures the lease liability at the present value of the lease payments unpaid at thatdate, discounted using the Bank’s incremental borrowing rate. After the commencement date, the amount of lease liabilities isincreased to reflect the accretion of interest and reduced for the lease payments made.

Allocations and Distributions of Income Approved by the Board of Governors

In accordance with the Agreement establishing the Bank, the Board of Governors is the sole authority for approving allocations
from income to surplus account or distributions to other entities for development purposes. Surplus consists of earnings fromprior years which are retained by the Bank until further decision is made on their disposition or the conditions of distribution
36

Financial Report 2022

for specified uses have been met. Distributions of income for development purposes are reported as expenses on the income
statement in the year of approval. Distributions of income for development purposes are deemed as made on behalf of member
countries and may be funded from amounts previously transferred to surplus account or from the current year’s income in equity.

Allocable Income

The Bank uses allocable income for making distributions out of its net income. Allocable income excludes unrealized mark-tomarket gains and losses associated with instruments held for trading and adjusted for translation gains and losses.

Retained Earnings

Retained earnings of the Bank consist of amounts allocated to reserves from prior years’ income, balance of amounts allocated tosurplus after deducting distributions approved by the Board of Governors, unallocated current year’s net income, and expenses
recognized directly in equity as required by IFRS.

Segment Reporting

An operating segment is a component of the Bank Group that engages in business activities from which it can earn revenues
and incur expenses, whose operating results are regularly reviewed by the Chief Operating Decision Maker (that is, Management
under the direct authority of the Board) to make decisions about resources to be allocated to the segment and assess its
performance. Operating segments are identified and reported in a manner consistent with the internal reporting provided toManagement and the Board. The measurement of segment assets, liabilities, income and expenses is in accordance with the
Bank Group’s accounting policies.

Critical Accounting Judgments and Key Sources of Estimation

Uncertainty In the preparation of financial statements in conformity with IFRS, Management makes certain estimates, assumptions
and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent
liabilities. Actual results could differ from such estimates. Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under thecircumstances.
The most significant judgments and estimates are summarized below:

1) Significant Judgments
The Bank’s accounting policies require that assets and liabilities be designated at inception into different accounting categories.
Such decisions require significant judgment and relate to the following circumstances:
Fair Value through profit and loss: In designating financial assets or liabilities at fair value through profit or loss, the Bank has
determined that such assets or liabilities meet the criteria for this classification.
Amortized cost and embedded derivatives: The Bank follows the guidance of IFRS 9 on classifying financial assets and those withembedded derivatives in their entirety as at amortized cost or fair value through profit or loss. In making this judgment, the Bank
considers whether the cash flows of the financial asset are solely payment of principal and interest on the principal outstanding
and classifies the qualifying asset accordingly without separating the derivative.
Consolidation: The Bank follows the guidance of IFRS 10 in ascertaining if there are any entities that it controls, and that may
require consolidation.
Impairment losses on financial assets: The measurement of impairment losses under IFRS 9 across all categories of financial
assets requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when
determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a numberof factors, changes in which can result in different levels of allowances. The methodology and assumptions used for estimating
both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates andactual loss experience.
The Bank’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choiceof variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgments andestimates include:•

The Bank’s internal credit grading model, which assigns PDs to the individual grades.

•

The Bank’s criteria for assessing if there has been a significant increase in credit risk necessitating the loss allowance tobe measured on a 12 month or lifetime ECL basis and the applicable qualitative assessment.

•

Development of ECL models, including the various formulas and the choice of inputs.

•

Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels
and collateral values, and the effect on the probability of default, likely loss in the event of default, and exposure atdefault.
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African Development Bank•

Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs
into the ECL models.

2) Significant Estimates
The Bank also uses estimates for its financial statements in the following circumstances:
Fair Value of Financial Instruments – The fair value of financial instruments that are not quoted in active markets is measured byusing valuation techniques. Where valuation techniques (for example, models) are used to measure fair values, they are validated
and periodically reviewed by qualified personnel independent of the area that created them. All valuation models are calibrated
to ensure that outputs reflect actual data and comparative market prices. To the extent practical, valuation models use only
observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require Management
to make estimates.
Changes in assumptions about these factors could affect the reported fair value of financial instruments. Assessing the significanceof a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or
liability. The determination of what constitutes “observable” requires significant judgment by the Bank.
Post-employment Benefits – The present value of retirement benefit obligations is sensitive to the actuarial and financial
assumptions used, including the discount rate. At the end of each year, the Bank determines the appropriate discount rate andother variables to be used to determine the present value of estimated future pension obligations. The discount rate is based onmarket yields of high-quality corporate bonds in the currencies comprising the Bank’s UA at the end of the year, and the estimates
for the other variables are based on the Bank’s best judgment.

Change in Presentation and Comparative

In some cases, the Bank may in the current year, change the presentation of certain line items in the financial statements toenhance inter-period comparability. When such a change in presentation is made, the comparative information is also adjusted
as may be necessary to reflect the new presentation.

Economic Outlook

The decline in economic growth and a projected global recession imply a gloomy 2023 outlook for economies recovering at
varying degrees from the lingering effects of the COVID-19 pandemic. Global inflation has been stubbornly high, and Central
Banks have raised interest rates sharply to curb its impact. Although this policy tightening has moderated price instability in some
economies, it has worsened global financial conditions, triggering cost-of-living and cost-of-operations crises, and a slowdown inglobal economic activities. Geopolitical tensions have also caused a sharp rise in commodity prices and disrupted global supply
chains, intensifying inflation and global distress.
Against this backdrop, the IMF forecasts a slowdown in global economic growth in 2023 to 2.9 percent from the 3.4 percent
estimated for 2022, similar to 2023 low growth projected by the World Bank. The IMF also projected global inflation to moderatefrom 8.8 percent in 2022 to 6.6 percent in 2023, and further to 4.3 percent in 2024, but remain well above pre-COVID-19 pandemic
levels of about of 3.5 percent. For most economies therefore, the priority is to contain inflation, whilst strengthening debt
restructuring tools.
In Africa, most countries recorded economic growth of varying magnitude in 2022, except for incidents of economic contraction
in a few countries. In the Bank’s “Africa’s Macroeconomic Performance and Outlook” released in January 2023, Africa’s GDP
growth is projected to average about 4 percent in 2023 and 2024, higher than the projected world averages of 2.9 percent and 3.1
percent, respectively. The report identified the downside factors for Africa to include spillovers from rising geopolitical tensions,climate change risks, and the lingering impact of the COVID-19 pandemic, which have been amplified by the tightening global
financial conditions and the associated increase in domestic debt service costs. These economic downside factors could put
further pressure on exchange rates and keep debt vulnerabilities and domestic inflation elevated, threatening food and energy
security in most African countries.
For Africa therefore, economic growth in 2023 and 2024 would require greater public policy attention to priority sectors (e.g.,
health, agriculture, power, and education) to contain the leftover effects of COVID-19, moderation of the tough monetary policies
aimed at curbing the inflation, to reduce the cost of production and living, sound fiscal management policies to optimize public
debt and development of adaptation strategies to minimize disruptions to livelihood from climate change. Despite headwinds
in 2022, African economies remain resilient, with a stable economic outlook for 2023 and 2024.
From a financial reporting perspective, the known and estimable effects of the various global events have been recorded inthese Financial Statements for the year ended 31 December 2022, manifesting in a significant increase in Net Income before
distribution approved by the Board of Governors of UA 239.28 million compared to UA 96.55 million reported in the same period
in 2021, representing a 147.83 percent YoY increase.
The synchronous increase in market interest rates by Central Banks, caused total interest income from loans and treasury
investments in 2022 to increase by 43.41 percent (UA 214.46 million). However, this was accompanied by UA 282.94 million
increase in interest expense, leading to a 16.19 percent (UA 68.48 million) decline in Net Interest Income on YoY basis.
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Financial Report 2022

The global rise in market interest rates and other market variables also impacted the fair value of borrowings at FVTPL and related
derivatives, leading to a gain of UA 88.90 million in 2022 reversing a loss of UA 111.21 million in 2021, a 179.94 percent increase
YoY. Similarly, the better-than-expected exchange movements of the USD against the UA also caused currency translation gains
to increase to UA 66.46 million compared to a loss of UA 1.47 million in 2021.
The lingering effects of the pandemic and associated risk parameters (changes in ECL estimation parameters of LGD and PD,
higher inflation and interest rate, etc.) impacted the lending operations leading to an 11.20 percent YtD increase in reported
ECLs. As a result, the ECL allowance increased by UA 96.12 million to UA 954.46 million in 2022 from UA 858.34 million as at 31
December 2021. The higher credit risk reflects a reduction in the capacity of borrowers to meet their maturing obligations (e.g.,increased interest payments arising from the rising interest rates), raising concerns for delayed payments or defaults.
The projected financial market stability, moderation in inflation and market interest rate, and better global economic growthprospects may cause the Bank’s fair value and currency translation changes, credit risks and other performance indicators toremain reasonably stable in 2023 compared to 2022.
The Bank will continue to monitor and take appropriate actions to manage its business and financial risks, apply risk management
adjustments on its exposures, and report the effects of the evolution of geopolitical tensions, leftover effects of COVID-19, andmarket conditions in its Financial Statements as they become known and estimable.

Event after the Reporting Period

The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when thefinancial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date, but do not result in an adjustment of the financial
statements themselves, are disclosed. For the year ended 31 December 2022, no events after the reporting period have been
disclosed.

The Effect of New and Amended IFRSs

A number of new or amended standards became effective for annual periods beginning after 1 January 2022 and beyond withearlier application permitted. The Bank did not early adopt any of the new or amended standards in preparing these financial
statements. None of these new/amended standards had any significant impact on the preparation of the financial statements forthe year ended 31 december 2022. Details are provided below.

a) New standards and amendments applicable from 1 January 2022
1.

Property, Plant and Equipment: Proceeds before intended use - Amendments to IAS 16 - The amendments to IAS 16
Property, Plant and Equipment (PPE) prevents the Bank from deducting from the cost of an item of PP&E any proceeds
received from selling items produced while the Bank is preparing the asset for its intended use. It also clarifies that the Bankis ‘testing whether the asset is functioning properly’ when it assesses technical and physical performance of the asset. The
financial performance of the asset is not relevant to this assessment. The Bank will disclose separately the amounts of proceeds
and costs relating to items produced that are not an output of the entity’s ordinary activities in the income statement.

2.

Reference to the Conceptual Framework- Amendments to IFRS 3 - These are minor amendments made to IFRS 3 Business
Combinations to update the references to the Conceptual Framework for Financial Reporting and to add an exception
for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities andContingent Assets and IFRIC 21 Levies. The amendments also confirm that contingent assets should not be recognized at
the acquisition date.

3.

Onerous Contracts – Cost of Fulfilling a Contract Amendments to IAS 37: The amendment to IAS 37 clarifies that thedirect costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs
directly related to fulfilling contracts. Before recognizing a separate provision for an onerous contract, the entity recognizes
any impairment loss that has occurred on assets used in fulfilling the contract. The amendment specifies which costs an entity
includes when assessing whether a contract will be loss-making.

4.

Annual Improvements to IFRS Standards 2018–2020 - The following improvements were finalized in May 2020:•

IFRS 9 Financial Instruments – clarifies which fees should be included in the 10 percent test for derecognition of financial
liabilities.

•

IFRS 16 Leases – amendment of illustrative example 13 to remove the illustration of payments from the lessor relating toleasehold improvements, to remove any confusion about the treatment of lease incentives.

•

IFRS 1 First-time Adoption of International Financial Reporting Standards – allows entities that have measured theirassets and liabilities at carrying amounts recorded in their parent’s books to also measure any cumulative translationdifferences using the amounts reported by the parent. This amendment will also apply to associates and joint venturesthat have taken the same IFRS 1 exemption.

39

African Development Bankb) New standards and amendments applicable from 1 January 2023 and beyond

The following standards and amendments had been issued but are mandatorily applicable for annual reporting periods beginningon or after 1 January 2023 and 2024. The Bank does not anticipate any significant impact on the adoption of these standards on
its financial statements.
1.

IFRS 17 Insurance Contracts and amendments to IFRS 17 - Effective for annual periods beginning on or after 1 January 2023
(deferred from 1 January 2021). IFRS 17 was issued in July 2019 and establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts. IFRS 17 requires an entity to measure insurance contracts using updated
estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. IFRS 17
solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistentmanner, thereby enhancing reporting for the benefit of both investors and insurance companies.

2.

Definition of Accounting Estimates – Amendments to IAS 8. Effective for annual periods beginning on or after 1 January2023 and changes in accounting policies and changes in accounting estimates that occur on or after the start of that period.
The IASB published ‘Definition of Accounting Estimates’, amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors to help entities to distinguish between accounting policies and accounting estimates. The definitionof a change in accounting estimates is replaced with a definition of accounting estimates, which are “monetary amounts infinancial statements that are subject to measurement uncertainty.

3.

Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 - Effective for annual periods
beginning on or after 1 January 2023. The IASB amended IAS 1 Presentation of Financial Statements to require entities
to disclose their material rather than their significant accounting policies. The amendments clarify that accounting policy
information is material if users of an entity’s financial statements would need it to understand other material information in
the financial statements; and that if an entity discloses immaterial accounting policy information, such information shall not
obscure material accounting policy information. Also, IFRS Practice Statement 2 was amended by adding guidance andexamples to explain and demonstrate the application of the materiality process to accounting policy information.

4.

Classification of Liabilities as Current or Non-current - Amendments to IAS 1. Effective for annual periods beginning on orafter 1 January 2024 (deferred from 1 January 2022). The final amendments to IAS 1 issued by the IASB in January 2020, clarifyingthat the classification of a liability as either current or non-current is based on the entity’s rights at the end of the reporting
period. The amendments affect only the presentation of liabilities in the statement of financial position — not the amount ortiming of recognition of any asset, liability income or expenses, or the information that entities disclose about those items.

5.

Lease Liability in a Sale and Leaseback - Amendments to IFRS 16. Effective for annual periods beginning on or after 1
January 2024. The IASB has now issued subsequent measurement requirements in IFRS 16 on accounting for sale andleaseback transactions. Previously IFRS 16 only included guidance on how to account for sale and leaseback transactions at
the date of the transaction and not subsequently.

6.

ISSB exposure drafts on Sustainability Reporting

In March 2022, the International Sustainability Standards Board (ISSB) released their first two exposure drafts (EDs). The two EDs
that have been released are:•ISSB ED/2022/S1: Proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information(General Requirements ED), and•

ISSB ED/2022/S2 Proposed IFRS S2 Climate-related Disclosures (Climate ED).

It is uncertain when the requirements proposed in the EDs will apply, because the effective date will only be determined when
the standards are issued and adopted by jurisdictional authorities. However, the EDs propose permitting early adoption and also
provide relief from disclosing comparative information in the year of adoption.

NOTE C – Risk Management Policies and Procedures
In carrying out its development mandate, the Bank seeks to maximize its capacity to assume core business risks resulting fromits lending and investing operations while at the same time minimizing its non-core business risks (market risk, counterparty risk,
liquidity risk, staff benefit plans risk and other operational risk) that are incidental but nevertheless unavoidable in the executionof its mandate.
As the Financial Conduct Authority (FCA) UK has discontinued the publishing of the London Interbank Offered Rate (LIBOR)
used in setting floating or adjustable rates for loans, bonds, derivatives, and other financial instruments from the end of 2021, theBank is committed to an orderly transition of all outstanding USD and other LIBOR linked contracts to their appropriate RFRs andcompleting the IBOR Transition project on before the 30 June 2023 cessation date. This LIBOR Transition Project is ongoing andfurther disclosures will be provided in the financial statements when the outstanding IBOR is eventually discontinued.
Refer to ‘Interest Rate Risk’ section below for details of the Bank’s LIBOR Transition Project.
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Financial Report 2022

Risk Governance and Risk Appetite

The highest level of risk management oversight in the Bank is assured by the Board of Executive Directors, which is chaired by
the President. The Board of Directors is committed to the highest standards of corporate governance. In addition to approving
all risk management policies, the Board of Directors regularly reviews trends in the Bank’s risk profile and performance to ensurecompliance with the underlying policies.
Four management level committees perform monitoring and oversight roles: The Asset and Liability Management Committee(ALCO), the Credit Risk Committee (CRC), the Operations Committee (OPSCOM) and the Operational Risk Management
Committee (ORMC). The ALCO is the oversight and control organ of the Bank’s finance and treasury risk management activities.
It is the Bank’s most senior management forum on finance and treasury risk management issues and is chaired by the Vice
President for Finance.
The CRC which is chaired by the Group Chief Risk Officer ensures effective implementation of the Bank’s credit policies andoversees all credit risk issues related to sovereign and non-sovereign operations. OPSCOM is chaired by the Senior Vice President
and reviews all operational activities before they are submitted to the Board of Directors for approval. The ORMC—which has
two co-chairs; Vice President, PTVP (People and Talent Management Complex) and the Group Chief Risk Officer—is a committeeof representative business units across the Bank which exercises oversight over the Operational Risk Management Framework(ORMF) implementation process.
It provides a forum to facilitate monitoring, discussing and deciding on issues with policy implications related to operational risk
management. ORMC meets on quarterly basis, the chairperson may also convene special meetings of the committee at any time.
ORMC reports to Senior Management and subsequently to the Board of Directors (if necessary) on any significant operational risk
issues that require top management attention.
The ALCO, CRC and OPSCOM meet on a regular basis to perform their respective oversight roles. Among other functions, the
ALCO reviews regular and ad-hoc finance and treasury risk management reports, financial products and financial projections andapproves proposed strategies to manage the Bank’s balance sheet. The CRC is responsible for end-to-end credit risk governance,
credit assessments, portfolio monitoring and rating change approval, amongst other responsibilities. The ALCO and CRC aresupported by several standing working groups that report on specific issues including country risk, non-sovereign credit risk,interest rate risk, currency risk, financial projections, and financial products and services.
The Group Chief Risk Officer, who reports directly to the President of the Bank, is charged with oversight over all credit, market
and operational risk issues. However, the day-to-day operational responsibility for implementing the Bank’s financial and risk
management policies and guidelines are delegated to the appropriate business units. The Financial Management Department
and the office of the Group Chief Risk Officer are responsible for monitoring the day to-day compliance with those policies andguidelines. Day-to-day risks are managed through the three lines of defense approach where business units as primary risk takers
constitute the first line of defense. The risk department act as the second line of defense while the audit department act as thethird line of defense.
The degree of risk the Bank is willing to assume to achieve its development mandate is limited by its risk-bearing capacity.
This institutional risk appetite is embodied in the Bank’s risk appetite statement, which articulates its commitment to maintaina prudent risk profile consistent with the highest credit rating. The Bank allocates its risk capital between non-core risks (upto 10 percent), with sovereign and non-sovereign lending and investing operations. The capital allocation for non-sovereign
operations is up to 45 percent of the Bank’s risk capital. The Bank revises its credit risk model and inputs into the credit risk modelin response to changes in risk and business environment in line with its credit risk management policies and governance control.
Any changes are reflected prospectively from the date the revision to the credit risk model or input takes effect.

Policy Framework

The policies, processes and procedures by which the Bank manages its risk profile continually evolve in response to market,
credit, product, and other developments. The guiding principles by which the Bank manages its risks are governed by the Bank’s
Risk Appetite Statement, the Capital Adequacy Policy, the General Authority on Asset and Liability Management (the ALM
Authority), the General Authority on the Bank’s Financial Products and Services (the FPS Authority) and the Bank’s Credit Policy
and associated Credit Risk Management Guidelines.
The ALM Authority is the overarching framework through which Management has been vested with the authority to manage
the Bank’s financial assets and liabilities within defined parameters. The ALM Authority sets out the guiding principles for
managing the Bank’s interest rate risk, currency exchange rate risk, liquidity risk, authorized transactions, counterparty credit risk
and operational risk. The ALM Authority covers the Bank’s entire array of ALM activities such as debt-funding operations andinvestment of liquid resources, including the interest rate and currency risk management aspects of the Bank’s lending and equity
investment instruments.
The FPS Authority provides the framework under which the Bank develops and implements financial products and services for its
borrowers and separate guidelines prescribe the rules governing the management of credit and operational risk for the Bank’s
sovereign and non-sovereign loan, guarantee and equity investment portfolios.

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African Development Bank

Under the umbrella of the FPS Authority and the ALM Authority, the President is authorized to approve and amend more detailed
operational guidelines as necessary, upon the recommendations of the Asset and Liability Management Committee (ALCO), theCredit Risk Committee (CRC) and the Operations Committee (OPSCOM).
The following sections describe in detail the manner in which the different sources of risk are managed by the Bank.

Credit Risk

Credit risk arises from the inability or unwillingness of counterparties to discharge their financial obligations. It is the potential
for financial loss due to default of one or more debtors/obligors. Credit risk is by far the largest source of risk for the Bank arisingessentially from its development lending and treasury operations.
The Bank manages three principal sources of credit risk: (i) sovereign credit risk in its public sector portfolio; (ii) non-sovereign
credit risk in its portfolio of non-sovereign portfolio; and (iii) counterparty credit risk in its portfolio of treasury investments
and derivative transactions used for asset and liability management purposes. These risks are managed within an integrated
framework of credit policies, guidelines and processes, which are described in more detail in the sections that follow.
The Bank’s maximum exposure to credit risk before collateral received and other credit enhancements for 2022 and 2021 is asfollows:(UA thousands)

Assets

2022

2021

Cash

2,830,737

3,303,139

1,143

1,142

Treasury investments at fair value

4,691,711

3,518,204

Treasury investments at amortized cost

7,020,916

6,275,696

Derivative assets

924,352

825,944

Accrued income and charges receivable on loans

501,710

223,319

Other accounts receivable

821,514954,910

20,695,328

20,102,393

Demand obligations

Loans1) Sovereign Credit Risk

When the Bank lends to the borrowers from its public sector window, it generally requires a full sovereign guarantee or theequivalent from the borrowing member state. In extending credit to sovereign entities, the Bank is exposed to country risk which
includes potential losses arising from a country’s inability or unwillingness to service its obligations to the Bank.
The Bank manages country credit risk through its policies related to the quality at entry of project proposals, exposure
management, including individual country exposures and overall creditworthiness of the concerned country. These include theassessment of the country’s risk profile as determined by its macroeconomic performance, debt sustainability, socio-politicalconditions, the conduciveness of its business environment and its payment track record with the Bank. The Bank also applies asanctions policy that imposes severe restrictions on countries that fail to honor their obligation to the Bank.

42

Financial Report 2022

Country Exposure in Borrowing Member Countries
The Bank’s exposures as at 31 December 2022 and 31 December 2021 from its lending activities to borrowing member countries
as well as the private sector projects in those countries are summarized below:
Summary of loans as at 31 December 2022
(UA thousands)

Country

N° of
loans

Total
Loans*

Unsigned
Loan Amounts

Undisbursed
Balance

Outstanding
Balance – Gross% of Total
Outstanding
Loans

Algeria1

646,495‑‑

646,495

3.02

Angola8

1,364,506‑

514,749

849,757

3.97

Benin

3

184,929‑

161,816

23,113

0.11

Botswana

5759,985

134,997‑

624,988

2.92

Burkina Faso

394,005‑79,73814,267

0.07

Cameroon

19

1,517,838

31,630758,844727,364

3.39

Cabo Verde

16

219,360

11,1746,140

202,046

0.94

Congo

5

347,736‑

88,825258,911

1.21

Côte d’Ivoire

16

1,209,884‑

620,207589,677

2.75

Democratic Republic of Congo

633,308‑‑33,308

0.16

Egypt

20

2,474,851

63,851

458,716

1,952,284

9.11

Equatorial Guinea

577,834‑60,562

17,2720.08

Eswatini

12317,884‑

168,180

149,7040.70

Ethiopia2

133,695‑

68,29865,397

0.31

Gabon

13

996,032‑

285,500

710,532

3.32

Kenya

17

1,547,986

50,283578,806

918,897

4.29

Mauritius

6366,918‑‑

366,918

1.71

Morocco67

4,269,815

165,309762,257

3,342,249

15.60

Namibia13

1,012,143‑

148,875

863,268

4.03

Nigeria

15

2,043,991

100,688761,888

1,181,415

5.51

Rwanda7

580,731‑376,591

204,140

0.95

Senegal23

1,390,365

185,806

620,164

584,395

2.73

Seychelles

7

78,136

18,785

1,863

57,4880.27

South Africa

10

1,349,163‑

197,445

1,151,718

5.37

Tanzania

9

1,007,604

121,329567,784

318,491

1.49

Tunisia40

2,651,771‑

670,336

1,981,435

9.25

Uganda9678,563

53,350418,051

207,162

0.97

Zambia10

372,408‑

123,995

248,413

1.16

Zimbabwe**12

205,695‑‑

205,695

0.96

Multinational
Total Public Sector
Total Private Sector
Total

2

148,071

148,071

‑

‑

‑

381
139
520

28,081,702
4,838,908
32,920,610

1,085,273
1,155,627
2,240,900

8,499,630
752,490
9,252,120

18,496,800
2,930,791
21,427,591

86.32%
13.68%
100%* Excludes fully repaid loans and canceled loans. Trade finance and related guarantee exposures are also excluded.
** Countries in non-accrual status as at 31 December 2022.
Slight differences may occur in totals due to rounding.

43

African Development Bank

Summary of loans as at 31 December 2021
(UA thousands)

Country

N° of
loans

Total
Loans*

Unsigned
Loan Amounts

Undisbursed
Balance

Outstanding
Balance – Gross% of Total
Outstanding
Loans

Algeria1

703,042‑‑703,042

3.40

Angola8

1,359,963‑

524,129

835,834

4.05

Benin

3

187,235‑

186,018

1,217

0.01

Botswana

4666,441

97,886‑

568,555

2.75

Burkina Faso

395,177‑87,375

7,802

0.04

Cameroon

16

1,404,019

92,394

687,795

623,830

3.02

Cabo Verde

14

203,754‑

15,623

188,131

0.91

Congo

5

359,789‑

101,559258,230

1.25

Côte d’Ivoire

15

1,104,953

33,940673,970

397,043

1.92

Democratic Republic of Congo

6

101,069‑‑

101,069

0.49

Eswatini

11304,981

151,945

60,905

92,131

0.45

Egypt

18

2,287,567

67,072

226,136

1,994,359

9.65

Equatorial Guinea

580,727‑63,427

17,3000.08

Ethiopia2

128,395‑

74,32554,070

0.26

Gabon

13

1,039,293‑

348,635

690,658

3.34

Kenya

14

1,368,132‑

705,673

662,459

3.21

Mauritius

7

377,537‑‑

377,537

1.83

Morocco66

4,251,844

213,755

931,859

3,106,230

15.03

Namibia12

1,030,960‑

204,655

826,305

4.00

Nigeria

14

1,924,731

353,103

440,988

1,130,640

5.47

Rwanda6

481,340‑

289,871

191,469

0.93

Senegal16

1,049,939

172,706

381,573495,660

2.40

Seychelles

659,835‑

4,609

55,226

0.27

South Africa

10

1,533,421

61,136

147,512

1,324,773

6.41

Tanzania

8859,762‑

633,357

226,405

1.10

Tunisia40

2,764,825

84,001

569,356

2,111,468

10.22

Uganda8605,134‑

455,724

149,4100.72

Zambia10

371,096‑

171,726

199,370

0.96

Zimbabwe**

12

195,591‑‑

195,591

0.95

Multinational

152,251

52,251

‑

‑

‑

354
151
505

26,952,803
4,607,050
31,559,853

1,380,189
714,464
2,094,653

7,986,800
816,439
8,803,239

17,585,814
3,076,147
20,661,961

85.11%
14.89%
100.00%Total Public Sector
Total Private Sector
Total* Excludes fully repaid loans and canceled loans. Trade finance and repayment guarantee related exposures are also excluded.
** Countries in non-accrual status as at 31 December 2021.
Slight differences may occur in totals due to rounding.

44Financial Report 2022

Balance Sheet Optimization Initiatives
Since 2018, in line with G20 calls to Multilateral Development Banks (MDBs) to optimize their balance sheets while mobilizing
additional financial resources, the Bank has implemented Balance Sheet Optimization (BSO) initiatives aimed at (i) reducing
concentration risk on the Bank’s sovereign and non-sovereign loan and guarantee portfolios; (ii) diversifying and crowding ininvestors into development finance and (iii) increasing the institution’s lending headroom. These initiatives involve the purchaseof credit protection on defined sovereign and non-sovereign exposures, through Exposure Exchange Agreements (EEA), credit
insurance and guarantee transactions, among other structures.
Since inception, BSO has become a valuable tool for recycling lending headroom to facilitate the Bank’s counter cyclical lendingrole especially during the pandemic which hit the globe towards the end of 2019, continued into 2022. The mainstreaming of
BSO within the operations of the Bank was strengthened by the approval of the BSO Framework by the Board of Directors inJune 2020.

Balance Sheet Optimization Initiatives – Sovereign
In this section, BSO initiatives transacted for the benefit of sovereign obligors are discussed. Other similar transactions impacting
non-sovereign credit exposures are described under Non-Sovereign Credit Risk.

Exposure Exchange Agreement
The Exposure Exchange Agreement (EEA) was the first sovereign BSO transaction completed by the Bank, as part of efforts atthe time to reduce sovereign concentration risk and increase lending headroom. Concluded in 2015, it involves an EEA between
the African Development Bank, the Inter-American Development Bank (IADB) and the World Bank (IBRD), all AAA-rated entities.
An EEA involves a simultaneous exchange of equivalent credit risk on defined reference portfolios of sovereign exposures,subject to each participating MDB retaining a minimum of 50 percent of the total exposure to each country that is part of the EEA.
The EEA has a final maturity in 2030 with linear annual reduction of the notional amounts starting from 2025.
Under the EEA, the MDB that originates the sovereign loans and buys protection continues to be the lender of record. An
exposure exchange in no way affects the application of the normal sovereign sanctions policies by the buyer of protection.
Purchased or sold credit protection pays out only upon the occurrence of certain credit events with respect to any sovereign
borrower in the reference portfolio.
When the default event is resolved, payments made under an exposure exchange are returned to the seller of protection.
The Bank accounts for exposures arising from the EEAs and similar transactions as financial guarantee contracts, in accordancewith IFRS 9, as described in Note B.
The counterparty credit exposure that can arise from the purchase or sale of protection, under the MDB exposure exchange, islimited given the AAA credit ratings of the Bank’s counterparties.
The table below presents the countries and notional amounts of credit protection contracted under the EEA;(USD millions)Protection Purchased

Protection Sold
Inter-American
Development BankWorld BankInter-American
Development BankWorld Bank

Angola213.71

Angola85.00

Albania

126.00Argentina

750.00Botswana

225.00Egypt

720.00China

128.18Brazil820.00Gabon

150.00Morocco990.00India

450.00Ecuador303.20Namibia

49.00

Nigeria

95.00

Indonesia

475.32

Mexico800.00

Nigeria100.00Tunisia

990.00

Jordan13.00

Panama206.80South Africa

850.00TOTAL

2,880.00

TOTAL

1,587.71

TOTAL

2,880.00

Pakistan

10.21

Romania185.00Türkiye200.00TOTAL

1,587.71

Credit Insurance
Other than the EEA described above, the Bank also purchases credit insurance protection and Partial Credit Guarantee (PCG) thatcovers the obligations of one or more of its sovereign borrowers. No default events have occurred on any sovereign exposurescovered (either for the counterparties for which credit protection was purchased or sold) under the exposure exchanges or the45African Development Bank

credit insurance transaction as of 31 December 2022. The Bank continues to expect full recovery of its sovereign and sovereignguaranteed exposures covered.
In October 2022, the Room 2 Run Sovereign (R2RS) transaction with the UK’s Foreign Commonwealth and Development Office(FCDO) and three private insurers from the Lloyd’s market provided the Bank with an estimated additional USD 2 billion in newlending capacity for climate finance. R2RS is a BSO initiative to increase the efficient use of the Bank’s risk capital by hedging
its portfolio credit risk and thereby creating additional headroom for the Bank’s operations. It is a purely synthetic transaction
meaning that the Bank remains the lender of record of the covered loans and guarantees in the reference portfolio. The transaction
was launched as part of a multi-prong approach to improve the overall risk profile of the Bank’s assets from BBB with the goalof contributing towards achieving a standalone AAA rating. In addition to this primary objective, R2RS has a secondary financemobilization goal to create new pathways that enable Africa’s development projects to benefit from new sources of private
capital. Specifically, R2R Sovereign is a credit protection of up to USD 2 billion on a notional reference portfolio of exposure toeleven (11) regional member countries, selected from its portfolio of sovereign loans to African countries eligible to borrow fromthe Bank’s non-concessional window. The Guarantor is the United Kingdom as represented by the FCDO . The three commercial
insurers consist of XL Insurance Company SE, Axis Specialty London and HDI Global Specialty SE. Each of the counterparties
would cover credit risk associated with non-payment of principal repayments on a selected portfolio of the Bank’s sovereign
exposures. Insurers will share in the risk of default up to USD 400 million on a pro rata basis with the Bank (first loss tranche) in thefirst loss position while FCDO will share in the risk of default up to USD 1.6 billion on a pro rata basis with the Bank once the firstloss tranche is completely depleted (assumes a second loss tranche).
Room 2 Run Sovereign transaction which at inception improved the Bank’s Risk Capital Utilization Rate (RCUR) by 5.1 percent andthe Weighted Average Risk Rating (WARR) by 0.2 percent also strengthens S&P’s main capital adequacy metric, the Risk Adjusted
Capital ratio by 1.5 percent, which represents an important buffer to further strengthen the Bank’s risk bearing capacity.
The total notional amount of credit protection, including insurance, purchased and or sold, on the underlying single referenced
sovereign entities stood at UA 3.36 billion (USD 4.47 billion equivalent) as at 31 December 2022 and UA 3.20 billion as at 31
December 2021 (USD 4.47 billion equivalent). The notional amount of credit protection in USD terms remained stable, as no newcredit protections was purchased during the 2022 financial year.

Systematic Credit Risk Assessment
The foundation of the Bank’s credit risk management is a systematic credit risk assessment framework that builds on scoring,models and their associated risk factors that have been optimized for the predictive power of the rating parameters and tobetter align with widely-used rating scales. The Bank measures credit risk using a 22 grade rating scale that is calibrated against
probabilities of default using the master rating scale developed for the Global Emerging Markets (GEMs) consortium.
The credit ratings at the sovereign level are derived from an assessment of five risk indices covering macroeconomic performance,
debt sustainability, socio-political factors, business environment and the Bank’s portfolio performance. These five risk indices are
combined to derive a composite country risk index which is translated into credit risk rating for sovereign counterparties. The
CRC reviews the country ratings on a quarterly basis to ensure that they reflect the expected risk profiles of the countries. The
CRC also assesses whether the countries are in compliance with their country exposure limits and approves changes in loss
provisioning, if required.
The following table presents the Bank’s internal measurement scales compared with the international rating scales:

Risk class

Very Low Risk

Low Risk

46

International Ratings

Revised Rating Scale
Assessment

S&P — Fitch

Moody’s

1+

A+ and above

A1 and above

1

A

A2

1-

A-

A3

2+

BBB+

Baa1

2

BBB

Baa2

2-

BBB-

Baa3

3+

BB+

Ba1

3

BB

Ba2

3-

BB-

Ba3

Assessment
Excellent

StrongGood

Financial Report 2022

Risk classInternational Ratings

Revised Rating Scale
Assessment

S&P — Fitch

Moody’s

4+

B+

B1

B

B2

B-

B3

Acceptable

CCC+

Caa1

Marginal

CCC

Caa2

Special attention

CCC-

Caa3

Substandard

9

CC

Ca

Doubtful

10

C

C

Loss

4
Moderate Risk

45+
5
56+

High Risk

6
67
8

Very High Risk

Assessment
Satisfactory

Portfolio Risk Monitoring
The weighted average risk rating of the Bank’s sovereign and sovereign-guaranteed portfolio was 3.15 at the end of 31 December
2022, compared with 3.37 as of 31 December 2021.
The table below shows the breakdown of the Bank’s sovereign portfolio across the five risk categories.

Risk Profile of the Sovereign Portfolio
2022

Very Low Risk

Low Risk

Moderate Risk

High Risk

Very High Risk

40%

19%

34%

6%

1%

2021

34%

18%

39%

8%

1%

2020

39%

18%

31%

11%

1%

2019

47%

27%

22%

2%

2%

2018

51%

26%

20%

3%

‑

It is the Bank’s policy that if the payment of principal, interest or other charges with respect to any Bank Group sovereignguaranteed credit becomes 30 days overdue, no new loans to that member country, or to any public sector borrower in thatcountry, will be presented to the Board of Directors for approval, nor will any previously approved loan be signed, until all arrears
are cleared. Furthermore, for such countries, disbursements on all loans to or guaranteed by that member country are suspended
until all overdue amounts have been paid. These countries also become ineligible in the subsequent billing period for a waiverof 0.5 percent on the commitment fees charged on qualifying undisbursed loans.
Although the Bank benefits from the advantages of its preferred creditor status and rigorously monitors the exposure on nonperforming sovereign borrowers, some countries have experienced difficulties in servicing their debts to the Bank on a timely
basis. The Bank estimate ECLs on its sovereign loan portfolio in accordance with IFRS 9. During 2022, the Bank revised its LGD
model for the sovereign loans portfolio developed in accordance with the best practices of the sector and the Bank’s Model Risk
Management (MRM) guidelines. This model replaces the one implemented at the first application of the IFRS 9 impairment rules
and allows for a lower dependence on the Effective Interest Rate (EIR) and its high volatility. The revised LGD is now based on anaverage Effective Interest Rate for the risk class rather than the Effective Interest Rate per contract.
The revised model has been refined by integrating an estimate of the recovery costs and a floor to capture its value. This allows
a more global understanding of the average recoveries and captures the adjustment factors linked to the macroeconomic andgeopolitical environment specific to each counterparty. It also takes into account the recommendations of Moody’s Analytics on
the Bank’s capital adequacy framework (CADF).
In line with the MRM framework, this revised model has been validated by the CRC. The Bank will conduct periodic review of thisrevised model or in the event of a substantial change in the economic environment in line with its risk management .
To cover potential losses related to credit, the Bank maintains a prudent risk capital cushion for credit risks. The Bank’s capital
adequacy policy articulates differentiated risk capital requirements for public sector and private sector credit-sensitive assets, aswell as for contingent liabilities (guarantees and client risk management products) in each risk class.

47

African Development Bank

Risk capital requirements are generally higher for private sector operations which have a higher probability of default and loss
given default than public sector operations. At the end of December 2022, the Bank’s sovereign loan and guarantee portfolio
used up to 34.92 percent (2021: 60 percent) of the Bank’s total risk capital based on the Bank’s capital adequacy framework. The
Bank defines risk capital as the sum of paid-in capital net of exchange adjustments, plus accumulated reserves adjusted by thegain on financial assets at FVOCI, unrealized loss/gain on fair-valued borrowings arising from “own credit” and any shortfall of thestock of provisions to expected losses. Callable capital is not included in the computation of risk capital.

2) Non-Sovereign Credit Risk
When the Bank lends to its borrowers from the private sector, it does not benefit from sovereign guarantees. The Bank may also
provide financing to creditworthy commercially oriented entities that are publicly owned, without a sovereign guarantee.
To measure the credit risk of non-sovereign projects or facilities, the Bank uses several models to score the risk of every projectat entry. These models are tailored to the specific characteristics and nature of the transactions and the outputs are mapped to
the Bank’s credit risk rating scale.
The Bank is also exposed to some of its borrowers on account of trade finance and repayment guarantees for an amount of UA
159.44 million (31 December 2021: UA 537.9 million) of which UA 86.06 million (31 December 2021: UA 93.19 million) is related to
trade finance as at 31 December 2022.
Non-sovereign transactions are grouped into the following four main categories: project finance; corporate finance; financial
institutions and private equity funds. The weighted-average risk rating was 4.18 at the end of December 2022 compared with
4.65 at the end of 2021.
The distribution of the non-sovereign portfolio across the Bank’s five credit risk classes is shown in the table below.

Risk Profile of the Non-Sovereign Portfolio
Very Low Risk

Low Risk

Moderate Risk

High Risk

Very High Risk

18%
9%

16%
19%

34%
43%

14%
12%

18%
17%

2022
2021
2020

17%

21%

36%

15%

11%

2019
2018

18%
21%

22%
22%

41%
38%

12%
15%

7%
4%

To cover potential unexpected credit-related losses due to extreme and unpredictable events, the Bank maintains a risk capitalcushion for non-sovereign credit risks derived from the Bank’s Economic Capital model which uses internally developed risk
parameters (Internal Rating Based – (IRB)).
At the end of December 2022, the Bank’s non-sovereign portfolio represented 4.58 percent (2021: 18 percent) of the Bank’s totalloan portfolio. This level is below the limit of 45 percent for total non-sovereign operations. Out of the Bank’s non-sovereign
portfolio, equity participations required as risk capital, approximately 9.86 percent (2021:11.5 percent) of the Bank’s total onbalance sheet risk capital sources. This is below the internal limit of 15 percent established by the Board of Governors for equity
participations.

Credit Exposure Limits
The Bank operates a system of exposure limits to ensure an adequately diversified portfolio at any given point in time. The
Bank manages credit risk at the global country exposure limit (combined sovereign-guaranteed and non-sovereign portfolios)
by ensuring that in aggregate, the total risk capital utilization of any country does not exceed 15 percent of the Bank’s total risk
capital. This threshold and other determinants of country limit are articulated in the Bank’s capital adequacy framework and Risk
Appetite Statement.
The credit exposure on the non-sovereign portfolio is further managed by regularly monitoring the exposure limit with regard to
the specific industry/sectors, equity investments and single obligor. In addition, the Bank generally requires a range of collateral(security and/or guarantees) from project sponsors to partially mitigate the credit risk for direct private sector loans.

Balance Sheet Optimization Initiatives – Non-Sovereign

As in the case of sovereign credit exposures, the Bank has entered into BSO initiatives covering its non-sovereign loan andguarantee portfolio aimed at (i) reducing credit risk, (ii) addressing concentration and other prudential ratio limits and (iii) andincreasing lending headroom. These initiatives involve, among other structured finance facilities, assets sell downs, credit
insurance, financial guarantees and, synthetic securitization transactions, on defined non-sovereign exposures. Under the
BSO credit protection purchased on its non-sovereign credit exposures, the Bank will be compensated for losses arising fromcredit default by the counterparty in the reference non-sovereign portfolio. As the originator of the qualifying transactions and48

Financial Report 2022

protection buyer, the Bank remains the lender of record. In line with the substance, the transactions are accounted for as financial
guarantee contracts.
Specific BSO initiatives undertaken by the Bank covering its non-sovereign obligors are described below.

Private Sector Credit Enhancement Facility
The Bank enters into risk participation agreements for the primary purpose of promoting Private Sector Operations (PSOs) in
certain countries by inviting other entities to participate in the risks of such PSOs. The PSF is one of such initiatives.
The Private Sector Credit Enhancement Facility (PSF) was established in 2015, as an independent special purpose vehicle
managed by the African Development Fund, to absorb risk on selected non-sovereign loans issued by the Bank in low-income
countries at origination. The PSF is operated to maintain a risk profile equivalent to an investment-grade rating and absorbs risk
using a risk participation agreement structure. The Bank has purchased credit enhancement from the PSF for some of its nonsovereign loans. As at 31 December 2022, the notional amounts of non-sovereign loans covered by the PSF stood at UA 266.48
million (31 December 2021: UA 275.86 million).

Synthetic Securitization and Credit Insurance
These BSO initiatives include the purchase of credit protection for the Bank through synthetic securitization and credit insurance
and guarantees amounted to UA 1.80 billion (31 December 2021: UA 1.14 billion).
On 2 December 2021, the Affirmative Financing Action for Women in Africa (AFAWA) Risk Sharing Mechanism (RSM) became
fully operational and effective both on the side of the risk participation agreement (RPA) counter guarantee from France and theNetherlands and the Bank’s Partial Credit Guarantee (PCG) to the African Guarantee Fund (AGF), the initiative’s implementation
partner for Phase I. This means that guarantee transactions booked by AGF in support of commercial bank lending to female led
entrepreneurs will be eligible for coverage by the Bank and that the expected leverage impact towards mobilizing up to USD 2
billion in lending is fully operationalized.

Non-Sovereign Pipeline BSO
In 2021, on the sidelines of the Conference of the Parties (COP) 26 event, the intent of the Room 2 Run Sovereign (R2R-S)transaction with the United Kingdom’s Foreign Commonwealth and Development Office (FCDO) and Africa Trade Insurance(ATI) was announced. The objective of the structure is to support additional on-lending of up to USD 1.8 billion towards climate
relevant transactions, while attracting the participation of the London-based Lloyd’s market to risk participate in ADB’s sovereign
loan portfolio. The BSO transaction was completed in October 2022.
In October 2021, the Mozambique LNG transaction credit insurance transaction was approved by the Board of Directors. This
private sector credit insurance shall cover a portion of the Bank’s USD 400 million debt facility to the Mozambique LNG Project,approved in 4Q2019. Two insurers rated AA- and A- will cumulatively take on a total exposure of USD 120 million, which represents
30 percent insurance cover on the transaction, thereby helping to unlock up to USD 113 million in additional lending capacity
towards non-sovereign transactions.
In September 2022, the Bank signed the Lusophone Compact Guarantee for EUR 400 million in support of private sector projects
in Portuguese-speaking countries in Africa and the Reference Portfolio onboarding is ongoing. The Lusophone Compact provides
a strategic development framework for the private sector to accelerate growth that is inclusive, sustainable, and diversified, by
crowding in private sector-driven investments targeting transformative investment opportunities in the PALOP countries. The
Initiative is anchored on three pillars: (i) Risk mitigation instruments to unlock investments; (ii) Financing for Investments; and (iii)
Technical Assistance for private and PPP projects. The Lusophone Compact Guarantee with a maturity of 15 years allows the Bank
to receive cover on private sector transactions in PALOP countries for up to 85% of the principal on an on-demand basis.
The overall total notional BSOs outstanding on all relevant underlying single non-sovereign reference entities stood at UA 2.07
billion as at 31 December 2022 (31 December 2021: UA 1.42 billion)
Under the BSO credit protection purchased on its non-sovereign credit exposures, the Bank will be compensated for losses arisingfrom credit default by the counterparty in the reference non-sovereign portfolio. As the originator of the qualifying transactions
and protection buyer, the Bank remains the lender of record. In line with the substance of the transactions, BSOs are accounted
for as financial guarantee contracts in the financial statements of the Bank.

3) Counterparty Credit Risk
In the normal course of business, and beyond its development related exposures, the Bank utilizes various financial instruments
to meet the needs of its borrowers, manage its exposure to fluctuations in market interest and currency rates, and to temporarily
invest its liquid resources prior to disbursement. All of these financial instruments involve, to varying degrees, the risk that thecounterparty to the transaction may be unable to meet its obligation to the Bank. Given the nature of the Bank’s business, it
is not possible to completely eliminate counterparty credit risk. However, the Bank minimizes this risk by executing hedging
transactions within a prudential framework of approved counterparties, minimum credit rating standards, counterparty exposure
limits, and counterparty credit risk mitigation measures.

49

African Development BankCounterparties must meet the Bank’s minimum credit rating requirements and are approved by the Bank’s Vice President for
Finance. For local currency operations, less stringent minimum credit rating limits are permitted in order to provide adequate
availability of investment opportunities and derivative counterparties for implementing appropriate risk management strategies.
The ALCO approves counterparties that are rated below the minimum rating requirements.
Counterparties are classified as investment counterparties, derivative counterparties, and trading counterparties. Their ratings
are closely monitored for compliance with established criteria.
For trading counterparties, the Bank requires a minimum short-term credit rating of -A-2/P-2/F-2 for trades settled under delivery
versus payment (DVP) terms and a minimum long-term credit rating of A/A2 for non-DVP-based transactions.
The following table details the minimum credit ratings for authorized investment counterparties:

Maturity
6 months

Government agencies and supranational
Corporations including non-bankfinancial institutions

5 years

10 years

15 years

30 years

A/A2
AA-/Aa3
AAA/Aaa
Maximum remaining maturity of 5 years in the trading portfolios and 10 years in the heldat amortized cost portfolio for SDR denominated securities rated A+/A1 or below

Government

Banks

1 yearA/A2

AA-/Aa3

A/A2

AA-/Aa3

AAA/Aaa

A/A2

AA-/Aa3

AAA/Aaa

AAA/AaaAAA
Maximum legal maturity of 50 years. Also, the maximum weighted average life
for all ABS/MBS at the time of acquisition shall not exceed 5 years.

Mortgage-Backed Securities (MBS)/
Asset Backed Securities (ABS)The Bank may also invest in money market mutual funds with a minimum rating of AA-/Aa3 and enter into collateralized securities
repurchase agreements.
The Bank uses derivatives in the management of its borrowing portfolio and for asset and liability management purposes. Asa rule, the Bank executes an International Swaps and Derivatives Association (ISDA) master agreement and netting agreementwith its derivative counterparties prior to undertaking any transactions. Derivative counterparties are required to be rated AA-/
Aa3 or above by at least two approved rating agencies or at least A-/A3 for counterparties with whom the Bank has entered intoa collateral exchange agreement. Lower rated counterparties may be used exceptionally for local currency transactions. These
counterparties require ALCO approval. Approved transactions with derivative counterparties include swaps, forwards, options
and other over-the-counter derivatives.
Daily collateral exchanges enable the Bank to maintain net exposures to acceptable levels. The Bank’s derivative exposures andtheir credit rating profiles are shown in the tables below:(Amounts in UA millions)

Derivatives

Credit Risk Profile of Net Exposure

Notional Amount

Fair Value*

Net Exposure**AAA

AA+ to AA-

A+ and lower

2022
2021

36,80338,502

104
295

15
28

-

1%

100%
99%

2020

29,804

884

115

-

1%

99%

2019
2018

27,83727,399

593
213

84
52

-

11%
16%

89%
84%

* Fair value before collateral.
** After collateral received in cash or securities.

In addition to the minimum rating requirements for derivative counterparties, the Bank operates within a framework of exposure
limits to different counterparties based on their credit rating and size, subject to a maximum of 12 percent of the Bank’s total
risk capital (equity and reserves) for any single counterparty. Individual counterparty credit exposures are aggregated across all
instruments using the Bank for International Settlements (BIS) potential future exposure methodology and monitored regularly
against the Bank’s credit limits after considering the benefits of any collateral.

50

Financial Report 2022

The financial assets and liabilities that are subject to offsetting, enforceable master netting arrangement are summarized below:
Financial Assets Subject to Offsetting, Enforceable Master Netting Arrangements and Similar Agreements(UA millions)

Gross Amountsof Recognized
Financial Assets

Gross Amounts ofRecognized Financial
Liabilities Set Off in
the Balance Sheet

Net Amounts ofFinancial Assets
Presented in the
Balance Sheet

2022
2021

144
526

(40)
(280)

2020

1,474

2019
2018

1,057
390

Related Amounts not Set Off in theStatement of Financial Position
Financial
Instruments

Collateral
Received

Net
Amount

104
246

‑
‑

(89)
(347)

15
(101)

(590)

884

‑

(849)

35

(521)
(177)

536
213

‑
‑

(576)
‑

(40)
213

Financial Liabilities Subject to Offsetting, Enforceable Master Netting Arrangements and Similar Agreements(UA millions)
Gross Amountsof Recognized
Financial
Liabilities

Gross Amounts ofRecognized Financial
Liabilities Set Off in
the Balance Sheet

Net Amounts ofFinancial Assets
Presented in the
Balance Sheet

2022
2021

2,754
661

(742)
(279)

2020

145

2019
2018

225
941

Related Amounts not Set Off in theStatement of Financial Position
Financial
Instruments

Cash Collateral
PledgedNet
Amount

2,012
382

‑
‑

‑
‑

2,012
382

(41)

104

‑

‑

104

(29)
(384)

196
557

‑
‑

‑
‑

196
557

The credit exposure of the investment and related derivative portfolio continues to be dominated by highly rated counterparties
as shown in the table below.

Credit Risk Profile of the Investment Portfolio
AAA

AA+ to AA-

A+ and lower

2022
2021

46%
51%

39%
36%

15%
13%

2020

54%

36%

10%

2019
2018

50%
49%

38%
41%

12%
10%

To cover potential unexpected credit losses due to extreme and unpredictable events, the Bank maintains a conservative risk
capital cushion for counterparty credit.
At the end of December 2022, the capital consumption attributable to the Bank’s counterparty credit portfolio including all
investments and derivative instruments stood at 3.51 percent (2021: 2.5 percent) of the Bank’s total risk capital.

51

African Development Bank

Expected Credit Risk
Definition of default
The definition of default for the purpose of determining ECLs considers indicators that the debtor is unlikely to pay its material
credit obligation to the Bank which is past due for more than 90 days for non-sovereign counterparties and 180 days for sovereigncounterparties.
The Bank rebuts the IFRS 9’s 90 days past due rebuttable presumption in the Bank’s sovereign loan portfolio because the Sanction
policy of the Bank defines a non-accrual loan or non-performing loan as a loan that is at least 180 days past due. This is also thecurrent practice in other Multilateral Development Banks. The recovery rate for loans that are less than 180 days past due is muchhigher than loans that are at least 180 days past due.
The Bank considers default from the standpoint that the obligor is unlikely to pay its credit obligations to the Bank without
recourse by the Bank to actions such as realizing security.

Modifications of financial assets and financial liabilities
The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer
retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms
have been modified may be derecognized and the renegotiated loan recognized as a new loan at fair value in accordance with theBank’s accounting policy. When the terms of a financial asset are modified, and the modification does not result in derecognition,
the determination of whether the assets credit risk has increased is based on applicable criteria at the reporting date.
If the terms of a financial asset are modified, the Bank considers whether the cash flows arising from the modified asset aresubstantially different. If it is substantially different, then the contractual rights to cash flows from the original financial asset
are deemed to have expired. In this instance, a new financial asset is recognized at fair value while the original financial asset
is derecognized. If the cash flows of the modified asset are not substantially different, then the modification does not result inderecognition of the financial asset. In this case, the Bank recognizes a modification gain/loss in the statement of profit or loss as
the difference between the gross carrying amount prior to the modification and the gross carrying amount.

Measurement and recognition of expected credit loss

ECLs are calculated by multiplying three main components, being the probability of default (PD), loss given default (LGD) and
exposure at default (EAD), discounted at the appropriate effective interest rate (EIR) on the reporting date.
These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted
to reflect forward-looking information as described above.
PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating
tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled
data comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD
for large corporate counterparties. If a counterparty or exposure migrates between ratings classes, then this will lead to a change
in the estimate of the associated PD.
LGD is the magnitude of the likely loss if there is a default. The Bank estimates LGD parameters based on the history of recovery
rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim,counterparty industry and recovery costs of any collateral that is integral to the financial asset. LGD estimates are recalibrated for
different economic scenarios to reflect possible changes in relevant prices. They are calculated on a discounted cash flow basis
using the effective interest rate as the discounting factor.
EAD represents the expected exposure in the event of a default. The Bank derives the EAD from the current exposure to the counterparty
and potential changes to the current amount allowed under the contract including amortization. The EAD of a financial asset is its grosscarrying amount. For financial guarantees, the EAD includes the amount drawn, as well as potential future amounts that may be drawn
under the contract, which are estimated based on historical observations and forward-looking forecasts. For some financial assets, EAD
is determined by modeling the range of possible exposure outcomes at various points in time using scenario and statistical techniques.
As described above, and subject to using a maximum of a 12-month PD for financial assets for which credit risk has not significantly
increased, the Bank measures ECL considering the risk of default over the maximum contractual period (including any borrowers
extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Bank considers a longer
period. The maximum contractual period extends to the date at which the Bank has the right to require repayment of an advanceor terminate a loan commitment or guarantee.

52

Financial Report 2022

Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of sharedrisk characteristics that include:•

Instrument type;•

Credit risk grading;•

Date of initial recognition;•

Remaining term to maturity;•

Industry; and•Geographic location of the borrower.

The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous.
For portfolios in respect of which the Bank has limited historical data, external benchmark information is used to supplement theinternally available data.

Assessment of significant increase in credit risk
When determining whether the risk of default has increased significantly since initial recognition, the Bank considers bothquantitative and qualitative information and analysis based on the Bank’s historical experience and expert credit risk assessment,
including forward looking information that is available without undue cost or effort.
Despite the foregoing, the Bank assumes that the credit risk on a financial instrument has not increased significantly since initialrecognition if the financial instrument is determined to have low credit risk at the reporting date. The Bank considers a financial
asset to have low credit risk when it has an internal or external credit rating of BB- equivalent or better.
For financial guarantee contracts, the date that the Bank becomes a party to the irrevocable commitment is considered to be
the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there
has been a significant increase in the credit risk since initial recognition of a financial guarantee contract, the Bank considers thechanges in the risk that the specified debtor will default on the contract.
The Bank regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase incredit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk
before the amount becomes past due.

Incorporation of forward-looking information
The Bank’s Credit Risk Committee considers a range of relevant forward-looking macroeconomic scenarios assumptions for thedetermination of unbiased general industry adjustments and any related specific industry adjustments that support the calculationof ECLs. The Committee consists of senior executives from risk, finance and operations functions. Relevant regional and industry
specific adjustments are applied to capture variations from general industry scenarios. These reflect reasonable and supportable
forecasts of future macroeconomic conditions that are not captured within the base ECL calculations. Macroeconomic factors
taken into consideration include, but are not limited to gross domestic product, gross capital formation, government’s revenue,
government’s debts, current account balance and lending rates. These require an evaluation of both the current and forecast
direction of the macroeconomic cycle.
Incorporating forward-looking information increases the degree of judgement required as to how changes in these macroeconomic
factors will affect ECLs. The methodologies and assumptions including any forecasts of future economic conditions are reviewed
regularly.

Calculation of expected credit loss
The Bank calculates ECLs based on three probability-weighted macroeconomic scenarios. The three scenarios are: base case,
optimistic and pessimistic. Each of these is associated with different probability of default parameters and different weight. These
parameters are generally derived from internally developed statistical models combined with historical, current and forwardlooking macroeconomic data.
For accounting purposes, the 12-month and lifetime PD used are the point-in-time forward-looking probability of a default overthe next 12 months and remaining lifetime of the financial instrument, respectively, based on conditions existing at the balance
sheet date and future economic conditions under different macroeconomic scenario that affect credit risk. The LGD represents
expected loss conditional on default, taking into account the mitigating effect of collateral, its expected value when realized andthe time value of money. The EAD represents the expected exposure at default, taking into account the repayment of principal
and interest from the balance sheet date to the default event together with any expected drawdown of a facility. The 12-month
ECL is equal to the discounted sum over the next 12 months of the marginal PD multiplied by the LGD and EAD. Lifetime ECL is
calculated using the discounted sum of marginal PD over the full remaining life multiplied by the LGD and EAD.
The Bank will continue to assess and update the parameters used in the ECL model on an ongoing basis to reflect its loss andrecovery experiences and changes in the macroeconomic variables.
53

African Development Bank

Amounts arising from expected credit losses
IFRS 9 requires the recognition of 12-month expected credit losses (the portion of lifetime expected credit losses from default
events that are expected within 12 months of the reporting date) if credit risk has not significantly increased since initial recognition(stage 1), and lifetime expected credit losses for financial instruments for which the credit risk has increased significantly sinceinitial recognition (stage 2) or which are credit impaired (stage 3).

Impairment of Financial Instruments by Stage
The table below presents a breakdown of impairment allowance based on stage allocation and asset classification as at 31
December 2022 and 31 December 2021.
Table 1.1: Impairment on loans and other debt instruments measured at amortized cost by stage
As at 31 December 2022
(UA thousands)

Stage 1

Stage 2

Stage 3

Total

157,107
4,720

115,058
3,962

460,098
212,737

732,263
221,419

270
491

‑
13

‑
‑

270
504

162,588

119,033

672,835

954,456

Stage 1

Stage 2

Stage 3

Total

Loan at amortized cost

76,80349,555433,210559,568

Interest receivables

1,839

2,437

292,821297,097

Treasury investments

298

‑

‑

298

1,304

72

‑

1,376

80,24452,064

726,031858,339

Loan at amortized cost
Interest receivables
Treasury investments
Guarantees
Total impairment as at 31 December 2022
As at 31 December 2021
(UA thousands)

Guarantees
Total impairment as at 31 December 2021

The table below presents an analysis of loans – sovereign and non-sovereign – at amortized cost by gross exposure, impairment
allowance and coverage ratio at 31 December 2022 and 31 December 2021.
Table 1.2: Reconciliation of ECL allowance recognized in the Income Statement
ECL impairment on Loan principal and interest for 31 December 2022
(UA thousands)

Stage 1

Stage 2

Stage 3

Total

Opening 1 January
Charge/(write-back) for the year

78,642
83,18551,992
67,028726,031(53,196)856,665
97,017

Closing 31 December 2022

161,827

119,020

672,835

953,682

Charge/(write-back) for the year 2021

(22,734)(16,835)

64,53824,969

Stage 1

Stage 2

Stage 3

Total

Opening 1 January
Charge/(write-back) for the year

298
(28)

‑
‑

‑
‑

298
(28)

Closing 31 December 2022

270

‑

‑

270

Charge for the year 2021

65

‑

‑

65

ECL impairment on Treasury Investments for 31 December 2022
(UA thousands)

54

Financial Report 2022

ECL impairment on Financial Guarantees for 31 December 2022
(UA thousands)

Stage 1

Stage 2

Stage 3

Total

Opening 1 January
Charge/(write-back) for the year

1,304
(813)

72
(59)

‑
‑

1,376
(872)

Closing 31 December 2022

491

13

‑

504

Charge for the year 2021

92

72

‑

164

The table below presents an analysis of loans – sovereign and non-sovereign – at amortized cost by gross exposure, impairment
allowance and coverage ratio at 31 December 2022 and 31 December 2021.
Table 1.3: Analysis of loans at amortized cost, impairments and ECL coverage ratio1
As at 31 December 2022
(UA millions)

Gross exposure

Impairment allowance*

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Loan Principal

19,257

1,465

706

21,428157.11115.06460.10732.27

Non-Sovereign

1,942

489

499

2,930

50.36

35.07

378.06463.49Sovereign17,315976

207

18,498106.75

79.99

82.04

268.78

222

17

406

645

4.72

3.97

212.74221.43

Interest receivables
Non-Sovereign

37

9

65

111

2.69

2.18

73.60

78.47

Sovereign

185

8

341

534

2.03

1.79

139.14142.96

19,479

1,482

1,112

22,073161.83119.03672.84953.70Non-Sovereign

24

1

‑

25

0.19

0.01

‑

0.20

Sovereign

64

‑

‑

64

0.30

‑

‑

0.30

7,010

‑

‑

7,010

0.27

‑

‑

0.27

Total Loans

Guarantees

Treasury Investments
31 December 2022

88

26,577

1

1,483

‑

1,112

89

29,1720.49

162.590.01

119.04‑672.840.50

954.46Slight differences may occur in totals due to rounding.
* LGD for Sovereign portfolio was revised during 2022, with the effect that the same LGD is used for principal and interest cashflows in line with the scorecard
approach. The effect of this revised LGD is limited to stage 3 Sovereign loans only and had no impact on the overall exposure coverage of the Bank.

ECL coverage ratios
Stage 1

Stage 2

Stage 3

Total

Loan Principal

0.82%

7.85%

65.17%

3.42%

Non-Sovereign

2.59%

7.17%

75.76%

15.82%

Sovereign

0.62%

8.20%

39.63%

1.45%

Interest receivables

2.13%

23.35%

52.40%

34.33%

Non-Sovereign

7.27%

24.22%

113.23%70.69%

Sovereign

1.10%

22.38%

40.80%

26.77%

Total Loans

0.83%

8.03%

60.51%

4.32%

Non-Sovereign

0.79%

1.00%

-

0.82%

Sovereign

0.47%

-

-

0.47%

Guarantees

Treasury Investments

Total coverage ratio

0.56%

-

0.61%

1.00%

-

8.03%

-

-

60.51%

0.56%

-

3.27%

Slight differences may occur in totals due to rounding.

1.

ECL coverage ratio shows the impairment allowance (ECL) in each stage as a proportion of gross exposure in each stage.

55

African Development Bank

As at 31 December 2021
(UA millions)

Gross exposure

Impairment allowanceStage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Loan Principal

18,5001,474

688

20,662

76.80

49.56

433.21559.57

Non-Sovereign

2,118

466

492

3,076

33.17

27.75

359.77420.69Sovereign

16,382

1,008

196

17,586

43.63

21.81

73.44

138.88

104

15

369

488

1.84

2.43

292.82297.09Non-Sovereign

27

7

53

87

1.15

1.37

56.14

58.66

Sovereign

77

8

316

401

0.69

1.06

236.68238.4318,604

1,489

1,057

21,150

78.64

51.99

726.03856.66

Non-Sovereign

93

1

‑

94

0.89

0.07

‑

0.96

Sovereign

444

‑

‑

444

0.41

‑

‑

0.41

Interest receivables

Total Loans

Guarantees

Treasury Investments
31 December 2021

537

6,182

25,323

1

‑

1,490

‑

‑

1,057

538

6,182

27,870

1.30

0.30

80.24

0.07

‑

52.06

‑

‑

726.031.37

0.30

858.34Slight differences may occur in totals due to rounding.

ECL coverage ratios
Stage 1

Stage 2

Stage 3

Total

Loan Principal

0.42%

3.36%

62.97%

2.71%

Non-Sovereign

1.57%

5.95%

73.12%

13.68%

Sovereign

0.27%

2.16%

37.47%

0.79%

Interest receivables

1.77%

16.20%

79.36%

60.88%

Non-Sovereign

4.26%

19.57%

105.92%67.43%

Sovereign

0.90%

13.25%

74.90%

59.46%

Total Loans

0.42%

0.24%

3.49%

10.14%

68.69%

4.05%

Non-Sovereign

0.96%

10.14%-

1.02%

Sovereign

0.09%

-

-

0.09%

-

-

-

-

Guarantees

Treasury Investments

Total coverage ratio

0.32%

3.49%

-

0.25%

68.69%

3.08%

Slight differences may occur in totals due to rounding.

An analysis of changes in ECL allowances in relation to the bank’s financial assets carried at amortized cost is provided below:
Analysis of the changes in ECL allowance account between 31 December 2021 and 31 December 2022
(UA thousands)

Stage 1

Stage 2

Stage 3

Total

Gross carrying amount as at January 2022

80,24452,064

726,031858,339

New assets originated or purchased

15,1915,030

130

20,351

Assets derecognized or repaid(3,371)

(590)

(449)

(4,410)Transfer from Stage 1 to Stage 2(2,292)

2,292

‑

‑

Transfer from Stage 2 to Stage 3

6,675(6,675)‑‑

New and increased provision (net of releases)

66,141

66,912(52,877)

80,176

162,588

119,033

672,835

954,456

At 31 December 2022

56

Financial Report 2022

The ECL allowance reported on the balance sheet as at 31 December 2022 increased by UA 96.12 million (11.20 percent) to UA
954.46 million from the UA 858.34 million as at 31 December 2021, while the total provision for ECLs reported in the income
statement in the year was UA 96.12 million compared with UA 25.20 million reported for 31 December 2021.

Liquidity Risk

Liquidity risk is the potential for loss resulting from insufficient liquidity to meet cash flow needs in a timely manner. Liquidity riskarises when there is a maturity mismatch between assets and liabilities. The Bank’s principal liquidity risk management objective isto hold sufficient liquid resources to enable it to meet all probable cash flow needs for a rolling 1-year horizon without additional
financing from the capital markets for an extended period. In order to minimize this risk, the Bank maintains a Prudential Minimum
level of Liquidity (PML) based on the projected net cash requirement for a rolling one-year period. The PML is updated quarterly
and computed as the sum of four components: i) 1-year debt service payments; ii) 1-year projected net loan disbursements (loans
disbursed less repayments) if greater than zero; iii) loan equivalent value of committed guarantees; and iv) undisbursed equity
investments.
To strike a balance between generating adequate investment returns and holding securities that can be easily sold for cash if
required, the Bank divides its investment portfolio into tranches with different liquidity objectives and benchmarks. The Bank’s
core liquidity portfolio (operational portfolio) is invested in highly liquid securities that can be readily liquidated if required
to meet the Bank’s short-term liquidity needs. Probable redemptions of swaps and borrowings with embedded options areincluded in the computation of the size of the operational tranche of liquidity. In addition to the core liquidity portfolio, the Bank
maintains a second tranche of liquidity (the prudential portfolio) that is also invested in relatively liquid securities to cover its
expected medium-term operational cash flow needs. A third tranche of liquidity, which is funded by the Bank’s equity resources, isheld in a portfolio of fixed income securities intended to collect contractual cash flows with the objective of stabilizing the Bank’s
net income. In determining its level of liquidity for compliance with the PML, the Bank includes cash, deposits and securities in all
the treasury investments, with appropriate haircuts based on asset class and credit rating.
The contractual maturities of financial liabilities and future interest payments at 31 December 2022 and 2021 were as follows:
Contractual Maturities of Financial Liabilities and Future Interest Payments at 31 December 2022
(UA thousands)

ContractualCash Flow

1 yearor lessMore than
1 year but
less than 2
years

Derivative liabilities

1,720,404 (4,356,022)(413,928)(691,914)

Borrowings at fair value

24,006,353 29,038,386 6,014,503 3,208,860 2,428,503 6,254,854 3,991,154 7,140,512

Carrying
AmountMore than
2 years but
less than 3
years

More than
3 years but
less than 4
years

More than
4 years but
less than 5
years(470,957)(918,294)(456,819) (1,404,110)

More than
5 years

Financial liabilities with derivatives

25,726,757 24,682,364 5,600,575 2,516,946 1,957,546 5,336,560 3,534,335 5,736,402
Financial liabilities without derivatives
Accounts payable
Borrowings at amortized cost

1,230,966
247,854
1,478,820

Total financial liabilities

1,230,966 1,230,966

-

-

-

-

-

214,460

7,991

280

356

453

58,391

1,512,897 1,445,426

7,991

280

356

453

58,391

281,931

27,205,577 26,195,261 7,046,001 2,524,937 1,957,826 5,336,916 3,534,788 5,794,793

Represented by:
Derivative liabilities

1,720,404 (4,356,022)(413,928)(691,914)(470,957)(918,294)

1,230,966 1,230,966

-

-

-

(456,819) (1,404,110)

Accounts payable

1,230,966

Borrowings

24,254,207 29,320,317 6,228,963 3,216,851 2,428,783 6,255,210 3,991,607 7,198,903

-

-

57

African Development Bank

Contractual Maturities of Financial Liabilities and Future Interest Payments at 31 December 2021
(UA thousands)

ContractualCash Flow

1 yearor lessMore than
1 year but
less than 2
years

129,164 (1,215,145)

83,00018,707

Carrying
AmountMore than
2 years but
less than 3
years

More than
3 years but
less than 4
years

More than
4 years but
less than 5
years

More than
5 years(98,769)(173,981)(204,643)(839,459)

Financial liabilities with derivatives
Derivative liabilities
Borrowings at fair value

24,801,331 27,026,780 5,744,808 5,157,634 2,304,371

942,190 5,974,570 6,903,207

24,930,495 25,811,635 5,827,808 5,176,341 2,205,602

768,209 5,769,927 6,063,748

Financial liabilities without derivatives
Accounts payable
Borrowings at amortized cost

Total financial liabilities

1,105,924
314,374

1,105,924 1,105,924
378,652

-

-

-

-

-

126,120

184,188

470

310

404

67,1601,420,298 1,484,576 1,232,044

184,188

470

310

404

67,16026,350,793 27,296,211 7,059,852 5,360,529 2,206,072

768,519 5,770,331 6,130,908

Represented by:
Derivative liabilities

129,164 (1,215,145)

83,00018,707(98,769)(173,981)(204,643)(839,459)

1,105,924 1,105,924

-

-

-

-

-

Accounts payable

1,105,924

Borrowings

25,115,705 27,405,432 5,870,928 5,341,822 2,304,841

942,500 5,974,974 6,970,367

Market Risk

Market risk is the risk of loss or adverse financial impact on the Bank’s financial instruments due to direct or indirect changes inmarket prices. The Bank principally faces two forms of market risk: (i) Currency exchange risk (ii) Interest rate risk.

Currency Exchange Risk

Currency risk is the potential loss due to adverse movements in market foreign exchange rates. To promote stable growth in its
risk-bearing capacity, the Bank’s principal currency risk management objective is to protect its risk capital from translation risk
due to fluctuations in foreign currency exchange rates by matching the currency composition of its net assets to the currencycomposition of the SDR (UA). The agreement establishing the Bank explicitly prohibits it from taking direct currency exchange
exposures by requiring liabilities in any one currency to be matched with assets in the same currency. This is achieved primarily
by holding or lending the proceeds of its borrowings (after swap activities) in the same currencies in which they were borrowed(after swap activities). To avoid creating new currency mismatches, the Bank requires its borrowers to service their loans in thecurrencies disbursed.
Because a large part of its balance sheet is funded by equity resources, which are reported in Units of Account (equivalent to theSDR), the Bank has a net asset position that is potentially exposed to translation risk when currency exchange rates fluctuate. The
Bank’s policy is to minimize the potential fluctuation of the value of its net worth measured in Units of Account by matching, to theextent possible, the currency composition of its net assets with the currency basket of the SDR (the Unit of Account). In keepingwith the Bank’s currency risk management policy, spot currency transactions are carried out to realign the net assets to the SDR
basket each time there is a misalignment or when there is a revision to the SDR currency composition.
The Bank also hedges its exposure to adverse movements on currency exchange rates on its administrative expenses. The
distribution of the currencies of the Bank’s recurring administrative expenditures shows a high concentration of expenses inEuros, US Dollars and CFA Francs.

58

Financial Report 2022

Net Currency Position at 31 December 2022
(UA thousands)Euro

UnitedStates
DollarJapanese
Yen

Pound
Sterling

RMB(c)

Other

Subtotal

Units of
Account

Total(151,313)

231,294

1,132,139

5,186

‑

1,624,412

2,841,718(10,981)2,830,737

‑

‑

‑

‑

‑

1,143

1,143

‑

1,143

Investments at fair value

655,422

11,240‑55,41379,5333,909,975

4,711,583‑

4,711,583

Investments at amortized cost

2,004,866

2,830,662

569,745

632,696

895,136

87,8117,020,916‑

7,020,916

Accounts receivable

185,9623,025,525(861,675)

11,871

153,657(1,311,949)

1,203,391

119,833

1,323,224

Loans

9,915,174

8,499,926

13,363‑‑

1,872,430

20,300,893‑

20,300,893

87,68564,174‑‑‑

891,877

1,043,736

102

1,043,838

‑

‑

‑

‑

‑

‑

‑

84,41084,41012,697,796

14,662,821

853,572

705,166

1,128,326

7,075,699

37,123,380

193,364

37,316,744(263,131)(574,534)(101,489)(13,732)(157)(275,373)(1,228,416)(2,550)(1,230,966)

‑

‑

‑

‑

‑

‑

‑

(228,431)(228,431)(5,719,150) (11,210,934)(1,241,531)(1,568,491)(335,761)(4,178,340) (24,254,207)‑ (24,254,207)(3,146,588)

1,359,9781,574,656

335,828

1,956,994‑(9,783,552) (14,932,056)

16,958(7,567)(90)

2,914,244(269,235)

870,530

697,599% of sub-total

29.38(2.71)

8.78

SDR Composition as at
31 December 2022

29.82

43.42

7.62

AssetsCash
Demand obligations(a)Equity participations
Other assets
Liabilities
Accounts payable
Employee Benefits liabilities
Borrowings

Currency swaps on borrowings(3,801,271)
and related derivatives(b)Currency position of equity
as at 31 December 2022(a) Investments measured at fair value comprise:
Investments measured at fair value
Derivative assets

Derivative liabilities

Amount per statement of net currency position(b) Currency Swaps on borrowings is made up as follows:
Derivative assets

Derivative liabilities

Net Swaps on borrowings per statement of net currency position(1,720,404)(1,720,404)(2,496,719) (27,203,027)(230,981) (27,434,008)

1,128,236

4,578,980

9,920,353(37,617)9,882,736

7.03

11.37

46.15

100.00‑100.00

7.33

11.81

‑

100.00‑100.004,691,711
28,109(8,237)

4,711,583

896,243(2,616,647)(1,720,404)(c) RMB = CNY

59

African Development BankNet Currency Position at 31 December 2021
(UA thousands)
UnitedStates
DollarEuro
AssetsCash

Demand obligations

Investments at fair value(a)Japanese
Yen

Subtotal

Units of
Account

Total

934,331102,815‑

1,523,458

3,314,065(10,926)

3,303,139

456,841

3,579‑

36,91739,3692,987,602

3,524,308‑

3,524,308

42,552(1,239,297)

1,092,534

85,695

1,178,229‑

842,707

983,093111‑

2,472,292

Loans

9,811,458

8,332,861

Other assets

Other

238,061‑

1,588,095

Equity participations

ChineseYuan

515,400

Investments at amortized costAccounts receivable

Pound
Sterling(563,863)
78,034‑‑‑489,238

690,922

941,094

41,035496‑

3,483,814(638,507)

62,352

‑

‑

‑

‑

7,835
‑
‑

‑

1,142

94,055

1,965,059‑

1,142

6,275,696

20,150,909
‑

‑
‑
‑

88,7501,142

6,275,696
20,150,909
983,204
88,75011,885,965

14,592,959

826,097

838,985 1,023,015

6,174,726

35,341,747

163,630

35,505,377

Accounts payable(396,038)(315,302)(115,311)(9,208)(1)(148,583)(984,443)(121,482)(1,105,925)

Borrowings
Currency swaps on borrowings
and related derivatives(b)(4,278,053)(12,492,936)(1,564,047) (1,129,304) (449,523)(5,201,842)(25,115,705)(4,709,361)(1,661,411)

1,731,878 1,138,392

450,321

2,921,017(129,164)

Currency position of equity as at
31 December 2021

(9,383,452)(14,469,649)

52,520797(2,429,408)(26,229,312)

2,502,513

123,310878,617

838,865 1,023,812

3,745,318

9,112,436 (406,516)

27.46

1.35

9.64

9.21

11.24

41.10

100.00‑100.00

31.26

41.63

7.45

8.25

11.41

‑

100.00‑100.00Liabilities

Employee Benefit liabilities% of sub-total

SDR Composition as at
31 December 2021

‑

‑

‑

(a) Investments measured at fair value comprise:
Investments measured at fair value
Derivative assets
Derivative liabilities
Amount per statement of net currency position

3,518,204
6,104‑(b) Currency swaps on borrowings comprise:
Derivative assets
Derivative liabilities
Net swaps on borrowings per statement of net currency position

819,840(949,004)

‑

(120)

‑

‑

‑

(448,664)(448,664)‑ (25,115,705)‑(129,164)(570,146) (26,799,458)
8,705,920

3,524,308(129,164)

Currency Risk Sensitivity Analysis

As described in the previous section, the Bank manages its currency risk exposure by matching, to the extent possible, thecurrency composition of its net assets with the currency basket of the SDR. The SDR is composed of a basket of five currencies,
namely the US Dollar, Euro, Japanese Yen, Pound Sterling and Chinese Yuan Renminbi. The weight of each currency in the basket
is determined and reviewed by the International Monetary Fund (IMF) every five years. With effect from 1 October 2016, theIMF formally approved the inclusion of the Chinese Yuan Renminbi (CNY) in Special Drawing Rights (SDR) with a weight of 10.92
percent. The SDR rate represents the sum of specific amounts of the five basket currencies valued in US Dollars, on the basis of
the exchange rates quoted at noon each day in the London market.
Currency risks arise with the uncertainty about the potential future movement of the exchange rates between these currencies
on the one hand, and between the exchange rates of the SDR currencies and the other non-SDR currencies (mainly African
currencies) used by the Bank on the other hand. In this regard, the Bank carries out an annual sensitivity analysis of the translation
results of its net assets with regard to the movement of the different exchange rates. The analysis consists of a set of scenarios
where the exchange rates between the US Dollar and the other SDR and African currencies are stretched out by large margins(10 percent appreciation/depreciation).

60

Financial Report 2022

The following tables illustrate the sensitivity of the Bank’s net assets to currency fluctuations due to movements in the exchange
rate of the currencies in the SDR basket as of 31 December 2022 and 2021, respectively. The sensitivity analysis shown assumes aseparate 10 percent appreciation/depreciation for each currency in the basket against the US dollar. Due to a moderate change
in the African currency holdings, the table also includes the effect of a 10 percent appreciation/depreciation of each African
currency against the SDR. Under the different scenarios, the currency risk management strategy of the Bank shows a minimalchange in net assets as a result of currency mismatches.
Sensitivity of the Bank’s Net Assets to Currency Fluctuations as at 31 December 2022
(Amounts in UA millions)

US Dollar

Euro

Japanese
Yen

Pound
Sterling

ChineseYuan

Othercurrencies

Net Assets

Change in
Net Assets
Gain/(Loss)

Basis Point
Changeof Total
Net Assets

Net assets resulting from a 10% appreciation against the USD
EUR

4,044.94

2,979.34

675.28663.52

1,083.21

39.78

9,486.07(3.27)

3bps

GBP

4,135.65

2,769.23

690.42746.24

1,107.50

39.78

9,488.82(0.52)

1bps

JPY

4,134.20

2,768.26

759.19678.16

1,107.11

39.78

9,486.70(2.64)

3bps

CNY

4,116.69

2,756.54

687.25675.291,212.66

39.78

9,488.21(1.12)

1bps

4,165.79

2,789.41

695.45683.34

1,115.57

43.76

9,493.31

3.98

4bps

Net assets resulting from a 10%
appreciation of each African
currency against the SDR

Net assets resulting from a 10% depreciation against the USD

EUR

4,282.08

2,606.62

714.86702.42

1,146.71

39.78

9,492.48

3.15

3bps

GBP

4,193.56

2,808.01

700.09625.36

1,123.01

39.78

9,489.81

0.48

1bps

JPY

4,194.93

2,808.92

636.65688.12

1,123.37

39.78

9,491.77

2.44

3bps

CNY

4,211.45

2,819.98

703.07690.83

1,025.27

39.78

9,490.38

1.05

1bps

4,165.79

2,789.41

695.45683.34

1,115.57

36.16

9,485.72(3.62)

4bps

Base net assets

4,165.79

2,789.41

695.45683.34

1,115.57

39.78

9,489.34--

Add: Fair valuation effects on
borrowings & derivatives

177.59370.6424.87(2.41)(6.41)(170.88)393.40--Base net assets ( including
fair valuation of borrowingsand derivatives)

4,343.38

3,160.05

720.32680.93

1,109.16(131.10)9,882.74--

Currency weight

0.57810.373813.45200.08091.0993----

Base exchange rate

1.33611.2512176.0461

1.10999.2178----

Net assets resulting from a 10%
depreciation of each African
currency against the SDR

Assumptions:61

African Development Bank

Sensitivity of the Bank’s Net Assets to Currency Fluctuations as at 31 December 2021
(Amounts in UA millions)

US DollarEuro

Net assets resulting from a 10% appreciation against the USD

Japanese
Yen

Pound
Sterling

ChineseYuan

OtherCurrencies

Net
AssetsChange in
Net Assets
Gain/(Loss)

Basis Point
Change ofTotal Net
AssetsEUR

3,556.55

2,901.74

668.97725.34974.7927.30

8,854.69(4.02)

4bps

GBP

3,637.68

2,698.11

684.22816.08997.0227.30

8,860.41

1.70

2bps

JPY

3,640.89

2,700.50

753.31742.54997.9027.30

8,862.44

3.74

4bps

CNY

3,626.26

2,689.65

682.08739.56

1,093.28

27.30

8,858.13(0.57)

1bps

3,667.78

2,720.44

689.89748.03

1,005.27

30.03

8,861.44

2.73

3bps

Net assets resulting from a 10%
appreciation of each African
currency against the SDR

Net assets resulting from a 10% depreciation against the USD
EUR

3,775.11

2,545.50

710.08769.92

1,034.69

27.30

8,862.60

3.88

4bps

GBP

3,695.58

2,741.06

695.12685.181,012.89

27.30

8,857.13(1.57)

2bps

JPY

3,692.57

2,738.83

631.41753.091,012.07

27.30

8,855.27(3.45)

4bps

3,706.35

2,749.05

697.14755.90923.5027.30

8,859.24

0.53

1bps

3,667.78

2,720.44

689.89748.03

1,005.27

24.82

8,856.23(2.48)

3bps

3,667.78

2,720.44

689.89748.03

1,005.27

27.30

8,858.71‑‑

Add: Fair valuation effects on
borrowings & derivatives(61.29)(5.28)

61.15

5.19

(6.30)(146.26)(152.80)‑‑

Base net assets (including fairvaluation of borrowings andderivatives)

3,606.49

2,715.16

751.04753.22998.97(118.96)

8,705.92‑‑

0.5825
1.39970.3867
1.236611.9000
161.1280

0.08591.03861.01748.8866

‑
‑

‑
‑

‑
‑

‑
‑

CNY
Net assets resulting from a 10%
depreciation of each African
currency against the SDR
Assumptions:Base net assets

Currency weight
Base exchange rate

62

Financial Report 2022

Interest Rate Risk

The Bank’s interest rate risk sensitivity is comprised of the following two elements:•

The sensitivity of the interest margin between the rate the Bank earns on its assets and the cost of the borrowings
funding such assets.

•

The sensitivity of the income on assets funded by equity resources to changes in interest rates.

The Bank’s principal interest rate risk management objective is to generate a stable overall net interest margin that is not overly
sensitive to sharp changes in market interest rates, but yet adequately responsive to general market trends.
The interest rate risk positions as at 31 December 2022 and 2021 were as follow:
Interest Rate Risk Position as at 31 December 2022
(UA thousands)

1 year or lessMore than 1
year but lessthan 2 years

More than
2 years but
less than 3
years

More than
3 years but
less than 4
years

More than
4 years but
less than 5
years

More than 5
years

Noninterest
bearing
funds

Total

2,830,737

‑

‑

‑

‑

‑

‑

2,830,737

Treasury investments

5,406,296

640,250649,980

665,050

730,310

3,634,272

6,341

11,732,499

Loans – disbursed and outstanding

18,327,562

339,934

310,466

326,571

275,489

1,877,971‑(394,435)(30,402)21,427,591

‑

‑

‑

‑

‑

‑

(732,263)(732,263)

Equity participations
Other assets

‑

‑

‑

‑

‑

‑

1,043,838

1,043,838

‑

‑

‑

‑

‑

‑

84,41084,41027,888,962

980,184

960,446

991,6211,005,799

5,512,243(22,511)37,316,744

Accounts payable(1,230,966)

‑

‑

‑

‑

‑

‑

(1,230,966)

Borrowings(27,256,267)

(86)

(114)

(75,255)

(114)

(275)

1,357,500(25,974,611)(28,715,664)

(86)

(114)

(75,255)

(114)

(275)

1,357,500(27,434,008)(826,702)

980,098

960,332

916,366

1,005,685

5,511,968

1,334,989

9,882,736

AssetsCash

Demand obligations

1,143

(a)

Accounts receivable

1,323,224‑

Hedged loans – fair value adjustment

Accumulated impairment
for loan losses

Liabilities

Employee Benefit liabilities(b)Interest rate risk position as at 31
December 2022*(228,431)(a) Treasury investments comprise:
Treasury investments

Derivative assets - investments

Derivative liabilities - investments

Amount per statement of interest rate risk(b) Borrowings comprise

‑
‑

‑

‑

‑
‑

‑

‑

‑

‑

‑

‑

‑

‑
‑

‑

‑
‑

‑

1,143

1,323,224(394,435)(228,431)

28,109(8,237)

11,732,499

24,254,207

Derivative liabilities - borrowings

2,616,647

Net borrowings per statement of interest rate risk‑‑

11,712,627

Borrowings

Derivative assets - borrowings‑(896,243)

25,974,611* Interest rate risk position represents equity.

63African Development BankInterest Rate Risk Position as at 31 December 2021
(UA thousands)
1 yearor lessMore than
1 year but
less than 2
years

More than
2 years but
less than
3 years

More than
3 years but
less than
4 years

More than
4 years but
less than
5 yearsMorethan
5 yearsNoninterest
bearing
funds

Total

Cash

3,303,139

-

-

-

-

-

-

3,303,139

Treasury investments(a)4,161,486

608,870

642,470

652,230

631,5903,020,610

82,7489,800,004

Loans – disbursed and outstanding

17,314,570

498,458

333,227

297,383

309,674

1,937,558(28,909)

20,661,961

Accumulated impairment for loan
losses

-

-

-

-

-

-

(559,568)(559,568)

Equity participations

-

-

-

-

-

-

983,204

983,204

Other assets

-

-

-

-

-

-

88,75088,75025,958,566

1,107,328

975,697

949,613941,264

4,958,168

614,741

35,505,377

Accounts payable(1,105,924)

-

-

-

-

-

-

(1,105,924)

Borrowings(b)(25,655,596)(149,174)(1,384)(71,574)

(125)

(299)

633,283(25,244,869)(27,210,184)(149,174)(1,384)(71,574)

(125)

(299)

633,283 (26,799,457)(1,251,618)

958,154974,313878,039

941,139

4,957,869

AssetsDemand obligations

1,142

Accounts receivable

1,178,229

Hedged loans – fair value adjustment-

Liabilities

Employee Benefit liabilities(448,664)Interest rate risk position as at
31 December 2021*(a) Treasury investments comprise:
Treasury investments

Derivative assets – investments

Derivative liabilities – investments

Amount per statement of interest rate risk(b) Borrowings comprise:
Borrowings

Derivative assets – borrowings

Derivative liabilities – borrowings

Net borrowings per statement of interest rate risk

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

48,516-

1,248,024

1,142

1,178,229
48,516(448,664)

8,705,920

9,793,900
6,104-

9,800,004

25,115,705(819,840)
949,004

25,244,869*Interest rate risk position represents equity.

Interest Rate Benchmark Reform – Disclosure on the LIBOR Transition Project

In July 2017, the Financial Conduct Authority (FCA) UK announced that the London Interbank Offered Rate (LIBOR), used insetting floating or adjustable rates for loans, bonds, derivatives, and other financial instruments will cease to be published fromthe end of 2021. Since this 2017 announcement, there have been further updates to the cessation date to ensure a seamless andfair transition from LIBOR and other IBORs to the designated alternative Risk-Free Rates (RFRs).

Update on LIBOR cessation:
On March 5th, 2021, the InterContinental Exchange Benchmark Administration (IBA) and the FCA, respectively the administrator
and the supervisor of the LIBORs, announced further updates on the future cessation or non-representativeness dates. As a result,
CHF and EUR LIBOR ceased immediately after 31 December 2021. JPY and GBP LIBOR became non-representative immediately
after 31 December 2021, but the publication of their most used settings continued under the “Synthetic” methodology basedon Term rates (Term SONIA for GBP and TORF for JPY) plus the relevant International Swaps and Derivatives Association (ISDA)
Spread Adjustments. Publication of the “Synthetic” JPY LIBOR ceased after 31 December 2022. Publication of the “Synthetic”
GBP LIBOR is to continue until 31 March 2023 but the FCA has stated its intention to require IBA to continue to publish the 3 Month “synthetic” GBP LIBOR setting until the end of March 2024. Publication of the most used USD LIBOR settings currently

64

Financial Report 2022

continues until end of June 2023. The FCA has consulted2 market on its intention to use its powers to compel IBA to continue topublish the 1-Month, 3-Month and 6-Month USD LIBOR settings under a non-representative “Synthetic” methodology from endof June 2023 until the end of September 2024.

Update on the Implementation of the LIBOR Transition at the Bank:
The Bank uses LIBOR for its funding, treasury investments and lending activities. Early in the global LIBOR Transition reform,
the Bank established an ad hoc structure, the LIBOR Transition Task Force (“The Taskforce”) to lead the impact assessmentand ensure smooth implementation of the transition from LIBOR and other IBORs to the designated alternative RFRs. The
Taskforce , consisting of workstreams from Operations, Loan Accounting and Financial Reporting, Treasury, Clients Solutions, Risk
Management, Legal, IT and Communications, continues to make significant progress toward the seamless implementation of the
Operational LIBOR Transition Guidelines and the successful completion of a timely and fair transition project. The Operational
LIBOR Transition Guidelines provides information on the Bank’s approach for ceasing the issuance of new LIBOR and other
IBOR-linked transactions, issuance of new products and transactions based on the designated alternative RFRs, amending legacy
LIBOR and other IBOR-linked contracts and other transition protocols. The Steering Committee (SteerCo), composed of senior
management and the Operational Committee (OpsCo), composed of workstream leads, also continue to provide appropriate
governance and oversight to the workstreams and the LIBOR Transition as a whole. The OpsCo meets regularly (weekly initiallyand monthly towards the end of 2022) to consider issues arising from the project and provide updates to the SteerCo for
consideration and approval. Further oversight is provided by the ALCO, other Senior Management Committees and the Boardof Directors. To date, the Taskforce has ensured that the LIBOR Transition project remains on schedule, adequately resourced andthat completion risks are identified and managed effectively to ensure a seamless transition.
From 1 January 2022, the Bank ceased new issue of LIBOR and other IBOR-linked transactions. Also, the Bank started theimplementation of the operational LIBOR Transition guidelines on the issue and approval of new USD loans on the basis of SOFR
and new JPY loans on the basis of TONA. Following Board approval to amend legacy loans for the implementation of the LIBOR
Transition, the actual conversion of legacy USD LIBOR loans to SOFR is expected on the first reset date, after the cessation or
non-representativeness of USD LIBOR immediately after end of June 2023. Loans linked to EURIBOR and JIBAR will continue on
the basis of data provided by their market regulators.
For pricing of products, the Bank has moved all curves for GBP/CHF/JPY to their respective RFRs plus the relevant ISDA spreadadjustments and there is still some reliance on pricing based on synthetic market data provided directly by IBA and other market
regulators for other IBOR-linked transactions. Also, the Bank’s capital market LIBOR-linked borrowings have been transitioned
to their respective RFRs.
The Bank successfully implemented a number of enhancements to its loans, treasury investments, borrowings and other systems
impacted by the LIBOR transition, to ensure end-to-end issue, trading, operation and reporting of RFR products. The Bank will
finalize any outstanding system enhancements well ahead of the June 2023 cessation date.
The Bank is implementing a client-focused contract remediation for its Sovereign and Non-sovereign-guaranteed clientsand other counterparties in order to ensure a fair transition of legacy USD LIBOR-linked contracts. This remediation includes
encouraging clients and counterparties to transition to SOFR rates or other sound transition techniques, e.g., inclusion of fallback
provisions, where possible. For its trading counterparties, the Bank adhered to the ISDA IBOR Fallbacks Protocol and continue toencourage adherence to this protocol in the remediation of legacy USD LIBOR-linked trading contracts. The Taskforce remains
committed to supporting clients and counterparties throughout the transition process and will maintain LIBORs funding to matchthe legacy USD LIBOR and other IBOR-lined contracts until they are fully remediated and transitioned in 2023.
Furthermore, the Bank continues to identify and manage significant LIBOR Transition risks (e.g., legal, conduct, accounting andmarket, and operational) and actively monitors progress on remediation on all legacy USD LIBOR-linked contracts and thosefacing tough closures. If some of the legacy USD LIBOR-linked contracts are not transitioned by the first reset date after 30 June
2023, the Bank will continue to use synthetic USD LIBOR (where published by IBA) or other suitable market rates to ensure astable outlook for its banking business post-cessation date. For 2023 therefore, the top priority for the Bank in 2023 is the orderlytransition of legacy USD LIBOR-linked contracts to the SOFR. Accordingly, the Bank will continue its bilateral communication andremediation engagements with clients in an effort to reach closure of all USD LIBOR-linked and other ceasing IBOR transactions
ahead of the June 2023
On financial reporting, the Bank adopted and applied the IASB’s Phase 2 amendments on Interest Rate Benchmark Reform– Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for the year ended 31 December 2021. The Phase 2 amendments
include a practical expedient that allows for changes to the basis for determining contractual cash flows to be treated as achange to a variable or floating rate of interest, if certain conditions are met. The conditions are 1) that the changes to the of thefinancial instruments are as a direct consequence of the interest rate benchmark reform and 2) the new basis for determining thecontractual cash flows would be economically equivalent to the previous basis for determining the contractual cash flows. The
application of the Phase 2 amendments is not expected to significantly impact the financial statements of the Bank.

2

See FCA - CP22/21: Consultation on ‘synthetic’ US dollar LIBOR and feedback to CP22/11: https://www.fca.org.uk/publications/consultation-papers/cp22-21​-synthetic-us-dollar-libor.

65African Development Bank

As at 31 December 2022, the Bank still has sizeable amount of financial assets and financial liabilities including hedging instruments
and contracts that are linked to the USD LIBOR, which are expected to be transitioned to SOFR on the first reset date following
the non-representativeness of USD LIBOR immediately after end of June 2023. Accordingly, the Bank has presented a disclosureon the outstanding legacy USD LIBOR and other IBOR-linked contracts in these financial statements.
Overall, the LIBOR Transition project has progressed effectively to ensure the application of RFRs on a business-as-usual basis. As
such, the Bank is committed to ensuring that all legacy USD LIBOR-linked and other IBOR contracts transition to their appropriate
RFRs on the first reset date following 30 June 2023 USD LIBOR non-representativeness date.
The table below provides a disclosure on USD LIBOR and other IBOR-linked contracts by currency settings and nature of financial
instruments as at 31 December 2022. Non-derivative financial instruments at amortised cost are presented on the basis of theircarrying amounts excluding expected credit losses while derivative financial instruments are presented on the basis of theirnotional amounts. Financial instruments maturing on or before 31 December 2022 were excluded.
(In millions)
USD LIBOREURIBORZAR JIBARGBP LIBOR

JPY LIBOR

CAD LIBOR

IBOR linked contracts by benchmark at 31 December 2022
Financial assets

Loans - Non-Sovereign

2,808

1,061

6,801

-

-

-

Loans - Sovereign Operations

13,594

15,20741,850‑--Total financial assets

16,51916,36848,651

-

‑

‑

50

-

-

-

-

-

Treasury Asset

117

Financial liabilities

Treasury Borrowing

100

‑

-

-

-

50

‑

‑

‑

‑

Derivatives excl. Futures

30,187

15,896

52,770‑7,061

Total derivatives

55,70423,48952,770

-

7,061

1,048

Total IBOR linked contracts

72,27339,857

101,421

-

7,061

1,048

USD LIBOREURIBORZAR JIBARGBP LIBOR

JPY LIBOR

CAD LIBOR

Total financial liabilities

Derivatives

Derivatives - Futures Only

25,517

7,593

‑

-

‑

‑

-

1,048

IBOR linked contracts by benchmark at 31 December 2021
Financial assets

Loans – Non-Sovereign

3,019

1,172

8,625

51,668

667

‑

‑

-

-

-

-

43,043

Total financial assets

22,046

15,681

50-

Financial liabilities

Treasury Borrowing

671

‑

50

‑

‑

Derivatives excl. Futures

40,313

15,04746,050Total derivatives

120,595

18,499Total IBOR linked contracts

142,691

34,180Total financial liabilities

Derivatives

Derivatives – Futures only

66

80,282

3,452

-

-

13,838

5,591

-

-

13,436

Treasury Asset-‑

Loans – Sovereign Operations

667

-

-

‑

‑

‑

6,884

46,050

2,656

6,884

3,301

97,718

3,323

6,884

3,301

‑

2,656

‑

‑

544

2,757

Financial Report 2022

Interest Rate Risk on Assets Funded by Debt

Two thirds of the Bank’s interest-rate-sensitive assets are funded by debt. The Bank seeks to generate a stable net interest margin
on assets funded by debt by matching the interest rate characteristics of each class of assets with those of the corresponding
liabilities.
In 1990, the Bank began offering “variable rate” loans. The interest rate on these loans resets semi-annually based on the average
cost of a dedicated pool of the Bank’s borrowings. These pools are funded with a mix of fixed rate and floating rate borrowings
to provide borrowers with broadly stable interest rates that gradually track changes in market interest rates. The cost of funds
pass- through formulation incorporated in the lending rates charged on the Bank’s pool-based loans has traditionally helped tominimize the interest rate sensitivity of the net interest margin on this part of its loan portfolio. In view of declining demand forthis product in favor of market- based loans, the Bank is carefully managing the gradual winding down of the designated funding
pools.
Since 1997, the Bank offers fixed and floating rate loans whose interest rate is directly linked to market interest rates (marketbased loans). For the market-based loan products, the Bank’s net interest margin is preserved by using swaps to align the interest
rate sensitivity of the loans with that of the Bank’s underlying funding reference (six-month LIBOR floating rate). The Bank may
also provide borrowers with risk management products such as swaps to modify the currency and interest rate terms of its marketbased loan products. Although it retains the credit risks of the borrower, the Bank eliminates the associated market risk on theserisk management products by simultaneously laying off market risks with an approved derivative counterparty.
For the portfolio of liquid assets funded by borrowings, the Bank protects its net interest margin by managing its investments
within limits around benchmarks that replicate the interest rate characteristics of the underlying funding for each portfolio
tranche. The portfolio of liquid assets funded by borrowings is currently divided into two tranches to reflect the different businesspurposes and underlying funding. The core part of the investment portfolio is held to comply with the Bank’s liquidity policy anduses a six-month LIBOR floating rate benchmark. The operational liquidity portfolio is managed to meet projected operational
cash flow needs and uses a one- month LIBOR floating rate benchmark.
The Bank diversifies the sources of its funding by issuing debt in a variety of markets and instruments. Unless fixed rate funding
is required for one of its pool-based loan products, the Bank protects its net interest margin by simultaneously swapping all new
borrowings into floating rate in one of the Bank’s active currencies on a standard nine-month LIBOR rate reference. Where the
Bank issues structured debt, the Bank simultaneously enters into a swap with matching terms to synthetically create the desired
six-month LIBOR-based floating rate funding. For risk management purposes, callable funding is considered as one alternative
to issuing short-term debt such as Euro commercial paper. The Bank manages refinancing risk by: (i) limiting the amount of debt
that will mature or is potentially callable within one year to 25 percent of the outstanding debt portfolio, and (ii) trying to matchthe average maturity of loans priced with a fixed spread with borrowing with similar lifetime.

Interest Rate Risk on Assets Funded by Equity

The second principal source of interest rate risk is the interest rate sensitivity of the income earned from funding a significant
portion of the Bank’s assets with equity resources. These assets are mostly made up of fixed rate loans and investments with anaverage duration of 5 years. Changes in market interest rates in the currencies of the Bank’s equity resources (the SDR) affect the
net interest margin earned on assets funded by equity. In general, lower nominal market interest rates result in lower lending andinvestment rates, which in the long term reduce the nominal earnings on the Bank’s equity resources.
The Bank manages the interest rate profile of the assets funded by equity resources with the objective of reducing the sensitivityof the net interest margin to fluctuations in market interest rates. This is achieved by continuously adjusting the repricing profileof the assets funded by the Bank’s equity resources (fixed rate loans and investments) to match a repricing profile benchmark. The
Bank’s repricing profile benchmark is a 10-year ladder whereby a uniform 10 percent of the Bank’s assets is funded by equity andrepriced in each year. Using this benchmark, the Bank’s net interest margin on assets funded by equity tends to track a 10-year
moving average of 10-year maturity SDR interest rates.
At the end of December 2022, the Bank’s overall repricing profile was closely aligned to the benchmark in almost all annual
buckets.

Net Interest Margin Sensitivity
A parallel upward shift in the SDR curve of 100 bps would have generated a maximum gain in income statement of UA 7.03
million and UA 7.25 million as of 31 December 2022 and 2021, respectively.

67

African Development Bank

Fair Value Sensitivity
Movements in interest rates also have an impact on the values of assets and liabilities that are reported in the financial statements
at FVTPL. The table below shows the effect of a parallel yield curve movement of +/- 1bp of each of the currencies in theinvestment portfolio and the borrowings and derivative portfolios as of 31 December 2022. The market experienced low andnegative interest rates during the year. As such, the sensitivity analysis for 31 December 2022 was computed on the basis of 1bp,
which is the change that was reasonably possible as at the reporting date.
(UA thousands)

Investments at FVTPL
Fair-valued borrowings and derivative

Upward Parallel Shift

Downward Parallel Shift2022
Gain/(Loss)

2021
Gain/(Loss)

2022
Gain/(Loss)

2021
Gain/(Loss)

421

274

(421)

(274)

(2,389)

3,449

2,437

(8,219)Prepayment Risk

In addition to the two principal sources of interest rate risk described above, the Bank is exposed to prepayment risk on loans
committed before 1997 on which the Bank is unable to charge a prepayment penalty. In practice the level of prepayments onsuch loans has generally been within acceptable levels. For all market-based loans issued since 1997, the Bank protects itself fromprepayment risk by linking the prepayment penalty to the cost of redeploying the funds at current market rates. Since 2006, total
annual prepayments on loans particularly those committed prior to 1997 have been declining over the years. Prepayments in theyear ended 31 December 2022 amounted to UA 72.37 million, compared with prepayments of UA 248.59 million realized in 2021,
none of which related to loans committed prior to 1997.

Operational Risk

Like all financial institutions, the Bank is exposed to operational risks arising from its systems, processes, people and external events.
Operational risks include the risks of losses resulting from inadequate or failed internal processes, people, and/or systems, andfrom external events which could have a negative financial or adverse reputational impact. Operational risk is present in virtually all
the Bank’s transactions or activities and includes losses attributable to failures of internal processes in credit and market operations.
The office of the Group Chief Risk Officer has oversight on operational risk activities across the Bank. This includes theimplementation of an Integrated Internal Control Framework (IICF), an Internal Control over Financial Reporting (ICFR) basedon the COSO Framework and an Operational Risk Management Framework (ORMF). The ICFR serves as a means of regularly
evaluating the effectiveness and efficiency of the Bank’s internal controls in all significant business processes with financial
statement impact. As part of this process, Management’s attestation on the adequacy of internal controls over financial reportingis published in the Bank’s Annual Report.
The ORMF which was revised in 2019 ensures a structured and well-coordinated approach to risk identification and assessment,risk mitigation and control as well as risk reporting across the Bank. It also provides the basis for applying an advanced standard
in measuring operational risk capital. Currently, the Bank’s Capital Adequacy and Exposure Management Framework provides
for an operational risk capital charge of 15 percent of the average operating income for the preceding 3 years, in line with BaselII recommendations for operational risk.
It is the primary responsibility of the management of each business unit to implement adequate controls in their respective businessprocesses based on the prevailing institutional standards. Management is required to sign attestation of compliance annually.
Compliance with institutional standards is verified through periodic reviews undertaken by the Office of the Auditor General of
the Bank. The results of internal audit reviews are discussed with the Management of the relevant business unit(s), with summaries
submitted to Senior Management of the Bank and the Audit and Finance Committee of the Board of Directors.
The Bank also has a contingency and business continuity plan which aims to ensure the continuity of its operations and protect
the interests of all the key stakeholders of the Bank Group, namely, the member countries (borrowing and non-borrowing),
bondholders and other creditors as well as employees and their families, in the event of any disturbance in its office locations.
Three key organs in the Bank ensure the oversight and implementation of the plan: (i) the Executive Crisis Committee, chaired by
the President of the Bank, makes the key decisions based on recommendations from the Operations Crisis Committee (OCC); (ii)the OCC, chaired by the Corporate Vice President, closely monitors all developments affecting the Bank and advises on measuresnecessary to mitigate the relevant risks; and (iii) the Business Continuity Plan Unit (TCBC) follows up on the implementation ofdecisions made and is also responsible for periodic tests of the overall business continuity preparedness of the Bank and staff.
Other elements of the Bank’s operational risk management practices include compliance with the Code of conduct and staff
rules, the work of the Integrity and Anti-Corruption Department (PIAC) and the existence of a whistleblower protection policy.

68

Financial Report 2022

NOTE D – Financial Assets and Liabilities
The tables below set out the classification of each class of financial assets and liabilities, and their respective fair values as at 31
December 2022 and 31 December 2021:
Analysis of Financial Assets and Liabilities by Measurement Basis(UA thousands)

Mandatorily
at Fair value

Designatedat Fair Value

Fair Value
through Other
Comprehensive
Income---Demand obligations

-

-

-

1,143

1,143

1,143

Treasury investments

4,691,711‑‑

7,020,916

11,712,627

11,040,754

31 December 2022
Cash

Derivative assets

Financial Assets and Liabilities at FVTPL

Financial Assets
and Liabilities at
Amortized Cost

Total
Carrying
AmountFair Value

2,830,737

2,830,737

2,830,737

924,352--‑

924,352

924,352

Accounts receivable

‑

‑

‑

1,323,224

1,323,224

1,323,224

Loans

‑

‑

‑

20,695,328

20,695,328

20,695,328

Equity participations--

1,043,838‑

1,043,838

1,043,838

Total financial assets

5,616,063-

1,043,838

31,871,348

38,531,249

37,859,376

Accounts payable

-

-

-

1,230,966

1,230,966

1,230,966

Derivative liabilities

2,624,884---

2,624,884

2,624,884‑

24,006,353‑

247,854

24,254,207

23,784,254

2,624,884

24,006,353-

1,478,820

28,110,057

27,640,104

Financial Assets
and Liabilities at
Amortized Cost

Total
Carrying
AmountFair Value

3,303,139

3,303,139

3,303,139

Borrowings
Total financial liabilities(UA thousands)
Financial Assets and Liabilities
through Profit or Loss
31 December 2021
Cash

Mandatorily
at Fair value

Designatedat Fair Value

Fair Value
through Other
Comprehensive
Income---Demand obligations

-

-

-

1,142

1,142

1,142

Treasury investments

3,518,204‑‑

6,275,696

9,793,900

9,734,787

825,944--‑825,944825,944

Accounts receivable

Derivative assets

‑

‑

‑

1,178,229

1,178,229

1,178,229

Loans

‑

‑

‑

20,102,393

20,102,393

20,102,393

Equity participations--

983,204‑

983,204

983,204

Total financial assets

4,344,148‑

983,204

30,860,599

36,187,951

36,128,838

Accounts payable

-

-

-

1,105,924

1,105,924

1,105,924

Derivative liabilities

949,004---

949,004

949,004‑

24,801,331‑

314,374

25,115,705

24,457,627

949,004

24,801,331‑

1,420,298

27,170,633

26,512,555

Borrowings
Total financial liabilities

69

African Development Bank

The table below classifies the Bank’s financial instruments that were carried at fair value at 31 December 2022 and 2021 into threelevels reflecting the relative reliability of the measurement bases, with level 1 as the most reliable.
(UA thousands)

Treasury investments
Derivative assets

Equity participation
Total financial assets

Quoted prices in
active markets for thesame instrument

Valuation techniques
for which all significant
inputs are based on
observable market data

Valuation techniques
for which any significant
input is not based on
observable market data

(Level 1)(Level 2)(Level 3)

Total

2022

2021

2022

2021

2022

2021

2022

2021

3,968,740

2,284,198

720,087644,640

2,884

589,366

4,691,711

3,518,204

28,1096,093

895,869

797,914374

21,937924,352

825,944

8,252

8,487

‑

‑

1,035,586

974,717

1,043,838

983,204

4,005,101

2,298,778

1,615,956

1,442,554

1,038,844

1,586,020

6,659,901

5,327,352‑‑

2,480,571

909,062

144,31339,942

2,624,884

949,004

Derivative liabilities
Borrowings

15,682,987

12,527,671

7,395,362

11,634,719

928,005

638,941

24,006,354

24,801,331

Total financial liabilities

15,682,987

12,527,671

9,875,933

12,543,781

1,072,318

678,883

26,631,238

25,750,335

The Bank’s policy is to recognize transfers out of level 3 as of the date of the event or change in circumstances that caused thetransfer. Investments whose values are based on quoted market prices in active markets, and are therefore classified within
Level 1, include active listed equities, exchange- traded derivatives, US government treasury bills and certain non-US sovereign
obligations. The Bank does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices,dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include
investment-grade corporate bonds and certain non-US sovereign obligations, listed equities, over-the-counter derivatives anda convertible loan. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer
restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available
market information.
Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or do not trade at all.
Instruments in Level 3 include loans to regional member countries, private equity and corporate debt securities including somestructured asset and mortgage-backed instruments. As observable prices are not available for these securities, the Bank has usedvaluation techniques to derive the fair value.
However as noted earlier following the adoption of the expected credit loss model the fair value of loans measured at amortizedcost are deemed to approximate their carry value net of impairment loss while the fair values of some securities are derived
merely for disclosure purposes rather than for reporting on the balance sheet.
The primary products classified at Level 3 are as follows:

Debt Securities – Asset and Mortgage-Backed Securities

Due to the lack of liquidity in the market and the prolonged period of time under which many securities have not traded, obtaining
external prices is not a strong enough measure to determine whether an asset has an observable price or not. Therefore, once
external pricing has been verified, an assessment is made whether each security is traded with significant liquidity based on its
credit rating and sector. If a security is of low credit rating and/or is traded in a less liquid sector, it will be classified as Level 3.
Where third party pricing is not available, the valuation of the security will be estimated from market standard cash flow models
with input parameter assumptions which include prepayment speeds, default rates, discount margins derived from comparable
securities with similar vintage, collateral type, and credit ratings. These securities are also classified as Level 3.

Equity Shares – Private Equity

The fair value of investments in unlisted entities is assessed using appropriate methods, for example, discounted cash flows or
Net Asset Value (NAV). The fair value of the Bank’s equity participations is estimated as the Bank’s percentage ownership of the
net asset value of the investments.

Derivatives

Trading derivatives are classified at Level 3 if there are parameters which are unobservable in the market, such as products where
the performance is linked to more than one underlying. Examples are derivative transactions and derivatives attached to local

70

Financial Report 2022

currency transactions. These unobservable correlation parameters could only be implied from the market, through methods suchas historical analysis and comparison to historical levels or benchmark data.

Reconciliation of Level 3 Fair Value Balances

Reconciliation of fair value balances measured using valuation techniques with no significant input from observable market data
(level 3 hierarchy) between 31 December 2021 and 2022 is as follows:(UA thousands)

Investments
at Fair Value
through Profit
and Loss

Investments
at Fair Value
through Other
Comprehensive
IncomeDerivative
AssetsDerivative
Liabilities

Borrowings

Balance at January 1, 2021

4,646

928,320

84,786(13,293)(740,273)

Gain/(Losses) recognized in income statement

(754)

-

(26,547)

2,032

14,764-(67,430)---

585,346(9,465)(25,759)(9,723)63,284

128

123,292(24,753)(4,748)23,284--

14,210(14,210)-589,366

974,717

21,937(39,942)(638,941)

Balance at January 1, 2022

589,366

974,717

21,937(39,942)(638,941)

Gain/(Losses) recognized in income statement(1,026)-

2,052,375

15,584,775

127,479-(29,363)---(585,648)

58,494

152(31,673)(441,268)

2021

Gains recognized in statement of comprehensive
incomePurchases, issues and settlements (net)
Translation effects
Transfer between assets and liabilities
Balance at 31 December 2021
2022

Gains recognized in statement of comprehensive
incomePurchases, issues and settlements (net)
Reclassification

-

-

‑

‑

3,620

Translation effects

192

31,738(2,092,911)(15,638,652)

21,105--

18,821(18,821)-2,884

1,035,586

374(144,313)(928,005)

Transfer between assets and liabilities
Balance at 31 December 2022

Fair Value Hierarchy – Financial Assets and Financial Liabilities at Amortized Cost

The table below classifies the fair value of the Bank’s financial instruments that were carried at amortized cost at 31 December
2022 and 31 December 2021 into three levels reflecting the observability of inputs in the fair measurements, with level 1 asobservable and level 3 unobservable.
(UA thousands)
Quoted prices in active
markets for the same
instrument

Valuation techniques
for which all significant
inputs are based on
observable market data

Valuation techniques
for which any significant
input is not based on
observable market data

(Level 1)(Level 2)(Level 3)

Total

2022

2021

2022

2021

2022

2021

2022

2021

6,324,523

6,216,583

24,520-‑-6,349,043

6,216,583

‑

‑

‑

‑

20,695,328

19,913,477

20,695,328

19,913,477

6,324,523

6,216,583

24,520-20,695,328

19,913,477

27,044,371

26,130,060

Borrowings‑‑

215,490

298,320

8,166

30,437

223,656

328,757

Total financial liabilities‑‑

215,490

298,320

8,166

30,437

223,656

328,757

Treasury investments
Loans
Total financial assets

71African Development Bank

Quantitative Information about Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

The table below shows the valuation techniques used in the determination of fair values for financial assets within level 3 ofthe measurement hierarchy as well as the key unobservable inputs used in the valuation models. The Bank has determinedthat market participants would use the same inputs in pricing the financial instruments. Management considers that changing
the unobservable inputs described below to reflect other reasonably possible alternative assumptions would not result in asignificant change in the estimated fair value.

Type of Financial Instrument

Inter-relationship between
Key Unobservable Inputs andFair Value Measurement

Valuation Approach

Key Unobservable Input

Treasury investments
Time deposits
Asset-backed securities
Government and agency obligations
Corporate bonds
Financial institutions
Supranational

Discounted cash flow
Comparable pricing

Credit spread
Conditional prepayment rate
Constant default rate
Expected payments profile
following default
Loss-given default yield

Increase in rate
reduces fair value

Loans
Fixed rate
Floating rate

Discounted cash flow

Average cost of capital
Probability of default, loss given default

A high probability of default
results in lower fair value

Derivative assets

Options model

Volatility of credit
Counterparty credit risk
Own credit risk-

Equity participations

Net asset value

Percentage of equity
holdings and net assets

Increase in net asset increases fair value

Derivative liabilities

Discounted cash flow

Volatility of credit spreads-

Borrowings

Consensus pricing

Offered quotes
Own credit-

Significant Unobservable Inputs

Although the Bank believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions
could lead to different fair value results.
The valuation techniques applied with significant unobservable inputs are described briefly below:

Comparable pricing
Comparable pricing refers to the method where valuation is done by calculating an implied yield from the price of a similar
comparable observable instrument. The comparable instrument for a private equity investment is a comparable listed company.
The comparable instrument in case of bonds is a similar comparable but observable bond. This may involve adjusting the yield
to derive a value for the unobservable instrument.

Yield
Yield is the interest rate that is used to discount the future cash-flows in a discounted cash-flow model.

Correlation
Correlation is the measure of how movement in one variable influences the movement in another variable. Credit correlation
generally refers to the factor that describes the relationship between the probability of individual entities to default on obligations
and the joint probability of multiple entities to default on obligations. Similarly, equity correlation is the correlation between
two equity instruments. An interest rate correlation refers to the correlation between two swap rates. Foreign Exchange (FX)
correlation represents the correlation between two different exchange rates.

Liquidity DiscountA liquidity discount is primarily applied to unlisted firms to reflect the fact that these stocks are not actively traded. An increase inliquidity discount in isolation will result in unfavorable movement in the fair value of the unlisted firm.

Volatility
Volatility represents an estimate of how much a particular instrument, parameter or Index will change in value over time. Volatilities
are generally implied from the observed option prices. For certain instruments, volatility may change with strike and maturity
profile of the option.

72

Financial Report 2022

Credit Spreads
Credit spreads represent the additional yield that a market participant would demand for accepting an exposure to the credit riskof an instrument. A change in the assumptions could lead to different fair value results.

Sensitivity Analysis of Valuations of Level 3 Assets and Liabilities Using Unobservable Inputs

For fair value measurements in level 3, changing one or more of the assumptions used would have the following effects:

Investments
The fair value of level 3 investments is sensitive to sources of pricing used. The fair value variance arising from using other sourcesof prices amounted to almost nil. (2021: almost nil).

Borrowing and Derivatives
The table below shows the effect of a parallel yield curve movement of +/- 1 bps of each of the currencies in the level 3 borrowingsand derivative portfolios as of 31 December 2022 and 31 December 2021. The market experienced low and negative interest
rates during the year. As such, the sensitivity analysis for 31 December 2022 was computed on the basis of 1bp, which is thechange that was reasonably possible as at the reporting date.
(UA thousands)

Fair-valued level 3 borrowings and derivative portfolios

Upward Parallel Shift

Downward Parallel Shift

Gain/(Loss)

Gain/(Loss)

2022

2021

2022

2021

(273)

123

327

(4,880)

Unrecognized Day One Gains/Losses

The unamortized balances of day one gain or loss at 31 December 2022 and 31 December 2021 were as follows:(UA thousands)

2022

2021

Balance at 1 January

180,468

196,511

New transactions

55,855

13,569Amounts recognized in income statement during the year

(37,057)(20,920)

Translation effects
Balance(7,836)(8,692)

191,430

180,46873

African Development BankNOTE E – Treasury Investments
As part of its overall portfolio management strategy, the Bank invests in government, agency, supranational, bank and corporate
obligations, time deposits, mortgage and asset-backed securities, funded risk participation program, secured lendingtransactions, resale agreements and related derivative instruments including futures, forward contracts, cross-currency swaps,
interest rate swaps, options and short sales.
For government, agency and supranational obligations with final maturity longer than 1 year and less than 15 years, the Bank
may only invest in obligations with counterparties having a minimum credit rating of AA- or unconditionally guaranteed bygovernments of member countries or other official entities with the same rating criteria.
For maturities beyond 15 years and up to 30 years, a AAA rating is required. For mortgage and asset- backed securities, theBank may only invest in securities with a AAA credit rating. For bank and corporate obligations with final maturity longer than 6months and less than 5 years, the Bank may only invest with counterparties having a minimum credit rating of AA-. AAA rating isrequired for debt obligations beyond 5 years and up to 10 years. The purchases of currency or interest rate options are permitted
only if the life of the option contract does not exceed 1 year. Such transactions are only executed with counterparties with credit
ratings of AA- or above. All derivative transactions, including options, cross-currency and interest rate swaps including asset
swap transactions, are only permitted with approved counterparties or guaranteed by entities with which the Bank has enteredinto Master Derivative Agreements and a Collateral Support Agreement with minimum credit ratings of A-/A3 at the time of thetransaction.
As at 31 December 2022, the Bank had received collateral with fair value of UA 131 million (December 2021: UA 358 million) in
connection with swap agreements. This amount was in the form of cash and has been recorded on the balance sheet with acorresponding liability included in “Other accounts payable”.
The composition of treasury investments as at 31 December 2022 and December 2021 was as follows:(UA thousands)

2022

2021

Treasury investments at amortized cost

7,021,187

6,275,994

Provision for impairment on investments

(271)

(298)

7,020,916

6,275,696

4,691,711

3,518,204

11,712,627

9,793,900

Treasury investments mandatorily measured at FVTPL
Total treasury investments

Treasury Investments at Amortized Cost

A summary of the Bank’s treasury investments at amortized cost at 31 December 2022 and 31 December 2021 was as follows:(UA millions)

US Dollar
Government and Agency obligations
Financial Institutions

Euro

CNY

Other Currencies

All Currencies

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

1,184.92

1,202.89

1,228.03

938.42795.52808.28872.02808.71

4,080.49

3,758.30

10.63

‑

15.36

‑

‑

‑

87.81

94.06

113.8094.06

Supranational

1,635.11

1,269.40

761.51649.7099.75

132.98330.53371.562,826.90

2,423.64

Total

2,830.66

2,472.29

2,004.90

1,588.12

895.27941.26

1,290.36

1,274.33

7,021.19

6,276.00

The nominal value of treasury investments at amortized cost as of 31 December 2022 is UA 6,927.03 million (31 December 2021:
UA 6,099.19 million). The average yield of treasury investments at amortized cost for the year ended 31 December 2021 was 1.61
percent (31 December 2021: 1.59 percent).

74

Financial Report 2022

The contractual maturity structure of treasury investments at amortized cost as at 31 December 2022 and 2021 was as follows:(UA millions)

2022

2021

One year or less

604.71544.07More than one year but less than two years

647.46602.63More than two years but less than three years

659.83654.86More than three years but less than four years

661.09666.30More than four years but less than five years

732.50628.47More than five years

3,715.60

3,179.67

Total

7,021.19

6,276.00

The fair value of treasury investments at amortized cost as of 31 December 2022 was UA 6,348.18 million (31 December 2021: UA
6,209.18 million).

Treasury Investments mandatorily measured at FVTPL

A summary of the Bank’s treasury investments at FVTPL at 31 December 2022 and 31 December 2021 were as follows:(UA millions)

US Dollar
Time deposits
Asset-backed securities
Government and Agency obligations
Corporate bonds
Financial Institutions
Supranational
Total

Euro

CNY

Other Currencies

All Currencies

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

117.65226.38191.96‑‑‑158.0494.02

467.65320.40

2.88

3.83

‑

‑

‑

‑

‑

‑

2.88

3.83

2,801.36

1,933.76

263.46212.05

63.42

39.37

‑

17.37

3,128.24

2,202.55

‑

0.01

‑

46.40

‑

‑

‑

‑

‑

46.41

610.88462.52183.87188.02

‑

‑

‑

19.24

794.75669.78274.29267.08

7.79

8.15

16.16

‑

‑

‑

298.24275.233,807.06

2,893.58

647.08454.62

79.58

39.37

158.04130.63

4,691.76

3,518.20

The nominal value of treasury investments mandatorily measured at FVTPL as of 31 December 2022 was UA 4,774.76 million (31December 2021: UA 3,498.47 million). The average yield of treasury investments mandatorily measured at FVTPL for the year
ended 31 December 2022 was 1.72 percent (31 December 2021: 0.47 percent).
The contractual maturity structure of treasury investments mandatorily measured at FVTPL as of 31 December 2022 and 31
December 2021 were as follows:(UA millions)

2022

2021

2,808.27

2,367.61

More than one year but less than two years

684.79345.97More than two years but less than three years

979.38761.11More than three years but less than four years

95.41

39.70

More than four years but less than five years

121.04‑

One year or lessMore than five years
Total

2.87

3.81

4,691.76

3,518.20

75

African Development BankNOTE F – Derivative Assets and Liabilities
The fair value of derivative financial assets and financial liabilities as at 31 December 2022 and 31 December 2021 were as follows:(UA thousands)

2021

2022
AssetsLiabilities

AssetsLiabilities

Cross-currency swaps

492,543

1,466,176

550,495

735,617

Interest rate swaps

8,875

1,141,338

237,772

120,721394,825

9,133

31,57392,666896,2432,616,647

819,840

949,004

‑

8,237

11

-

28,109

-

6,093

-

28,109

8,237

6,104

-

924,352

2,624,884

825,944

949,004

Borrowings-related:

Loan swaps
Investments-related:
Asset swaps
Macro-hedge swaps and others
Total

The notional amounts of derivative financial assets and liabilities as at 31 December 2022 and 31 December 2021 were follows:(UA thousands)

2022

2021

Cross-currency swaps

11,613,895

12,755,504

Interest rate swaps

20,751,331

18,975,310

Loan swaps

2,991,843

3,043,000

35,357,069

34,773,814

161,782

1,327

161,782

1,327

35,518,851

34,775,141

Borrowings-related:

Investments-related:
Asset swaps
Total

Loan Swaps

The Bank has entered into interest rate swaps to effectively convert fixed rate income on loans in certain currencies into variable
rate income.

Futures Contracts

The Bank has entered into futures contracts to hedge fixed interest rate bonds against interest rate variations. As at 31 December
2022, the Bank had futures with a notional value of Euro 3,833 million (UA 3,059 million) (2021: Euro 1,211 million, UA 979 million)
and USD 18,637 million (UA 14,004 million) (2021: USD 14,076 million, UA 10,057 million). The carrying values of the Euro and
US dollars futures was a negative market value of Euro 17.78 million (UA 14.19 million) (2021: positive Euro 0.83 million, UA 0.67
million) and USD 14.51 million (UA 10.90 million) (2021: negative USD 1.13 million, UA 0.81 million) respectively.

Forward Exchange Transactions to Hedge

To insulate the Bank from possible significant increases in administrative expenses that could arise from an appreciation of theprincipal currencies of administrative expenditure (i.e., EUR, GBP, CFA Franc and USD vis-à-vis the UA), the Bank executes forward
exchange transactions to economically hedge its administrative expenses. As at 31 December 2022 there were no open positions
with respect to forward exchange transactions.

Hedge Accounting

The Bank applies fair value hedge accounting to interest rate swaps contracted to hedge its interest rate risk exposure associatedto fixed rate loans. Changes in the fair value of the derivative hedging instruments are recognized in profit or loss. The hedged76

Financial Report 2022

item is adjusted to reflect changes in its fair value in respect of the risk being hedged with the gain or loss attributable to thehedged risk being recognized in profit or loss.
The fair value of the loan swaps designated and effective as hedging instruments as at 31 December 2022 was a liability of UA
385.07 million (December 2021: UA 63.72 million). The fair value gain on these loan swaps for the year ended 31 December 2022
was UA 448.01 million (December 2021: UA 111.28 million). The fair value loss on the hedged loans attributable to the hedged risk
was UA 445.83 million (December 2021: UA 111.75 million). Therefore, the hedge effectiveness recognized in profit or loss was again of UA 2.18 million (December 2021: loss of UA 0.47 million).
Hedge accounting treatment for swaps at the designation date requires the amortization of the difference between the net
carrying amount of loans and their fair value from inception. For the year ended December 2022, the amortization of fair value
adjustment on the hedged risk amounted to UA 2.15 million (December 2021: UA 2.42 million).

NOTE G – Loans and Guarantees
Loans

The Bank’s loan portfolio comprises loans granted to or guaranteed by borrowing member countries as well as certain other nonsovereign-guaranteed loans. Amounts disbursed on loans are repayable in the currency or currencies disbursed by the Bank or inother freely convertible currency or currencies approved by the Bank. The amount repayable in each of these currencies shall beequal to the amount disbursed in the original currency. Loans are granted for a maximum period of twenty years, including a grace
period, which is typically the period of project implementation. Loans are for the purpose of financing development projects andprograms and are not intended for sale. Furthermore, management does not believe there is a comparable secondary market
for the type of loans made by the Bank.
The types of loans currently held by the Bank and the terms applicable are described below:
Loan Portfolio: The Bank’s loan portfolio is currently made up of three primary types of loans based on the financial terms:
fixed rate, floating rate and variable rate loans. Fixed rate and variable rate loans have both multicurrency and single currency
terms – that is, they are offered in multi-currencies or in a single currency. While floating rate loans only bear single currency
terms.
Other Loans: The Bank also offers parallel co-financing and A/B loan syndications. Through syndications the Bank is able
to mobilize co-financing by transferring some or all of the risks associated with its loans and guarantees to other financing
partners. Thus, syndications decrease and diversify the risk profile of the Bank’s financing portfolio. Syndications may beon a funded or unfunded basis and may be arranged on an individual, portfolio, or any other basis consistent with industry
practices.
The Bank also offers its RMCs local currency loans if the Bank is able to fund efficiently in the local currency market. The local
currency loans are offered under the fixed spread loan pricing framework with a “cost-pass-through” principle to ensure that theoverall cost of funds is compensated.
At 31 December 2022 and 31 December 2021, outstanding loans were as follows:(UA thousands)
Outstanding balance of loans – Gross
Provision for impairment
Total Outstanding Loans at 31 December

2022

2021

21,427,591

20,661,961(732,263)(559,568)

20,695,328

20,102,393

77

African Development BankClassification of Loans

At 31 December 2022 and 2021, the carrying values of net outstanding loans were as follows:(UA thousands)

2021

2022
Loans at amortized cost
Fixed rate loans

3,531,620

3,617,010

Floating rate loans

17,751,837

16,907,897

Variable rate loans

144,134

137,054

21,427,591

20,661,961(732,263)(559,568)

20,695,328

20,102,393

Gross Loans
Provision for impairment
Total Outstanding Loans at 31 December

The Bank is exposed to a loan that is measured at FVTPL due to the existence of a conversion option in the loan that could
potentially change the future cash flows to no longer represent solely payments of principal and interest as required by IFRS 9.
Accordingly, the fair value of this loan, and similar loans, is determined using the expected cash flows model with inputs includinginterest rates and the borrower’s credit spread estimated based on the Bank’s internal rating methodology for non- sovereignloans. During the year, the fair value of the loan was determined as zero due to changes in the key valuation inputs. Subsequentchanges in the key valuation inputs would lead to impairment gains that would be recognized in the income statement.

Maturity and Currency Composition of Outstanding Loans

The contractual maturity structure of total outstanding loans (on gross basis) as at 31 December 2022 and 31 December 2021 was
as follows:(UA millions)

2021

2022
Periods

Fixed Rate

Floating Rate

Variable Rate

Total

Total

One year or less431.591,489.80

144.13

2,065.53

2,098.69

More than one year but less than two years

309.53

1,417.69-

1,727.22

1,670.11

More than two years but less than three years

310.47

1,558.66-

1,869.12

1,693.84

More than three years but less than four years

326.57

1,456.60-

1,783.18

1,734.64

More than four years but less than five years

275.491,441.85-

1,717.34

1,683.61

More than five years

1,877.97

10,387.23-

12,265.20

11,781.07

Gross Outstanding Loans

3,531.62

17,751.83

144.13

21,427.59

20,661.96

78

Financial Report 2022

Borrowers may repay loans before their contractual maturity, subject to the terms specified in the loan agreements. The currencycomposition and types of outstanding loans (on gross basis) as at 31 December 2022 and 31 December 2021 were as follows:(UA millions)

2021

2022
AmountFixed Rate:

Multi-Currency‑‑

Japanese Yen‑‑

Pound Sterling‑‑

Swiss Franc

‑

‑

61.56

58.54

61.56
Euro
Japanese Yen

1,411.28-‑

South African Rand

21.81

27.74

497.45546.79Others

9.42

9.54

Euro
South African Rand
Euro

1,563.12-‑

219.89

‑

0.16

0.53

Japanese Yen

13.37

43.49

South African Rand

982.991,033.87

5,377.91

4,841.30‑

8,967.01

4,696.81

3,895.99

US Dollar

2,938.04

3,138.99

656.70905.91

8,291.55
US Dollar

%

0.28

9.66

7.57

0.31
44.15

Euro
South African Rand

Gross Outstanding Loans

1,563.12

Pound Sterling

9,460.29

Multi-Currency

8.15

3,047.51

OthersVariable Rate:

1,995.35

3,085.86

US Dollar

Structured Products

8.05

1,525.75

1,745.64
Single Currency

58.54

US Dollar

US Dollar

Floating Rate:

0.29

1,195.74

1,724.42
Structured Products

AmountEuro

US Dollar
Single Currency

%

38.70

144.13

7,940.89

43.40

38.43

137.05144.130.67

137.050.66

21,427.59

100

20,661.96

100.0079African Development Bank

The weighted average yield on outstanding loans (on gross basis) for the year ended 31 December 2022 was 0.68 percent (31December 2021: 1.56 percent).
A comparative summary of the currency composition of outstanding loans at 31 December 2022 and 31 December 2021 were as
follows:(UA millions)

2021

2022
Euro
Japanese Yen
Pound Sterling

Amount%Amount%10,504.16

49.02

9,917.90

48.00

13.37

0.06

43.49

0.21

0.17

-

0.52

-

South African Rand

1,881.38

8.78

1,967.51

9.52

US Dollar

9,019.09

42.09

8,722.69

42.22

9.42

0.04

9.85

0.05

21,427.59

100.0020,661.96

100.00

OthersGross Outstanding Loans

Accounts Receivable

Accrued Income and Charges Receivable on Loans including Other Accounts Receivable
The accrued income and charges receivable on loans as at 31 December 2022 and 31 December 2021 were as follows:(UA thousands)

2022

2021

Accrued income and charges receivable on loans

723,129

520,416

Provision for impairment(221,419)(297,097)

Total loan receivable

501,710

223,319

Other accounts receivable

821,514954,910

Total Accounts Receivable

1,323,224

1,178,229

Provision for Impairment on Loan Principal and Charges Receivable

At 31 December 2022, outstanding loans with an aggregate principal balance of UA 704.94 million (31 December 2021: UA 679.04
million), of which UA 234.31 million (31 December 2021: UA 223.48 million) was overdue, and were considered to be impaired.
The gross amounts of loans and charges receivable that were impaired and their cumulative impairment at 31 December 2022
and 31 December 2021 were as follows:(UA thousands)

2022

2021

Outstanding balance on impaired loans

704,941

679,046

Provision for impairment (Stage 3 only)(460,098)(433,210)

Net balance on impaired loans

244,843

245,83680

Financial Report 2022

The movements in the accumulated provision for impairment on outstanding loan principal for the year ended 31 December
2022 and 31 December 2021 were as follows:(UA thousands)

2022

2021

Balance as at 1 January559,568

497,413

Provision for impairment on loan principal for the year (net)

172,695

62,047

Translation effects
Net balance‑

108732,263559,568

Accumulated provisions for impairment on outstanding loan principal included the provisions relating to public and private
sector loans. During the year ended 31 December 2022, provisions for impairment made on private sector loans amounted to
UA 42.80 million compared with UA 88.72 million for the year ended 31 December 2021. The accumulated provisions on private
sector loans at 31 December 2022 amounted to UA 463.48 million compared to UA 420.69 million at 31 December 2021.
The movements in the accumulated provision for impairment on loan interest and charges receivable for the year ended 31
December 2022 and 31 December 2021 were as follows:(UA thousands)

2022

2021

Balance at 1 January

297,097334,283

Write-back on impairment on loan charges for the year (net)(75,678)(37,078)

Translation effects
Net Balance

‑

(108)

221,419

297,097

Accumulated provisions for impairment on loan interest and charges receivable included the provisions relating to public andprivate sector loans. During the year ended 31 December 2022, a provision for impairment was made on interest and charges
receivable on private sector loans in the amount of UA 19.80 million (31 December 2021: UA 19.86 million). The accumulated
provision on interest and charges receivable on private sector loans at 31 December 2022 amounted to UA 78.47 million (31December 2021: UA 58.66 million).

Guarantees

The Bank may enter into special irrevocable commitments to pay amounts to borrowers or other parties for goods and services
to be financed under loan agreements. At 31 December 2022, outstanding irrevocable reimbursement guarantees issued by the
Bank to commercial banks on undisbursed loans amounted to UA 12.08 million (31 December 2021: UA 19.12 million).
Also, the Bank provides trade finance and repayment guarantees to entities within its regional member countries for development
loans granted to such entities by third parties. Guarantees represent potential risk to the Bank if the payments guaranteed foran entity are not made. Trade finance and repayment guarantees provided by the Bank outstanding at 31 December 2022
amounted to UA 159.44 million (31 December 2021: UA 537.9 million).
The accumulated ECL calculated on the trade finance guarantees issued by the Bank as at 31 December 2022 was UA 0.50 million(31 December 2021: UA 1.38 million).
Other than the guarantees above issued to other entities, the Bank in 2015 entered into guarantee contracts referred to as EEAs,
covering certain of its loans whereby it gives as well as receives compensation in case there is a default in any of the specified
loans.
In addition to EEAs, since 2018, the Bank has entered into Balance Sheet Optimization (BSO) transactions which are expected torelease risk capital and create additional lending headroom. These transactions involve credit insurance, credit enhancement andsynthetic securitization. Like the EEAs, these transactions are accounted for as financial guarantees. The details of BSO initiatives
are provided in Note C.
The Bank has purchased credit enhancement facilities from the PSF for some of its non-sovereign loans. As at 31 December 2022,
the maximum coverage amounts of non-sovereign loans by PSF amounted to UA 266.48 million (31 December 2021: UA 475.66
million).
The total cost of BSO coverage for the year ended 31 December 2022 was UA 18.83 million (31 December 2021: UA 16.27 million).

81

African Development BankNOTE H – Equity Participations
Investment in ADF

The ADF was established in 1972 as an international institution to assist the Bank in contributing to the economic and social
development of African countries, to promote cooperation and increase international trade particularly among the Africancountries, and to provide financing on highly concessional terms for such purposes. The Fund’s original subscriptions were
provided by the Bank and the original State Participants to the ADF Agreement, and State Participants acceding to the Agreement
since the original signing date. Thereafter, further subscriptions were received from participants in the form of Special General
Increases and General Replenishments.
The ADF has a 14-member Board of Directors, made up of 7 members selected by the African Development Bank and 7 members
selected by State Participants. The Fund’s Board of Directors reports to the Board of Governors made up of representatives of theState Participants and the ADB. The President of the Bank is the ex-officio President of the Fund.
To carry out its functions, the Fund utilizes the offices, staff, organization, services and facilities of the Bank, for which it pays ashare of the administrative expenses. The share of administrative expenses paid by the Fund to the Bank is calculated annuallyon the basis of a cost-sharing formula, approved by the Board of Directors, which is driven primarily by the staff time spent on
individual entity’s work program deliverables. Based on the cost-sharing formula, the share of administrative expenses incurredby ADF for the year end 31 December 2022 amounted to UA 246.21 million (31 December 2021: UA 218.56 million), representing
50.98 percent (December 2021: 51.29 percent) of the shareable administrative expenses incurred by the Bank. The accounts of
the ADF are kept separate and distinct from those of the Bank.
Although the ADB by agreement exercises 50 percent of the voting powers in the ADF, the Agreement establishing the ADF
also provides that in the event of termination of the ADF’s operations, the assets of the Fund shall be distributed pro-rata to its
participants in proportion to the amounts paid-in by them on account of their subscriptions, after settlement of any outstanding
claims against the participants. At 31 December 2022, the Bank’s pro-rata or economic share in ADF was 0.34 percent (31December 2021: 0.36 percent).
Notwithstanding the exercise of 50 percent voting power in the Fund by the Bank, the conditions for control under IFRS 10
Consolidated Financial Statements are not met since the Bank does not have absolute voting interest to control ADF, rights tovariable returns from its relationship with ADF and its economic interest in the Fund is less than 1 percent. Consequently, theFund was not consolidated in the Bank’s Financial Statements.
As a result of the implementation in 2006 of the Multilateral Debt Relief Initiative (MDRI), the net asset value of ADF which isthe basis for determining the value of the Bank’s investment in the Fund declined, resulting in impairment loss on the Bank’s
investment. The net assets of ADF is made up of its net development resources less outstanding demand obligations plus
disbursed and outstanding loans excluding balances due from countries that have reached their Heavily Indebted Poor Countries(HIPC) completion points and, are therefore due for MDRI loan cancelation at the balance sheet date.

Other Equity Participations

The Bank may take equity positions in privately owned productive enterprises and financial intermediaries, public sector
companies that are in the process of being privatized or regional and sub regional institutions. The Bank’s objective in such equity
investments is to promote the economic development of its Regional Member Countries and, in particular, the development of
their private sectors. The Bank’s equity participation is also intended to promote efficient use of resources, promoting African
participation, playing a catalytic role in attracting other investors and lenders and mobilizing the flow of domestic and external
resources to financially viable projects, which also have significant economic merit.
Unless otherwise approved by the Board of Directors, the Bank’s equity participation shall not exceed 25 percent of the equity
capital of the entity in which it invests. The Bank does not seek a controlling interest in the companies in which it invests, butclosely monitors its equity investments through Board representation. In accordance with the Board of Governors’ Resolution B/
BG/2009/10 of 13 May 2009, total equity investment by the Bank shall not at any time exceed 15 percent of the aggregate amountof the Bank’s paid-in capital and reserves and surplus (risk capital) included in its ordinary capital resources.
Under IFRS 9, equity investments must be measured at fair value through profit or loss. However, where the equity investment is
not held for trading, an entity has the option to take fair value changes into Other Comprehensive Income (OCI), with no recyclingof the change in fair value to profit or loss if the investment is subsequently derecognized. As the Bank’s equity investments are
currently held for strategic purposes of enhancing development in Regional Member Countries rather than for trading, the Bank
has opted to designate all its equity investments as at FVOCI.
The Bank’s equity interests at the end of 2022 and 31 December 2021 are summarized below:

82

Financial Report 2022

(UA thousands)
Institutions

Investment in ADF
Accumulated share of profit/ (loss) & impairment on 1 January
Share of losses on equity accounted investments for the year
Write-back/(Impairment) for the year

Year Established

Callable capital

1972

Carrying Value
2022

2021

111,741(52,383)
(101)
1,531
60,788111,741(51,878)
(241)
(264)
59,358

DIRECT INVESTMENTS
Development Finance Institutions
Africa Finance Corporation (AFC)Africa Prudential PLC
Africa50 - Project Development
Africa50 - Project Finance
African Export and Import Bank (AFREXIM)
African Guarantee Fund (AGF)
Afriland Properties PLC
Central African Development Bank (BDEAC)
Development Bank of Nigeria
East African Development Bank (EADB)
Eastern and Southern African Trade and Development Bank (PTA)
Great Lakes Development Bank (BDEGL)
Shelter Afrique (SHAF)
United Capital PLC
West African Development Bank (BOAD)

2019
2015
2016
2015
1993
2011
2015
1975
2018
1967
1985
1980
1982
2015
1973

Commercial Banks
United Bank for Africa

‑
‑
8,144
18,773
20,384‑‑
2,190‑
10,51956,506
1,000
‑
‑
5,475
122,991

42,246156
2,231
57,10990,603
14,39135
2,230
45,42018,327
110,568
3,387
7,776
1,471
6,291
402,241

36,983
172
3,124
53,29688,290
9,783
32
2,235
59,983
17,579101,073
2,995
7,394
1,074
6,162
390,175

1961

Microfinance Institutions
AB Microfinance Bank Nigeria Limited
Access Bank Liberia Limited
Access Bank Tanzania Limited
Advans Banque Congo
MicroCred Côte d’Ivoire S.A.

‑
‑

6,590
6,590

7,208
7,208

2007
2008
2007
2008
2013

Insurance
Africa Trade Insurance Agency
Africa-Re
CICA-RE
Eastern and Southern African Reinsurance Company (ZEP-RE)

‑
‑
5
‑
‑
5

1,299
1,001
102
‑
‑
2,402

1,174
951
111
‑
‑
2,236

2013
1977
2022
2011

Real Sectors Companies
Kukuza Project Development Company

‑
‑
2
‑
2

18,77663,0207,980
28,096
117,872

14,817
61,113‑25,041
100,971

2017

TOTAL DIRECT INVESTMENTS
FUNDS
AdiwaleADP III
AFIG Fund II LP
Africa Capital Works Holdings
Africa Capitalization Fund (ACF)
Africa Forestry Fund II Limited
Africa Health Fund LLC
Africa Joint Investment Fund (AJIF - CITADEL)
Africa Renewable Energy Fund L.P
African Agriculture Fund LLC (AAF)
African Domestic Bond FundAfrican Infrastructure Investment Fund 2 (AIIF2)
African Infrastructure Investment Fund 2 (AIIF3)
AfricInvest FIVE
AfricInvest Fund 2 (AFRICINVEST2)AfricInvest Fund 3 (AFRICINVEST3)
AFS LP
Agri-Vie Fund (AGRIVIE)
AIF
Alitheia IDF FundAPIS Growth FundArch African Renewable Power Fund LP(ARPF)
ARCH Cold Chain Solutions East Africa F
Argan Infrastructure Fund (ARGAN)
Arm-Harith Infrastructure Investments Limited
Atlantic Coast Regional Fund (ACRF)
Aureos Africa Fund (AUREOS)
Azur Innovation Fund
BOOST PAF I
Business Partners International Southern Africa SME Fund
Carlyle Sub-Saharan Africa Fund (CSSAF)
Catalyst Fund (CATALYST)
Catalyst II
Cathay Africinvest Innovation Fund LLC
Cauris Croissance II Fund
Construction Equity Fund (CEF)
ECP Africa Fund 4 (ECP4)
ECP Africa Fund 2 (ECP2)
ECP Africa Fund 3 (ECP3)
Eight Miles LLP
Enko Africa Private Equity Fund
Evolution Fund II (Mauritius) LP
Evolution One Fund (EVOLUTION ONE)FEI-OGEF LPFEI Ongrid
Fund for Agricultural Finance in Nigeria (FAFIN)GEF Africa Sustainable Forestry Fund (GEF)
GroFin Africa Fund (GROFIN)
Helios Investors II Fund (HELIOS2)
I & P Afrique Entrepreneurs
I & P AFRIQUE ENTREPRENEURS
Investment Fund for Health in Africa (IFHA)IPDEV II
Janngo Start Up Fund Senior
Kibo Fund II
Maghreb Private Equity Fund 3 (MPEF4)
Maghreb Private Equity Fund 2 (MPEF2)
Maghreb Private Equity Fund 3 (MPEF3)
MEDITERRANIA CAPITAL FUND III
Metier Sustainable Capital International Fund II L
Moringa Mauritius Africa
Nigeria Infrastructure Debt FundPan African Housing Fund (PAHF)
Pan African Infrastructure Development Fund 1 (PAIDF1)
Pan African Infrastructure Development Fund 2 (PAIDF2)
PHATISA
Shore Capital Fund III
TIDE AFRICA LP FUND
VERODWest Africa Emerging Markets Fund (WAEMF)
TOTAL FUNDSTOTAL DIRECT INVESTMENT AND FUNDSGRAND TOTAL

2019
2020
2016
2018
2010
2020
2009
2010
2014
2010
2018
2009
2019
2019
2008
2016
2018
2008
2019
2020
2017
2019
2022
2010
2015
2008
2007
2020
2019
2014
2012
2010
2018
2022
2012
2019
2017
2005
2008
2012
2014
2018
2010
2019
2020
2017
2011
2008
2011
2012
2020
2010
2018
2022
2014
2019
2008
2012
2017
2020
2016
2020
2013
2007
2014
2018
2018
2017
2019
2011

3,006

‑

‑

126,005

529,105

500,590

6,417
17,137
2,469
5,954
‑
9,620
2,290
261
‑
552
9,017
1,997
266
2,956
130
1,152
2,422
‑
2,971
4,926
3,256
9,330
4,485
1,653
130
2,745
3,212
1,590
849
1,142
737
4
1,025
3,423
915
13,881
2,439
3,571
‑
‑
2,490
4,792
56
2,289
22,898
363
543
2,080
259
391
2,645
389
1,282
5,227
‑
2,691
21
673
959
8,925
1,489
4
975
‑
16,580
2,130
4,521
‑
5,695
266
218,804
341,564
341,564

2,749
2,716
9,739
5,826
‑
4,256
251
‑
18,911
3,345
8,975
6,672
23,695
8,169
331
9,541
7,640
2,353
10,564
4,243
21,908
8,710
2,220
4,644
8,687
2,698
455
510
11,356
1,272
38,113
1,101
2,161
2,028
904
12,19016,228
1,984
19,328
4,437
2,724
9,125
174
5,520
3,869
4,497
4,741
32
9,557
2,943
2,304
859
1,806
263
9,527
14,123
1,521
8,636
10,026
5,069
2,508
6,819
688
23,654
3,962
3,582
5,329
11,9144,289
2,974
453,945
983,050
1,043,838

1,352
1,041
14,196
2,415
2,354
917
‑
21,5894,815
5,943
13,01926,7298,225
2,180
12,376
6,665
2,039
4,444
1,321
13,893
6,538
‑
5,477
2,882
2,747
724
280
7,920
1,043
34,173
1,978
2,082
1,213
7,534
11,6042,429
26,497
2,525
4,550
8,760
160
2,728
1,445
3,765
8,135
79
21,649
2,732
1,410
1,495
1,301
9,203
9,880
1,537
6,052
8,765
2,605
3,169
7,025
1,285
31,457
4,378
56
2,602
7,062
3,858
2,950
423,256
923,846
983,204

The cost of equity investments (excluding ADF) carried at fair value at 31 December 2022 amounted to UA 816.14 million (2021: UA 739.9 million).

83

African Development Bank

Note I – Property, equipment and intangible assets(UA thousands)
RoU Assets
Building
and Equipment
Improve& Motor
ments
VehiclesLand

CapitalWork in
Progress

Building
andImprovements

917

5,359

100,678

44,816‑(1,582)

1,088

Additions during the year

251

2,130

Disposals during the year‑‑

Balance at December 31

1,168

Balance at January 1

2022

Furniture,
Total
Fixtures & Property &Fittings Equipment

Property,
Equipment
Computer & Intangible
SoftwareAssets102,626

20,488274,884

42,962

317,846

‑

494

‑

-

-

‑

700

13,004

3,090

421

19,596

5,196

24,792

‑

‑

(700)

(74)

(774)

‑

(774)

5,907

102,466

57,820105,510

20,835

293,706

48,158341,864‑‑

52,49834,48384,656

18,497

190,134

39,282

229,416

Cost:
Balance at January 1
Transfer

Accumulated Depreciation:
Depreciation during the year

‑

‑

6,631

9,084

8,000

711

24,426

4,665

29,091

Disposals during the year

‑

‑

-

-

(690)

(74)

(764)

‑

(764)

Balance at December 31‑‑

59,12943,56791,966

19,134

213,796

43,947257,743

1,168

5,907

43,337

14,253

13,544

1,701

79,9104,211

84,121Land

CapitalWork in
Progress

Building
andImprovements

RoU Assets
Building
and Equipment
Improve& Motor
ments
Vehicles

852

3,693

100,248

35,634

Transfer‑(1,632)‑

Additions during the year

65

3,298

430

NBV: December 31(UA thousands)

2021

Furniture,
Total
Fixtures & Property &Fittings Equipment

Property,
Equipment
Computer & Intangible
SoftwareAssets101,089

19,715261,231

41,457

302,688

‑

1,632

‑

‑

‑

‑

9,182

1,320

1,139

15,434

1,505

16,939

Cost:
Balance at January 1

Disposals during the year

‑

‑

‑

‑

(1,415)(366)(1,781)‑(1,781)

Balance at December 31

917

5,359

100,678

44,816102,626

20,488274,884

42,962

317,846

Balance at January 1‑‑

45,815

21,54478,03018,214

163,603

34,831

198,434

Depreciation during the year

‑

‑

6,683

12,9398,027

648

28,297

4,451

32,748

Disposals during the year

‑

‑

‑

‑

(1,401)(365)(1,766)‑(1,766)

Accumulated Depreciation:

Balance at December 31
NBV: December 31‑‑

52,49834,48384,656

18,497

190,134

39,282

229,416

917

5,359

48,18010,333

17,9701,991

84,7503,680

88,430Gains on Disposal of Property and Equipment(UA thousands)

2022

2021

Cost (See Note I)

774

1,781

Accumulated depreciation (See Note I)(764)(1,766)

Net book value

10

15

Sales proceeds

49

40

Gains on Disposal of Property and Equipment (Note M)

39

25

84

Financial Report 2022

Set out below, are the carrying amounts of the Banks right-of-use assets and lease liabilities and the movements during the year:(UA thousands)
As at 1 January 2021
Additions
Depreciation expense

Right of Use Asset

Lease Liabilities

9,182

10,134

14,09013,741(12,939)

Payments(14,528)

As at 31 December 2021

10,333

9,347

Additions

13,004

13,127

Depreciation expense(9,084)--(8,589)14,253

13,885

Payments
As at 31 December 2022

NOTE J – Borrowings
As at 31 December 2022 and 31 December 2021, the Bank’s borrowings were as follows:(UA millions)
Borrowings at fair value
Borrowings at amortized cost
Total

2022

2021

24,006.35

24,801.33

247.85314.37

24,254.20

25,115.70

The Bank’s borrowings as at 31 December 2022 included subordinated borrowings in the amount of UA 7.51 million (31 December
2021: UA 78.50 million).
The capital adequacy framework approved by the Board of Directors adopted the use of a single debt to usable capital ratio
to monitor the Bank’s leverage. The ratio caps the Bank’s total outstanding debt at 100 percent of usable capital. Usable capitalcomprises the equity of the Bank and the callable capital of its non-borrowing members rated A- or better. The Bank’s usable
capital at 31 December 2022 was 60.18 billion (31 December 2021: UA 58.83 billion).
The Bank uses derivatives in its borrowing and liability management activities to take advantage of cost-saving opportunities andto lower its funding costs. Certain long-term borrowing agreements contain provisions that allow redemption at the option of theholder at specified dates prior to maturity.
Such borrowings are reflected in the tables on the maturity structure of borrowings using the put dates, rather than the contractual
maturities. Management believes, however, that a portion of such borrowings may remain outstanding beyond their earliest
indicated redemption dates.
The Bank has entered into cross-currency swap agreements with major international banks through which proceeds fromborrowings are converted into a different currency and include a forward exchange contract providing for the future exchange ofthe two currencies in order to recover the currency converted. The Bank has also entered into interest rate swaps, which transforma floating rate payment obligation in a particular currency into a fixed rate payment obligation or vice-versa.

85African Development Bank

A summary of the Bank’s borrowings portfolio at 31 December 2022 and 2021 was as follows:
Borrowings and Swaps at 31 December 2022
(Amounts in UA millions)
Direct Borrowings

Currency

Euro

Rate Type

Carried at
Fair Value

Weighted.
AverageCost(b)(%)

Weighted
AverageMaturity(Years)AmountPayable/(Receivable)

Wgtd.
AverageCost(b)(%)

AverageMaturity(Years)

Notional
AmountPayable/(Receivable)

Weighted
Average
Cost (b)(%)

AverageMaturity(Years)Fixed

5,719.15

‑

0.81

4.46

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

(46.11)

1.58

35.29

6,136.19

0.81

4.29

‑

‑

‑

‑

(3,933.86)

0.69

2.73

(6,136.19)

0.71

4.29

‑

‑

‑

‑

137.98

1.11

1.96

‑

‑

‑

1,568.49

‑

0.91

2.74

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

1,722.90

0.90

2.75

-

-

-

‑

‑

‑

‑

‑

‑

‑

-

-

-

Adjustable

Adjustable
Fixed

Japanese Yen

Adjustable
Fixed

US Dollar

Adjustable
Fixed

Others(d)Adjustable
Fixed

Total

Adjustable

Principal at face value
Net unamortizedpremium/DiscountFair valuation adjustment
Total

Interest Rate Swaps

Carried at
Amortized
Cost

Fixed
GBP

Currency Swap Agreements (a)

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

822.08

55.38

0.63

29.46

‑

‑

-

‑

‑

‑

‑

‑

‑

‑

886.36

0.67

30.77

‑

‑

‑

283.45

‑

3.81

2.52

(19.04)(0.56)

4.59(12.46)(0.26)

2.34

-

‑

‑

‑

149.30

1.63

2.30

12.46

0.82

19.48

10,884.91

157.80

2.19

2.32

‑

‑

-

‑

‑

-

-

‑

‑

‑

204.845.20

1.97

11,276.25

2.02

2.40

158.64

‑

3.82

1.51

(6,049.69)

3.27

8.79

(13,706.67)

3.48

2.04

-

‑

‑

‑

3,443.95

3.15

4.00

2,430.42

4.04

0.35

4,191.79

0.39

2.67

4.07

‑

‑

‑

‑

‑

‑

-

‑

‑

‑

4,451.43

2.62

3.85

896.01

0.78

21.38

377.84

35.85

1.91

5.38

(1,801.36)

6.48

4.17

(293.79)

6.62

12.90

‑

‑

‑

630.31

2.12

5.87

‑

‑

‑

23,186.43

213.56

1.79

4.19

‑

‑

‑

-

‑

‑

‑

‑

‑

‑

7,219.43

2.05

6.64

18,308.45

1.55

3.96

819.92

35.84

2.89

3.78

(11,803.95)

2.90

6.06

(20,149.11)

2.68

2.88

‑

‑

‑

‑

4,361.54

2.89

4.15

2,442.88

4.03

0.45

24,006.35

249.41

1.83

4.17(222.98)‑‑602.22‑‑‑(1.56)‑‑

1,000.23‑‑

133.05‑‑24,006.35

247.851.83

4.17

777.25‑‑735.27

‑

‑

‑

‑

‑

-

(1,750.89)‑‑(1,867.73)

24,006.35

247.851.83

4.17(973.63)

‑

‑

(c)

(1,132.46)

‑

‑

‑

‑

Supplementary disclosure (direct borrowings):
The carrying amount of borrowings at 31 December 2022 was UA 24,006.35 million and the estimated fair value was UA 24,230.01 million.
(a) Currency swap agreements include cross-currency interest rate swaps.
(b) The average repricing period of the net currency obligations for adjustable-rate borrowings was six months. The rates indicated are those prevailing at 31 December
2022.
(c) These amounts are included in derivative assets and liabilities on the balance sheet.
(d) These amounts relate mainly to borrowings and derivatives in AUD, CHF, NZD, TRY and ZAR. Slight differences may occur in totals due to rounding.

86Financial Report 2022

Borrowings and Swaps at 31 December 2021
(Amounts in UA millions)
Direct Borrowings

Currency

Euro

Rate Type

Carried at
Fair Value

Weighted.
AverageCost(b)(%)

Weighted
AverageMaturity(Years)AmountPayable/(Receivable)

Wgtd.
AverageCost(b)(%)

AverageMaturity(Years)

Notional
AmountPayable/(Receivable)

Weighted
Average
Cost (b)(%)

AverageMaturity(Years)Fixed

4,278.05

‑

0.49

5.37

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

213.78

1.38

12.94

3,940.27

0.45

5.77

Adjustable

Adjustable
Fixed

Japanese Yen

Adjustable
Fixed

US Dollar

Adjustable
Fixed

Others(d)Adjustable
Fixed

Total

Adjustable

Principal at face value
Net unamortizedpremium/DiscountFair valuation adjustment

Total

Interest Rate Swaps

Carried at
Amortized
Cost

Fixed
GBP

Currency Swap Agreements (a)

‑

‑

‑

‑

(5,150.93)

0.49

2.30

(3,940.27)

0.45

5.77

‑

‑

‑

‑

121.21(0.63)

2.93

‑

‑

‑

1,129.30

‑

0.66

3.89

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

1,151.82

0.66

3.90

(13.76)

0.88

0.92

‑

‑

‑

‑

‑

‑

‑

13.76

0.25

0.92

‑

‑

‑

‑

‑

‑

‑

‑

‑

‑

1,037.28

63.32

0.61

20.12

‑

‑

-

‑

‑

‑

‑

‑

‑

‑

1,014.05

0.75

19.87

‑

‑

‑

369.89

‑

3.43

3.09

(19.92)(0.70)

5.69(13.76)(0.48)

3.32

‑

‑

‑

363.16

3.46

3.15

13.76

2.21

3.32

12,211.36

221.49

1.67

2.21

‑

‑

-

‑

‑

-

-

‑

‑

‑

178.625.42

2.78

11,955.02

1.48

2.25

54.31

‑

1.88

3.01

(5,977.65)

0.04

7.12

(14,138.29)

0.28

2.10

-

‑

‑

‑

4,144.81

0.12

3.50

2,198.14

0.55

1.32

5,348.54

0.49

2.76

4.03

‑

‑

‑

‑

‑

‑

‑

‑

‑

4,988.34

2.78

3.67

868.12

0.82

19.48

31.24

3.02

5.18

(1,826.50)

3.76

5.51

(335.67)

3.62

10.72

‑

‑

‑

580.39

2.13

6.21

‑

‑

‑

285.30

1.60

4.04

‑

‑

‑

-

‑

‑

372.5924,004.54
‑

‑

‑

‑

7,546.69

2.21

6.12

16,763.40

1.20

3.73

796.79

31.24

3.13

4.26

(12,975.00)

0.35

4.98

(18,427.99)

0.16

2.83

‑

‑

‑

‑

5,209.58

0.35

3.76

2,211.91

0.56

1.33

24,801.33

316.54

1.66

4.05(218.73)‑‑547.32‑‑‑(2.17)‑‑(923.50)‑‑

164.76‑‑24,801.33

314.37

1.66

4.05(1,142.23)‑‑

712.08

‑

‑

‑

‑

‑

- (183,979.75)‑‑

116,338.54‑‑

24,801.33

314.37

1.66

4.05 (185,121.98)

‑

‑

(c)

117,050.63‑‑

Supplementary disclosure (direct borrowings):
The carrying amount of borrowings at 31 December 2021 was UA 24,801.33 million and the estimated fair value was UA 25,130.09 million.
(a) Currency swap agreements include cross-currency interest rate swaps.
(b) The average repricing period of the net currency obligations for adjustable-rate borrowings was six months. The rates indicated are those prevailing at 31 December
2021.
(c) These amounts are included in derivative assets and liabilities on the balance sheet.
(d) These amounts relate mainly to borrowings and derivatives in AUD, CHF, NZD, TRY and ZAR. Slight differences may occur in totals due to rounding.

87

African Development Bank

The contractual (except for callable borrowings) maturity structure of outstanding borrowings as at 31 December 2022 was asfollows:i) Borrowings Carried at Fair Value(UA millions)
Periods

Ordinary

Callable

Total

One year or lessMore than one year but less than two years
More than two years but less than three years
More than three years but less than four years
More than four years but less than five years
More than five years

5,155.62
2,552.43
2,032.02
5,236.85
3,473.19
4,628.14355.04198.2911.53
135.32103.58124.345,510.66
2,750.72
2,043.55
5,372.17
3,576.77
4,752.48

23,078.25

928.1024,006.35

Periods

Ordinary

Callable

Total

One year or lessMore than one year but less than two years
More than two years but less than three years
More than three years but less than four years
More than four years but less than five years
More than five years
Subtotal
Net unamortized premium and discount186.11
7.70
‑
0.09
0.19
55.32
249.41(1.56)

‑
‑
‑
‑
‑
‑
‑
-

186.11
7.70
‑
0.09
0.19
55.32
249.41(1.56)

Total

247.85‑247.85Totalii) Borrowings Carried at Amortized Cost
(UA millions)

The contractual (except for callable borrowings) maturity structure of outstanding borrowings as at 31 December 2021 was asfollows:i) Borrowings Carried at Fair Value(UA millions)

Periods

Ordinary

Callable

Total

One year or lessMore than one year but less than two years
More than two years but less than three years
More than three years but less than four years
More than four years but less than five years
More than five years

5,293.51
4,960.31
2,118.18
794.11
5,663.40
5,337.12

145.58
24.18
75.27
14.95
149.59225.135,439.09
4,984.49
2,193.45809.06
5,812.99
5,562.25

24,166.63

634.7024,801.33

Periods

Ordinary

Callable

Total

One year or lessMore than one year but less than two years
More than two years but less than three years
More than three years but less than four years
More than four years but less than five years

95.55
157.18
0.15
‑
0.11

‑
‑
‑
‑
‑

95.55
157.18
0.15
‑
0.11

Total

ii) Borrowings Carried at Amortized Cost
(UA millions)

More than five years

63.54

‑

63.54

Subtotal
Net unamortized premium and discount316.53(2.16)‑-

316.53(2.16)

Total

314.37‑314.37

The fair value of borrowings carried at fair value through profit or loss at 31 December 2022 was UA 24,006.35 million (December
2021: UA 24,801.33 million). For these borrowings, the amount the Bank will be contractually required to pay at maturity at 31
88

Financial Report 2022

December 2022 was UA 27,053.65 million (December 2021: UA 25,543.88 million). The surrender value of callable borrowings isequivalent to the notional amount plus accrued finance charges.
As per Note N, there was a net gain of UA 88.90 million on borrowings, related derivatives and others for the year ended 31
December 2022 (December 2021: a loss of UA 111.21 million). The fair value movement attributable to changes in the Bank’s
credit risk included in the other comprehensive income for the year ended 31 December 2022 was a gain of UA 92.62 million(2021: a loss of UA 38.25 million).
Fair value movements attributable to changes in the Bank’s credit risk are determined by comparing the discounted cash flows
for the borrowings designated at fair value through profit or loss using the Bank’s credit spread on the relevant liquid markets for
ADB quoted bonds versus LIBOR both at the beginning and end of the relevant year. The Bank’s credit spread was not applied
for fair value changes on callable borrowings with less than one-year call date.
For borrowings designated at fair value through profit or loss at 31 December 2022, the cumulative unrealized fair value losses todate were UA 919.31 million (December 2021: UA 1,148.41 million).

NOTE K – Equity
Equity is composed of capital and reserves. These are further detailed as follows:

CapitalCapital includes subscriptions paid-in by member countries and Cumulative Exchange Adjustments on Subscriptions (CEAS).
The Bank is not exposed to any externally imposed capital requirements.

Subscriptions Paid In

Subscriptions to the capital stock of the Bank are made up of the subscription to the initial capital, a voluntary capital increase
and the nine General Capital Increases (GCI) made so far. The Fifth General Capital Increase (GCI V) was approved by the Boardof Governors of the Bank on 29 May 1998 and became effective on 30 September 1999 upon ratification by member states andentry into force of the related amendments to the Agreements establishing the Bank. The GCI-V increased the authorized capitalof the Bank by 35 percent from 1.62 million shares to 2.187 million shares with a par value of UA 10,000 per share. The GCI-V
shares, a total of 567,000 shares, are divided into paid-up and callable shares in proportion of 6 percent paid-up and 94 percent
callable. The GCI-V shares were allocated to the regional and non-regional members such that, when fully subscribed, theregional members shall hold 60 percent of the total stock of the Bank and non-regional members shall hold the balance of 40
percent.
Prior to the GCI-V, subscribed capital was divided into paid-up capital and callable capital in the proportion of 1 to 7. With the
GCI-V, the authorized capital stock of the Bank consists of 10.81 percent paid-up shares and 89.19 percent callable shares.
The sixth General Capital Increase (GCI-VI) was approved by the Board of Governors of the Bank on 27 May 2010. GCI-VI
increased the authorized capital stock of the Bank by 200 percent from UA 23,947 million to UA 67,687 million, with the creationof 4,374,000 new shares. The new shares created were allocated to the regional and non-regional groups in such proportions
that, when fully subscribed, the regional group shall hold 60 percent of the total capital stock of the Bank, and the non-regionalgroup 40 percent. The shares are divided into paid-up and callable shares in the proportion of 6 percent paid-up shares to 94
percent callable shares.
Prior to the GCI-VI, i.e., during the period covered by GCI-V, and by its resolution’s B/BG/2008/07 and B/BG/2009/05, the Boardof Governors authorized two capital increases bringing the Authorized Capital of the Bank from UA 21,870 million to UA 22,120
million to allow the Republic of Türkiye and the Grand Duchy of Luxembourg to become members of the Bank. The membershipof these two countries became effective upon completion of the formalities specified in the Agreement establishing the Bankand in the General Rules Governing Admission of Non-Regional Countries to Membership of the Bank. Consequently, on 29
October 2013 and 29 May 2014, the Republic of Türkiye and The Grand Duchy Luxembourg respectively were formally admitted
as the 78th and 79th member countries of the Bank. These shares, created under the two special capital increases, were subject
to the same terms and conditions as the shares created under the GCI-V.
Following its Resolution B/BG/2012/04 of 31 May 2012, the Board of Governors authorized a Special Capital Increase of theauthorized share capital of the Bank to allow for: (i) subscription by a new regional member country (the Republic of South
Sudan) of the minimum number of shares required for it to become a member; and (ii) the resulting subscription by non-regional
members of the number of shares necessary to comply with the 60/40 ratio requirement between the shareholding of regionaland non-regional members. Accordingly, the Board of Governors decided to increase the authorized capital of the Bank by thecreation of 111,469 new shares, out of which 66,881 shares shall be available for subscription by the Republic of South Sudan,
and 44,588 shares, shall be available for subscription by non-regional members. In 2014, by Resolution B/BG/2014/02, the Boardof Governors revised down to 33,895 shares the initial subscription of South Sudan’s, in line with its IMF quota. The additional
shares are subject to the same terms and conditions as the shares authorized in the GCI-VI. On 30 April 2015, having completed
the membership process to join the African Development Bank, South Sudan was admitted as member.
89

African Development Bank

In 2019, the Board of Directors endorsed proposals made by Canada and Sweden to subscribe, temporarily, to additional
non-voting callable capital of the Bank in the amounts of UA 800 million and UA 357 million, respectively. The proposals wereadopted by the Board of Governors on 12 June 2019 and 31 October 2019 and accordingly, the authorized capital stock of the
Bank increased. These non-voting callable shares were absorbed by Canada’s and Sweden’s subscriptions to GCI-VII when they
became effective.
By resolution B/BG/2019/04 adopted on 12 June 2019, the Board of Governors authorized a capital increase of UA 1.34 billion
through the creation of 134,050 new shares to allow Ireland to become a member of the Bank. The membership of Ireland
became effective upon completion of the formalities specified in the Agreement establishing the Bank and in the General Rules
Governing Admission of Non-Regional Countries to Membership of the Bank. Such formalities had been completed on 24 April
2020.
On 31 October 2019, the Board of Governors of the Bank approved a 125 percent increase of the capital resources of the institution.
This seventh General Capital Increase (GCI-VII) increased the authorized capital stock of the Bank from UA 69,472 million3 to
UA 153,191 million with the creation of 8,371,881 new shares. The new shares created were allocated to the regional and nonregional groups in such proportions that, when fully subscribed, the regional group shall hold 60 percent of the total capital stockof the Bank, and the non-regional group 40 percent. The new shares and the previous ones described above shall be divided into
paid-up and callable shares in the proportion of 6 percent paid-up shares to 94 percent callable shares.
The paid-up portion of the GCI-VII subscription is payable in twelve annual instalments for member countries eligible to receive
financing from ADF and eight annual instalments for member countries not eligible to receive financing from ADF. A member
country’s payment of the first installment triggers its subscription and the entire callable shares are issued. Shares representing
the paid-up portion of the subscription are issued only as and when the Bank receives the actual payments for such shares.
At its extraordinary meeting held on 5 March 2021, the Board of Governors adopted a resolution, effective immediately,
authorizing the creation of temporary callable capital stock increasing the Bank’s capital from one hundred fifty-three billion
one hundred ninety-one million three hundred sixty thousand Units of Account (UA 153,191,360,000) to one hundred eighty-one
billion seven hundred ninety-five million eight hundred thirty thousand Units of Account (UA 181,795,830,000). The new shares
created are in the form of callable shares, which will expire on 31 December 2023, or such earlier date as the Bank may determine.
All Instruments of Subscription are qualified and effective only in the case of a single event leading to a reduction in the stockof the Bank’s AAA-rated callable capital by at least 30 percent that would have the effect of reducing the coverage of the Bank’s
net debt by AAA-rated callable capital below 100 percent (the “Qualifying Event”). Upon the occurrence of the Qualifying Event,members who have subscribed to the temporary callable capital stock will acquire certain voting rights. Each share will have a parvalue of ten thousand Units of Account (UA 10,000), as set forth in the Resolution.
During the same extraordinary meeting, the Board of Governors approved and authorized the return and cancellation of
temporary callable shares without Voting Powers, created in 2019 and subscribed by Canada and the Kingdom of Sweden, fromthe total authorized capital stock of the Bank, as part of the interim measures pending the conclusion of the Seventh General
Capital Increase. Consequently, the authorized capital of the Bank was reduced by UA 1,157,000,000, bringing it down to UA
180,638,830,000.

390

The amount of UA 69,472,550,000 includes: (i) the special capital increase authorized under Resolution B/BG/2019/04 to allow for thesubscription by the Republic of Ireland (“Ireland”) (UA 1,340,500,000), (ii) the temporary increase in non-voting callable capital allocatedto the Government of Canada (“Canada”) (UA 800,000,000) under Resolution B/BG/2019/09 and (iii) the temporary increase in non-voting
callable capital allocated to the Kingdom of Sweden (“Sweden”) (UA 357,000,000) upon the Board of Governor’s approval of Resolution B/
BG/EXTRA/2019/01.

Financial Report 2022

The Bank’s capital as at 31 December 2022 and 31 December 2021 were as follows:(UA thousands)
Capital Authorized (in shares of UA 10,000 each)

2022

2021

180,638,830

180,638,830

Less: Unsubscribed(31,870,653)(32,165,212)

Subscribed Capital

148,768,177

148,473,618

Less: Callable Capital(138,793,635)(138,514,715)

Paid-up Capital

9,974,542

9,958,903

Shares to be issued upon payment of future installments(3,608,620)(4,248,940)

Add: Amounts paid in advance
Less: Amounts in arrears
Capital

322

605

6,366,244

5,710,568‑-

6,366,244

5,710,568

Included in the authorized data for 31 December 2022 is an amount of UA 38.83 million representing the balance of theshareholding of the former Socialist Federal Republic of Yugoslavia (“former Yugoslavia”).
Since the former Yugoslavia has ceased to exist as a state under international law, its shares (composed of UA 38.83 million
callable, and UA 4.86 million paid-up shares) have been held by the Bank in accordance with Article 6 (6) of the Bank Agreement.
In 2002, the Board of Directors of the Bank approved the proposal to invite each of the successor states of the former Yugoslavia
to apply for membership in the Bank, though such membership would be subject to their fulfilling certain conditions including
the assumption pro-rata of the contingent liabilities of the former Yugoslavia to the Bank, as of 31 December 1992. In the eventthat a successor state declines or otherwise does not become a member of the Bank, the pro-rata portion of the shares of former
Yugoslavia, which could have been reallocated to such successor state, would be reallocated to other interested non-regional
members of the Bank in accordance with the terms of the Share Transfer Rules. The proceeds of such reallocation will however betransferable to such successor state. Furthermore, pending the response from the successor states, the Bank may, under its Share
Transfer Rules, reallocate the shares of former Yugoslavia to interested non-regional member states and credit the proceeds on
a pro-rata basis to the successor states. In 2003, one of the successor states declined the invitation to apply for membership andinstead offered to the Bank, as part of the state’s Official Development Assistance, its pro-rata interest in the proceeds of any
reallocation of the shares of former Yugoslavia. The Bank accepted the offer.

91

African Development Bank

Subscriptions by member countries and their voting power at 31 December 2022 were as follows:(Amounts in UA thousands)
Member States
1 Algeria
2 Angola
3 Benin
4 Botswana
5 Burkina Faso
6 Burundi
7 Cabo Verde
8 Cameroon
9 Central African Republic
10 Chad11 Comoros
12 Congo
13 Cote d’Ivoire
14 Democratic Republic of Congo
15 Djibouti
16 Egypt
17 Equatorial Guinea
18 Eritrea
19 Eswatini
20 Ethiopia
21 Gabon
22 Gambia
23 Ghana
24 Guinea
25 Guinea-Bissau
26 Kenya
27 Lesotho
28 Liberia
29 Libya
30 Madagascar
31 Malawi
32 Mali
33 Mauritania
34 Mauritius
35 Morocco
36 Mozambique
37 Namibia
38 Niger
39 Nigeria
40 Rwanda
41 São Tomé And Príncipe
42 Senegal
43 Seychelles
44 Sierra Leone
45 Somalia
46 South Africa
47 South Sudan
48 Sudan
49 Tanzania
50 Togo51 Tunisia
52 Uganda
53 Zambia
54 Zimbabwe
Total Regionals

Total Shares% of Total Shares

Amount Paid

Callable Capital

Number of Votes% of Total
Voting Power730,223
164,696
29,705
112,194
58,12033,435
9,160
153,618
5,549
8,451
1,125
58,664552,298
264,767
1,213
874,472
9,588
4,510
16,232
231,140
65,385
19,294
324,126
59,006
978200,106
12,95928,408350,267
93,65149,43526,948
8,044
93,372
667,177
87,35349,346
29,772
1,254,027
19,5109,502
151,112
1,837
15,867
4,239
727,32147,217
14,034
123,705
23,753
208,283
57,735
169,340
248,0178,560,286

5.030
1.135
0.205
0.773
0.400
0.230
0.063
1.058
0.038
0.058
0.008
0.404
3.805
1.824
0.008
6.024
0.066
0.031
0.112
1.592
0.450
0.133
2.233
0.406
0.007
1.379
0.089
0.196
2.413
0.645
0.341
0.186
0.055
0.643
4.596
0.602
0.340
0.205
8.639
0.134
0.065
1.041
0.013
0.109
0.029
5.010
0.325
0.097
0.852
0.164
1.435
0.398
1.167
1.709
58.971

304,747
64,532
11,10776,80522,433
13,272
3,991
52,575
1,975
3,144
634
22,398200,958
66,8081,517
367,641
7,969
2,921
9,740
84,25356,236
6,516
115,233
21,255929
72,5795,046
10,834
186,004
34,523
18,942
20,487
4,665
44,801
267,805
30,513
19,551
11,535588,898
7,212
3,487
57,384
1,871
12,733
2,549
294,205
4,968
14,16042,648
9,262
91,26722,05363,313
95,4403,558,324

6,997,470
1,582,442
285,972
1,045,135
558,805
321,076
87,6201,483,621
53,532
81,38010,626564,270
5,322,050
2,580,865
10,6188,377,090
87,91742,182
152,590
2,227,160
597,628
186,453
3,125,521
568,8108,860
1,928,490
124,570
273,257
3,316,677
902,000
475,420
249,001
75,785888,860
6,403,990
843,037
471,800
286,192
11,951,383
187,903
91,543
1,453,751
16,499145,951
39,846
6,979,012
467,220
126,177
1,194,417
228,271
1,991,560
555,317
1,630,065
2,384,738
82,042,425

730,848
153,948
30,299112,819
58,71434,0609,174
151,314
5,909
8,935
1,719
55,122
540,203
253,094
1,838
875,097
10,213
5,135
16,857
231,765
66,01019,496
324,093
58,331
1,603
196,470
12,84829,033350,893
94,27650,06027,573
8,669
93,997
629,419
86,09849,97130,3971,254,652
19,712
9,924
151,737
2,462
16,492
4,676
727,946
47,842
14,659124,330
24,378208,908
58,298
169,965
248,6428,500,922

5.054
1.065
0.210
0.780
0.406
0.236
0.063
1.046
0.041
0.062
0.012
0.381
3.735
1.750
0.013
6.051
0.071
0.036
0.117
1.603
0.456
0.135
2.241
0.403
0.011
1.359
0.089
0.201
2.426
0.652
0.346
0.191
0.060
0.650
4.352
0.595
0.346
0.210
8.676
0.136
0.069
1.049
0.017
0.114
0.032
5.034
0.331
0.101
0.860
0.169
1.445
0.403
1.175
1.719
58.781Slight differences may occur in totals due to rounding.

92

Financial Report 2022

(Amounts in UA thousands)

Total
Shares% of Total
SharesAmountPaid

Callable
Capital

Numberof Votes% of Total
Voting Power

8,560,286
11,87063,71493,54821,791
560,435
183,834
166,589
69,457
533,648594,957
41,026
114,769
346,306
783,637
68,381
63,44529,455125,993
168,169
34,181
27,646
153,250
224,266
208,635
56,242
269,12358.971
0.082
0.439
0.644
0.150
3.861
1.266
1.148
0.478
3.676
4.099
0.283
0.791
2.386
5.398
0.471
0.437
0.203
0.868
1.158
0.235
0.190
1.056
1.545
1.437
0.387
1.854

3,558,324
7,185
29,486
61,73016,970364,116
82,434
71,17629,338225,393
275,256
18,411
22,031
160,215362,038
28,515
26,798
10,60557,616
77,581
14,518
12,79989,408103,551
90,575
19,179152,970

82,042,425
111,520
607,660
873,750
200,940
5,240,240
1,755,920
1,594,720
665,240
5,111,090
5,674,320
391,860
1,125,670
3,302,850
7,474,340
655,310607,660
283,950
1,202,320
1,604,120
327,300
263,670
1,443,100
2,139,110
1,995,780
543,260
2,538,270

8,500,922
12,49564,33994,173
22,416
561,060
184,459
156,436
70,082534,273595,582
41,651
115,394
346,931783,260
69,00664,07030,080126,618
168,794
34,80628,271
153,875
224,891
209,260
56,867
269,748

58.781
0.086
0.445
0.651
0.155
3.880
1.275
1.082
0.485
3.694
4.118
0.288
0.798
2.399
5.416
0.477
0.443
0.208
0.876
1.167
0.241
0.195
1.064
1.555
1.447
0.393
1.865

Total Non-Regionals

5,955,893

41.0292,807,920

56,751,210

5,960,988

41.219Grand Total

14,516,179

100.006,366,244

138,793,635

14,461,910

100.00Member States
Total Regionals
55 Argentina
56 Austria
57 Belgium
58 Brazil
59 Canada
60 China
61 Denmark
62 Finland
63 France
64 Germany
65 India
66 Ireland
67 Italy
68 Japan
69 Korea
70 Kuwait
71 Luxembourg
72 Netherlands
73 Norway
74 Portugal
75 Saudi Arabia
76 Spain
77 Sweden
78 Switzerland
79 Türkiye
80 U.K.
81 U.S.A.

941,526

6.486

398,027

9,017,240

942,151

6.515

The subscription position including the distribution of voting rights at 31 December 2022 reflects the differences in the timing of subscription payments by member
countries during the allowed subscription payment period for GCI-V, GCI-VI and GCI-VII. After the shares have been fully subscribed, the regional and non-regionalgroups are expected to hold 60 percent and 40 percent voting rights, respectively.
Slight differences may occur in totals due to rounding.

Cumulative Exchange Adjustment on Subscriptions (CEAS)

Prior to the fourth General Capital Increase (GCI-IV), payments on the share capital subscribed by the non-regional member
countries were fixed in terms of their national currencies. Under GCI-IV, and subsequent capital increases payments by regionaland non-regional members in US Dollars were fixed at an exchange rate of 1 UA = USD 1.20635. This rate represented the valueof the US Dollar to the SDR immediately before the introduction of the basket method of valuing the SDR on 1 July 1974 (1974
SDR). As a result of these practices, losses or gains could arise from converting these currencies to UA when received. Such
conversion differences are reported in the Cumulative Exchange Adjustment on Subscriptions account.
At 31 December 2022 and 31 December 2021, the Cumulative Exchange Adjustment on Subscriptions were as follows:(UA thousands)

2022

2021

Balance at 1 January

155,837

148,208

Net conversion losses on new subscriptions(1,668)

7,629

154,169

155,837

Balance93African Development Bank

Reserves

The Bank’s Reserves increased by UA 519.47 million (16.48 percent) to UA 3,670.66 million as at 31 December 2022 from UA
3,151.19 million as at 31 December 2021 due to the total comprehensive income reported for the year.

Retained Earnings

Retained earnings include the net income for the year after taking into account transfers approved by the Board of Governors, andnet charges recognized directly in equity. Retained earnings also include the transition adjustments resulting from the adoptionof new or revised financial reporting standards, where applicable. Earnings include the net income for the year, after taking into
account transfers approved by the Board of Governors, and net charges recognized directly in equity. At 31 December 2022 and
31 December 2021, the retained earnings were as follows:(UA thousands)
Balance at 1 January 2021

3,228,367

Net income for the current year

41,546

Transfers during the year

20,217

Balance at 31 December 2021

3,290,130

Balance at 1 January 2022

3,290,130

Net income for the current year

175,278

Balance at 31 December 2022

3,465,408

Allocable income

The Bank uses allocable income for making distributions out of its net income. Allocable income excludes unrealized mark-tomarket gains and losses associated with instruments not held for trading and adjusted for translation gains and losses.
At 31 December 2022 and 31 December 2021, the allocable income were as follows:(UA thousands)

2022

2021

Income before Board of Governors’ approved distribution

239,278

96,546

Unrealized (gains)/losses on borrowings and derivatives(88,900)

111,213

Translation (gains)/losses(66,457)

1,475

‑

120

83,921

209,354

Unrealized losses on macro hedge swaps
Allocable income

During the year, the Board of Governors approved the distribution of UA 64 million (2021: UA 55.00 million) from income and thesurplus account to certain entities for development purposes. With effect from 2006, Board of Governors approved distributions toentities for development purposes are reported as expenses in the Income Statement in the year such distributions are approved.
Movement in the surplus account during 2022 and 2021 is as follows:(UA thousands)
Balance at 1 January 2021

1,312

Allocation from 2020 net income‑

Distribution to MIC Technical Assistance Fund‑Distribution to Special Relief Fund‑Distribution to the NEPAD‑

Balance at 31 December 2021

1,312

Balance at 1 January 2022

1,312

Allocation from 2021 net income

12,810Distribution to MIC Technical Assistance Fund

(4,000)Distribution to Special Relief Fund

(7,000)Distribution to the NEPAD(3,000)

Balance at 31 December 2022

94

122

Financial Report 2022

Distributions to entities for development purposes, including those made from the surplus account, for the years ended 31
December 2022 and 2021 were as follows:(UA thousands)

2022

2021

African Development Fund (ADF)

35,00035,000

Post Conflict Assistance - DRC

15,00020,000Special Relief Fund

7,000

‑

NEPAD

3,000

‑

MIC Technical Assistance Fund

4,000

‑

64,00055,000Total

NOTE L – Income from Loans and Investments and Related Derivatives
Income from Loans and related derivatives

Income from loans and related derivatives for the year ended 31 December 2022 and 31 December 2021 was as follows:(UA thousands)
Interest income on loans not impaired

2022

2021

489,312332,554

Interest income on impaired loans

43,37936,157

Interest on loan swaps(25,396)(41,611)

Total interest income on loans

507,295

327,100

Commitment fees

31,78836,431

Trade finance guarantee fees

1,130

782

182

205

Statutory commission
Total fee income

33,10037,418

Balance sheet optimization (BSO) fees

(18,829)(16,274)

Total

521,566

348,244

Analysis of Interest Income from loans by Operations(UA thousands)

2022

2021

Interest income on Sovereign loans

373,240

225,831

Interest income on Non sovereign loans

159,451

142,880

Interest on loan swaps(25,396)(41,611)

Total interest income on loans

507,295

327,100

Income from Treasury Investments and Related Derivatives

Income from loans and related derivatives for the year ended 31 December 2022 and 31 December 2021 was as follows:(UA thousands)

2022

2021

Interest income

194,356

161,453

Realized fair value gains on investments

52,126

3,448

Unrealized fair value losses on investments(28,320)(35,561)

Subtotal

23,806(32,113)218,162

129,340

Total

95

African Development Bank

Total interest income on investments at amortized cost for the year ended 31 December 2022 was UA 105.79 million (2021: UA
92.28 million).

Net interest income from loans and investment and related derivatives

The net interest income on loans, investment and related derivatives for the year ended 31 December 2022 and 31 December
2021 was as follows:(UA thousands)

2022

2021

Interest income from loans

507,295

327,100

Interest income from treasury investment

194,356

161,453

Other debt securities

6,889

5,530

Total Interest Income

708,540

494,083

Borrowing expenses(353,990)(71,048)

Net interest income

354,550423,035

NOTE M – Other Income
Other Income represents net earnings that arise from other sources and activities apart from the Bank’s development related
activities and Investment activities.
(UA thousands)

2022

2021

Management fees

10,495

10,520Rental income

1,261

570

Miscellaneous Income

1,538

2,161

Board allowances received

310

234

Share of losses on equity accounted investments

(101)

(241)

Gains on disposal of Property and equipment

39

26

Others448

162

13,99013,432

Total

NOTE N – Borrowing Expenses
Interest and Amortized Issuance Costs

Interest and amortized issuance costs on borrowings for the year ended 31 December 2022 and 31 December 2021 was asfollows:(UA thousands)
Charges to bond issuers
Amortization of issuance costs
Interest on operating lease
Total

2022

2021

416,819

387,407

1,120

6,155

194

219

418,133

393,781

Total interest expense for financial liabilities not at fair value through profit or loss for the year ended 31 December 2022 was UA
14.29 million (December 2021: UA 12.84 million).

96

Financial Report 2022

Net Interest on Borrowing-Related Derivatives

Net interest on borrowing-related derivatives for the year ended 31 December 2022 and 31 December 2021 was as follows:(UA thousands)

2022

2021

Interest on derivatives payable

502,063

182,300

Interest on derivatives receivable(566,206)(505,033)

Total(64,143)(322,733)

Net borrowing expenses

353,990

71,048Losses/gains on Borrowings and Related Derivatives

Gains/losses on borrowings, related derivatives and others for year ended 31 December 2022 and 31 December 2021 was asfollows:(UA thousands)(Losses)/gains borrowings, related derivatives and others

2022

2021

88,900(111,213)

The gains on borrowings, related derivatives and others include the income statement effects of the hedge accounting, consistingof unrealized gain of UA 2.18 million (December 2021: unrealized loss of UA 0.47 million), representing hedge effectiveness, andUA 2.15 million (December 2021: UA 2.42 million) of amortization of fair value adjustments on the hedged risk (See Note F).
Valuation adjustment loss in respect of counterparty risk of derivative financial assets (CVA) for the year ended 31 December 2022
amounted to UA 7.21 million (December 2021: a loss UA 25.4 million), whilst valuation adjustment gain relating to credit risk inderivative financial liabilities (DVA) for the year ended 31 December 2022 was UA 17.96 million (December 2021: a gain UA 23.46
million).

NOTE O – Administrative Expenses
Total administrative expenses relate to expenses incurred for the operations of the Bank and those incurred on behalf of the ADF
and the NTF. The ADF and NTF reimburse the Bank for their share of the total administrative expenses, based on an agreed-uponcost-sharing formula, which is driven primarily by the staff time spent on individual entity’s work program deliverables. However,
the expenses allocated to the NTF shall not exceed 20 percent of the NTF’s gross income.
Administrative expenses for the year ended 31 December 2022 and 31 December 2021 comprised the following:(UA thousands)

2022

2021

Manpower expenses*

386,795

353,339

Other general expenses

67,08840,025

Total

453,883

393,364

Reimbursable by ADF(246,211)(218,564)

Reimbursable by NTF

(508)

(251)

207,164

174,549

Net* Shares of ADB manpower expenses amount to UA 189.21 million (2021: UA171.89 million).

Included in general administrative expenses is an amount of UA 0.33 million (2021: UA 0.4 million) incurred under operating leaseagreements for offices in Côte d’Ivoire and in certain member countries, where the Bank has offices, the short-term leases andleases of low value not recognized as liabilities. The payments in relation to these are recognized as an expense in profit or loss.

97

African Development BankNOTE P – Employee Benefits
Staff Retirement Plan

The Staff Retirement Plan (SRP), a defined benefit plan established under Board of Governors’ Resolution 05–89 of 30 May 1989,
became effective on 31 December 1989, following the termination of the Staff Provident Fund. Every person employed by the
Bank on a full-time basis, as defined in the Bank’s employment policies, is eligible to participate in the SRP, upon completion of 6months service without interruption of more than 30 days. The SRP is administered as a separate fund by a committee of trustees
appointed by the Bank on behalf of its employees.
In November 2004, the Board of Directors of the Bank approved certain revisions to the SRP, including simplification of thecalculation of the employee contribution rate, more explicit reference to the Bank’s residual responsibility and rights as the SRP
sponsor, changes in survivor child benefits and an increase in the pension accumulation rate from 2 percent to 2.5 percent foreach year of service. Also, new members from the Field Offices of the Bank joined the Plan in 2007. Accordingly, the associatedpast service costs associated with these changes were reported in the financial statements of respective years.
In 2008, the early retirement provisions and the death benefits to spouses were modified, resulting in a net negative prior service
cost of UA 8.12 million, which was immediately recognized. Under the revised SRP, employees contribute at a rate of 9 percent
of regular salary. A tax factor included in the basis for the determination of contribution in the previous SRP has been eliminated.
The Bank typically contributes twice the employee contribution but may vary such contribution based on the results of annual
actuarial valuations.
In 2011, the Board of Directors approved the extension of the mandatory staff retirement age in the Bank from 60 to 62 years
effective 1 January 2012. Participants of the Plan as of 11 May 2011 were given up to 31 December 2012 to make the election oneither to retire at 60 years with no penalty for early retirement or accept the extension and retire at age 62. The option to retire atage 60 is not available to staff joining the Bank from 1 January 2012, the date of effectiveness of the change. Most of the existing
participants opted for the revised retirement age. The impact of the change on the actuarial valuation of SRP was a curtailmentof UA 10.90 million and was reported in the financial statements for the year ended 31 December 2011.
During 2015, the Board of Directors approved changes to enhance financial sustainability of the Plan. These changes primarily
included review of the commutation of pension as well as benefits applicable for death in retirement.

The Hybrid Scheme

On 19th September 2018, the Board of Directors approved changes to the Staff Retirement Plan (SRP or the Plan) introducing
an alternative pension structure combining the features of a defined benefit (DB) and a defined contribution (DC) scheme tostrengthen the Plan’s long-term sustainability, while giving flexibility to members.
The effective date of the hybrid scheme is 1 July 2019. The hybrid scheme is aimed at strengthening the Plan’s long-term financial
viability and grants qualifying participants the flexibility to decide where to invest their contributions with the choice to contributeadditional voluntary contributions to their personal DC accounts. Qualifying participants in the service of the Bank before theeffective date will have the option to join the new hybrid scheme or remain in the current DB scheme. These changes will notaffect the acquired pension rights of current plan participants or retirees’ pension benefits. However, qualifying participantsjoining the plan from the effective date will automatically be enrolled in the new hybrid scheme i.e. the SRP and the newly
introduced defined contribution plan.
The features of the hybrid scheme are stated below:

98•

Participants and the Bank will continue to contribute 9 percent and 18 percent of salaries respectively under the hybrid
scheme.

•The Bank’s median salary will be used as the cap and will be reset every three years.

•

Contributions will be split between the DB and the DC at the median salary cap as follows:a)Participants earning up to the median salary cap will contribute to the DB scheme and have only DB benefits at
retirement; andb)Participants with salaries higher than the median salary cap will contribute to the DB up to the median salary andwill contribute the excess over the median salary to the DC. In effect, participants under the hybrid scheme will havebenefits from both the DB and DC plans at retirement.

•

Participants with the DC plan will have the right to determine where their contributions will be invested and the flexibility
to make additional voluntary contributions to their DC accounts.

•

Funds in the DC component will be invested by external fund managers for each participant’s account and related
management fees will be deducted directly from each participant’s account.

•

The DB benefits will remain under the administration of the Staff Retirement Plan.

Financial Report 2022

Medical Benefit Plan

The Medical Benefit Plan (MBP) was created under the Board of Directors’ resolution B/BD/2002/17 and F/BD/2002/18 of 17 July
2002 and became effective on 1 January 2003. Under the MBP, all plan members including existing staff or retirees contributea percentage of their salary or pension while the Bank typically contributes twice the employee contribution but may vary suchcontribution based on the results of annual actuarial valuations.
Contribution rates by staff members and retirees are based on marital status and number of eligible children. An MBP board,
composed of selected officers of the Bank and representatives of retirees and the staff association, oversees the management
and activities of the MBP. The contributions from the Bank, staff and retirees are deposited in a trust account. In accordance withthe directive establishing the Plan, all Plan members including staff and retirees are eligible as beneficiaries for making claims for
medical services provided to them and their recognized dependents.
On 7 January 2015, the Board of Directors approved a new set of contribution rates to the MBP for the Bank, active staff andretirees. The new set of rates were with effect from 1 September 2015 and aim at enhancing the long-term financial sustainabilityof the Plan.
For the DC component of the hybrid plan, the amount recognized in the income statement for the year ended December 2022
was UA 0.77 million (2021: UA 0.7 million). This amount is included in Other Accounts Payable.
The post-employment scheme of staff retirement and medical benefit expenses for 2022 and 2021 for the Bank, the ADF and the
NTF combined (the Bank Group) comprised the following:(UA millions)Staff Retirement Plan

Medical Benefit Plan

2022

2021

2022

2021

Current service cost – gross

76.87

79.88

27.78

26.04

Less: employee contributions(12.84)(12.21)(4.24)(4.28)Net current service cost

64.03

67.67

23.54

21.76

Interest cost

27.70

22.22

5.03

3.90

Expected return on plan assets(22.84)(15.93)‑‑

Expense for the year

68.89

73.96

28.57

25.66

At 31 December 2022, the Bank had a liability to the SRP amounting to UA 66.76 million (2021: UA 245.31 million) while the Bank’s
liability to the post-employment aspect of the MBP amounted to UA 161.67 million (2021: UA 203.35 million).

99

African Development BankAt 31 December 2022 and 2021 the determination of these liabilities is set out below:(UA millions)Staff Retirement Plan

Medical Benefit Plan

2022

2021

2022

2021

Market value of plan assets at beginning of year

1,063.85

908.50

89.98

80.02

Actual return on assets(181.66)

151.722.05

0.18

Employer’s contribution

25.84

24.42

8.47

8.57

Plan participants’ contribution during the year

12.84

12.21

4.24

4.28

Benefits paid

(37.70)(33.00)(3.95)(3.07)

Market value of plan assets at the end of the year

883.17

1,063.85

100.7989.98

Fair value of plan assets:

Present value of defined benefit obligation:
Benefit obligation at beginning of year

1,309.16

1,286.26

293.33267.80Current service cost

64.03

67.67

23.54

21.76

Employee contributions

12.84

12.21

4.24

4.28

Interest cost

27.70

22.22

7.18

5.51

Actuarial loss/(gain)(426.10)(46.20)(61.88)(2.95)

Benefits paid

(37.70)(33.00)(3.95)(3.07)

Benefit obligation at end of year

949.93

1,309.16

262.46293.33(66.76)(245.31)(161.67)(203.35)

Funded status:
Liability recognized on the balance sheet at 31 December,
representing excess of defined benefit over plan asset

Amount recognized on the Balance sheet as Employee Benefit
liabilities as at 31 December

2022

2021

228.43448.66

There were no unrecognized past service costs at 31 December 2022 and 2021. At 31 December 2022, the cumulative net
actuarial gains recognized directly in equity through other comprehensive income for the SRP were UA 35.75 million (2021: losses
of UA 185.84 million). The cumulative net actuarial gains recognized directly in equity through other comprehensive income for
MBP were UA 33.19 million (2021: losses of UA 28.59 million).
The following summarizes the funding status of the SRP at the end of the last five fiscal years:(UA millions)

2022

2021

2020

2019

2018

Fair value of Plan assets

883.17

1,063.85

908.50849.12711.03Present value of defined benefit obligation(949.93)(1,309.16)(1,286.25)(1,149.05)(994.27)

Deficit funding(66.76)(245.31)(377.75)(299.93)(283.24)

Experience adjustments on plan assets

56.63

261.14125.3687.80(19.90)Experience adjustments on plan liabilities(20.88)(446.98)(493.18)(421.56)(333.45)

Net

35.75

(185.84)(367.82)(333.76)(353.35)

Staff Retirement Plan:

100

Financial Report 2022

The funding status of the Medical Benefit Plan at the end of the last five fiscal years was as follows:(UA millions)

2022

2021

2020

2019

2018

Fair value of Plan assets

100.79

89.97

80.02

70.03

61.61

Present value of defined benefit obligation(262.46)(293.34)(335.19)(309.22)(226.67)

Deficit funding(161.67)(203.37)(255.17)(239.19)(165.06)

Experience adjustments on plan assets(8.82)(8.93)(10.36)(9.58)(8.24)

Experience adjustments on plan liabilities

42.01(19.66)(87.14)(92.93)(32.99)

Net

33.19

(28.59)(97.50)(102.51)(41.23)

Medical Benefit Plan:

Assumptions used in the latest available actuarial valuations at 31 December 2022 and 2021 were as follows:(Percentages)

Staff Retirement Plan

Medical Benefit Plan

2022

2021

2022

2021

Discount rate

4.40

2.15

4.40

2.26

Rate of salary increase

3.40

3.40

3.40

3.40

Future pension increase

2.30

2.30

-

-

-

-

6.00

5.50

Health care cost growth rate

The SRP mortality assumptions are based on the Self-Administered Pension Schemes 2008 (SAPS08) tables, specifically referenced
from the experience of United Kingdom self-administered pension schemes. Similarly, the MBP mortality assumptions are also
based on the Self-Administered Pension Schemes (SAPS) tables, specifically referenced from the experience of United Kingdom
occupational schemes. These SAPS tables assume normal health participants and have been updated using Continuous Mortality
Investigations (CMI) 2009 projections to factor in future longevity improvements.
The discount rate used in determining the benefit obligation is selected by reference to the long-term year-end rates on AA
corporate bonds from the different markets of the five currencies of the SDR.
The medical cost inflation assumption is the rate of increase in the cost of providing medical benefits. This is influenced by a wide
variety of factors, such as economic trends, medical developments, and patient utilization. For the purposes of these calculations,the medical cost inflation rate was assumed at 5 percent per annum.
The Bank’s obligation and costs for post-retirement medical benefits are highly sensitive to assumptions regarding medical cost
inflation.
The average duration of SRP and MBP is 16 years and 20 years, respectively. The following table shows projected benefit cash
flow outgo:(UA millions)

2024

2025

2026

2027

2028 to 2032

Cash flow from MBP

4.74

5.45

6.37

7.49

58.86

Cash flow from SRP

49.88

54.97

56.75

56.80

325.57

The following table shows the effects of a one-percentage-point change in the assumed health care cost growth rate:(UA thousands)

1% Increase

1% Decrease

2022

2021

Effect on total service and interest cost

8,750

10,513(6,675)(7,702)

Effect on post-retirement benefit obligation

58,70977,639(46,710)(60,534)

2022

2021

101

African Development Bank

The following table shows the effect of a 1 percentage point change in the discount rate for the SRP:
(UA thousands)

1% Increase
Effect on total service and interest cost
Effect on post-retirement benefit obligation

1% Decrease

2022

2021

2022

2021

7,311

15,182(9,641)(20,886)

122,950

207,145(155,121)(271,703)

No SRP assets are invested in any of the Bank’s own financial instruments, nor any property occupied by, or other assets used by
the Bank. All investments are held in active markets.
The following table presents the weighted-average asset allocation at 31 December 2022 and 2021 for the Staff Retirement Plan:(UA thousands)

2022

2021

Debt securities

342,918

405,211Equity securities

443,377

528,307

Property

81,967

112,688868,262

1,046,206

Total

At 31 December 2022 and 2021, the assets of the MBP were invested primarily in short-term deposits and bonds.
The Bank’s estimate of contributions it expects to make to the SRP and the MBP for the year ending 31 December 2023, are UA
33.01 million and UA 25.61 million, respectively.

NOTE Q – Related Parties
The following related parties have been identified:
The Bank makes or guarantees loans to some of its members who are also its shareholders and borrows funds from the capital
markets in the territories of some of its shareholders. As a multilateral development institution with membership comprising 54
African states and 27 non-African states (the “regional members” and “non-regional members”, respectively), subscriptions tothe capital of the Bank are made by all its members. All the powers of the Bank are vested in the Board of Governors, which
consists of the Governors appointed by each member country of the Bank, who exercise the voting power of the appointing
member country. Member country subscriptions and voting powers are disclosed in Note K. The Board of Directors, which iscomposed of twenty (20) Directors elected by the member countries, is responsible for the conduct of the general operationsof the Bank, and for this purpose, exercises all the powers delegated to it by the Board of Governors. The Bank also makes orguarantees loans to certain of the agencies of its Regional Member Countries and to public and private enterprises operating
within such countries. Such loans are approved by the Board of Directors.
In addition to its ordinary resources, the Bank administers the resources of other entities under special arrangements. In thisregard, the Bank administers the resources of the ADF. Furthermore, the Bank administers various special funds and trust funds,
which have purposes that are consistent with its objectives of promoting the economic development and social progress of its
Regional Member Countries. In this connection, the Bank administers the NTF as well as certain multilateral and bilateral donor
funds created in the form of grants.
The ADF was established pursuant to an agreement between the Bank and certain countries. The general operation of the ADF
is conducted by a 14-member Board of Directors of which 7 members are selected by the Bank. The Bank exercises 50 percentof the voting power in the ADF and the President of the Bank is the ex-officio President of the Fund. To carry out its functions,
the ADF utilizes the officers, staff, organization, services and facilities of the Bank, for which it reimburses the Bank based on anagreed cost-sharing formula, driven primarily by the staff time spent on individual entity’s work program deliverables.
The Bank’s investment in the ADF is included in Equity Participations and disclosed in Note H. In addition to the amount reported
as equity participation, the Bank periodically makes allocations from its income to the Fund, to further its objectives. Net income
allocations by the Bank to ADF are reported as Other Resources in the Fund’s financial statements.
The NTF is a special fund administered by the Bank with resources contributed by the Government of Nigeria. The ADB Board of
Directors conducts the general operations of NTF on the basis of the terms of the NTF Agreement and in this regard, the Bank
consults with the Government of Nigeria. The NTF also utilizes the offices, staff, organization, services and facilities of the Bank
102

Financial Report 2022

for which it reimburses to the Bank its share of administrative expenses for such utilization. The share of administrative expenses
reimbursed to the Bank by both the ADF and NTF is disclosed in Note O.
Grant resources administered by the Bank on behalf of other donors, including its member countries, agencies and other entities
are generally restricted for specific uses, which include the co-financing of Bank’s lending projects, debt reduction operations
and technical assistance for borrowers including feasibility studies. Details of the outstanding balance on such grant funds at 31
December 2022 and 2021 are disclosed in Note T-5.
The Bank charges fees for managing some of these funds. Management fees received by the Bank for the year ended 31
December 2022 amounted to UA 10.50 million (2021 UA 10.52 million). The Bank also administers the SRP and MBP. The activitiesof the SRP and MBP are disclosed in Note P.

Management Personnel Compensation

Compensation paid to the Bank’s management personnel and executive directors during the year ended 31 December 2022 and
31 December 2021 were made up as follows:(UA thousands)

2022

2021

Salaries

30,26929,409Termination and other benefits

9,940

8,559

Contribution to retirement and medical plan
Total

6,559

6,445

46,76844,413

The Bank may also provide personal loans and advances to its staff, including those in management. Such loans and advances,guaranteed by the terminal benefits payable at the time of departure from the Bank, are granted in accordance with the Bank’srules and regulations. As of 31 December 2022, outstanding balances on loans and advances to management staff and executive
directors amounted to UA 8.25 million (31 December 2021: UA 8.66 million).

NOTE R – Segment Reporting
The Bank is a multilateral development finance institution dedicated to the economic and social progress of its regional member
states. The Bank’s products and services are similar and are structured and distributed in a fairly uniform manner across borrowers.
Based on the evaluation of the Bank’s operations, management has determined that ADB has only one reportable segment since
the Bank does not manage its operations by allocating resources based on a determination of the contribution to net income
from individual borrowers. The products and services from which the Bank derives its revenue are mainly loans, treasury andequity participation.
External revenue for the years ended 31 December 2022 and 2021 is detailed as follows:(UA thousands)

2022

2021

Fixed rate loans

485,989

327,617

Variable rate loans

11,04829,685

Floating rate loans

35,653

11,408532,690368,710

Commitment charges and commissions

14,271

21,145Interest on loan swaps(25,396)(41,611)

Total income from loans

521,565

348,244

Income from investments

218,162

129,340

Income from other debt securities

6,890

5,530

Other income

28,17537,291

774,792

520,405

Interest income from loans

Total external revenue

Revenues earned from transactions with a single borrower country of the Bank and exceeding 10 percent of the Bank’s revenue
for one country amounted to UA 140.46 million for the year ended 31 December 2022 (2021: UA 71.43 million).
103

African Development Bank

The Bank’s development activities are divided into five sub-regions of the continent of Africa for internal management purposes,
namely: Central Africa, Eastern Africa, Northern Africa, Southern Africa, and Western Africa. Activities involving more than one
single country from the continent of Africa are described as multinational activities. Treasury investment activities are carried out
mainly outside the continent of Africa and are therefore not included in the table below. In presenting information on the basisof the above geographical areas, revenue is based on the location of customers.
Geographical information about income from loans for the years ended 31 December 2022 and 2021 is detailed as follows:(UA thousands)

CentralAfricaEastern
AfricaNorthern
AfricaSouthern
AfricaWestern
AfricaMultinational

Total

2022
Income from sovereign loans

18,30931,253

119,464

171,216

43,157

3,286

386,684

Income from non-sovereign loans

7,113

32,137(6,589)39,37057,903

4,948

134,881

25,422

63,390112,875

210,586

101,060

8,234

521,5652021
Income from sovereign loans

15,3409,461

41,311

112,890

15,334(759)

193,577

Income from non-sovereign loans

8,016

26,487

13,955

39,13750,551

16,521

154,667

23,35635,94855,266

152,027

65,885

15,762

348,244

As of 31 December 2022, land and buildings owned by the Bank were located primarily at the Bank’s headquarters in Abidjan,
Côte d’Ivoire. More than 90 percent of other fixed and intangible assets were located at the regional resource centers in Nairobi,
Pretoria and Tunis.

NOTE S – Approval of Financial Statements
On March 29, 2023, the Board of Directors authorized these financial statements for issue to the Board of Governors. The financial
statements are expected to be approved by the Board of Governors at its annual meeting in May 2023.

104

Financial Report 2022

Note T – Supplementary disclosures
Note T-1: Exchange rates
The rates used for translating currencies into Units of Account at 31 December 2022 and 31 December 2021 were as follows:

1 UA = 1 SDR =

2022

2021

Algerian Dinar

182.79300

194.36500

Angolan Kwanza

670.33213

776.74600

Australian Dollar

1.99228

1.94119

Botswana Pula

17.10590

16.33130

Brazilian Real6.84570

7.96426

Canadian Dollar

1.81035

1.79808

Chinese Yuan Renminbi

9.297318.91600

821.85500

811.73400

CFA Franc
Danish Kroner

9.312039.20217

Egyptian Pound

32.90795

21.26400

Ethiopian Birr

71.67080

69.53990Euro1.25291

1.23748

Gambian Dalasi

80.93000

73.78000

Ghanaian Cedi

11.41328

8.40608

Guinean Franc

11,383.08100

12,756.10000

Indian Rupee

110.28500

105.45700

Japanese Yen

176.53700

159.84800

Kenyan Shilling

164.19039

158.35100

Korean Won

1,698.29000

1,667.20000

Kuwaiti Dinar

0.40749

0.42338

Libyan Dinar

6.426366.43266

Mauritian Rupee

58.6910061.05080

Moroccan Dirham

13.90422

12.90600

New Zambian Kwacha

24.05340

23.32850

New Zealand Dollar

2.13379

2.05581

Nigerian Naira596.93030

578.02100

Norwegian Krone

13.08650

12.38880

Pound Sterling

1.10279

1.04183

Sao Tomé Dobra

30.61850

30.33710

Saudi Arabian Riyal

4.992865.24120

South African Rand

22.77610

21.26400

Swedish Krona

13.94070

12.75930

Swiss Franc

1.23808

1.28791

3,072.67480

3,215.99000

Tunisian Dinar

Tanzanian Shilling

4.13905

4.06525

Turkish Lira

24.97450

18.67220

4,942.26220

4,960.57000

1.33084

1.39959

32,093.20660

32,050.60000

Ugandan Shilling
United States Dollar
Vietnamese Dong

No representation is made that any currency held by the Bank can be or could have been converted into any other currency at the cross rates resulting from the rates
indicated above.

105

African Development BankNOTE T-2: Other Development Assistance Activities(i) Democratic Republic of Congo (DRC)

In connection with an internationally coordinated effort between the Banks, the International Monetary Fund (the IMF), theWorld Bank and other bilateral and multilateral donors to assist the Democratic Republic of Congo (DRC) in its reconstruction
efforts, the Board of Directors on 26 June 2002, approved an arrears clearance plan for the DRC. Under the arrears clearance
plan, contributions received from the donor community were used immediately for partial clearance of the arrears owed by the
DRC. The residual amount of DRC’s arrears to the Bank and loan amounts not yet due were consolidated into new contractual
receivables, such that the present value of the new loans was equal to the present value of the amounts that were owed under
the previous contractual terms. The new loans carry the weighted average interest rate of the old loans. In approving the arrears
clearance plan, the Board of Directors considered the following factors: a) the arrears clearance plan is part of an internationally
coordinated arrangement for the DRC; b) the magnitude of DRC’s arrears to the Bank ruled out conventional solutions; c) the
prolonged armed conflict in the DRC created extensive destruction of physical assets, such that the DRC had almost no capacity forservicing its debt; and d) the proposed package would result in a significant improvement in its repayment capacity, if appropriate
supporting measures are taken. Furthermore, there was no automatic linkage between the arrears clearance mechanism andthe debt relief that may be subsequently provided on the consolidated facility. In June 2004, the DRC reached its decision point
under the Heavily Indebted Poor Countries (HIPC) initiative. Consequently, the consolidated facility has since that date benefited
from partial debt service relief under HIPC.
A special account, separate from the assets of the Bank, was established for all contributions towards the DRC arrears clearance
plan. Such contributions may include allocations of the net income of the Bank that the Board of Governors may from time totime make to the special account, representing the Bank’s contribution to the arrears clearance plan. The amount of such net
income allocation is subject to the approval of the Boards of Governors of the Bank, typically occurring during the annual general
meeting of the Bank. Consequently, income recognized on the consolidated DRC loans in current earnings is transferred out ofreserves to the special account only after the formal approval of such transfer, in whole or in part, by the Board of Governors of
the Bank.

(ii) Post-Conflict Countries Assistance/Transition States Facility

The Post Conflict Countries’ Fund was established as a framework to assist countries emerging from conflict in their efforts
towards re-engagement with the donor community in order to reactivate development assistance and help these countries reachthe Heavily Indebted Poor Countries (HIPC) decision point to qualify for debt relief after clearing their loan arrears to the Bank
Group. The framework entails the setting aside of a pool of resources through a separate facility with allocations from the ADB’s
net income, and contributions from the ADF and other private donors.
Resources from the facility are provided on a case-by-case basis to genuine post-conflict countries not yet receiving debt relief
to fill financing gaps after maximum effort by the post-conflict country to clear its arrears to the Bank Group. In this connection,
the Board of Governors by its Resolution B/BG/2004/07 of 25 May 2004, established the Post-Conflict Countries Facility (PCCF)
under the administration of the ADF and approved an allocation of UA 45 million from the 2003 net income of the Bank. The
Board of Governors also, by its resolution B/BG/2005/05 of 18 May 2005, approved an additional allocation of UA 30 million fromthe 2004 net income as the second installment of the Bank’s contribution to the facility and by its resolution B/BG/2006/04 of
17 May 2006, the Board of Governors also approved the third and final installment of the Bank’s allocation of UA 25 million fromthe 2005 net income.
In March 2008, the Board of Directors approved the establishment of the Fragile States Facility (FSF) to take over the activities of
the PCCF and in addition provide broader and integrated framework for assistance to eligible states. The purposes of the FSF
are to consolidate peace, stabilize economies and lay the foundation for sustainable poverty-reduction and long-term economic
growth of the eligible countries. By policy, contributions made by ADB to the PCCF/FSF are not used to clear the debt owed to
the Bank by beneficiary countries.

(iii) Heavily Indebted Poor Countries (HIPC) Initiative

The Bank participates in a multilateral initiative for addressing the debt problems of countries identified as HIPCs. Under thisinitiative, creditors provide debt relief for eligible countries that demonstrate good policy performance over an extended period
to bring their debt burdens to sustainable levels. Under the original HIPC framework, selected loans to eligible beneficiary
countries were paid off by the HIPC Trust Fund at a price equivalent to the lower of the net present value of the loans or theirnominal values, as calculated using the methodology agreed under the initiatives.
Following the signature of a HIPC debt relief agreement, the relevant loans were paid off at the lower of their net present valueor their carrying value. On average, loans in the ADB’s portfolio carry higher interest rates than the present value discount rates
applied and therefore the net present value of the loans exceeds the book value. Consequently, affected ADB loans were paid
off by the HIPC Trust Fund at book values.
The HIPC initiative was enhanced in 1999 to provide greater, faster and more poverty-focused debt relief. This was achieved by
reducing the eligibility criteria for qualification under the initiative and by commencing debt relief much earlier than under theoriginal framework. Under the enhanced framework, where 33 African countries are eligible, the debt relief is delivered throughannual debt service reductions, as well as the release of up to 80 percent of annual debt service obligations as they come due until
106Financial Report 2022

the total debt relief is provided. In addition, interim financing between the decision and completion points of up to 40 percent
of total debt relief is provided whenever possible within a 15-year horizon. As at end December 2022, the implementation of the
HIPC initiative shows that out of the 33 eligible countries, 30 RMCs have reached their completion points. Three (3) countries(Eritrea, Somalia and Sudan) have yet to complete the requirements for HIPC debt relief. Somalia, under successive IMF StaffMonitored Programs (SMP), has made significant progress, which led to the approval of debt relief from the World Bank, theInternational Monetary Fund and the Bank Group. As a result, Somalia reached the HIPC Decision Point on March 25, 2020.

iv) Multilateral Debt Relief Initiative (MDRI)

At the Gleneagles Summit on 8 July 2005, the Group of 8 major industrial countries agreed on a proposal for the ADF, theInternational Development Association (IDA), and the International Monetary Fund (IMF) to cancel 100 percent of their claims on
countries that have reached, or will reach, the completion point under the enhanced HIPC Initiative.
The main objective of the MDRI is to complete the process of debt relief for HIPCs by providing additional resources to help 38
countries worldwide, 33 of which are in Africa, to make progress towards achieving the Millennium Development Goals (MDGs),
while simultaneously safeguarding the long-term financing capacity of the ADF and the IDA. The debt cancelation would bedelivered by relieving post-completion-point HIPCs’ repayment obligations and adjusting their gross assistance flows downward
by the same amount. To maintain the financial integrity of the ADF, donors have committed to make additional contributions to
the ADF to match “dollar-for-dollar” the foregone principal and service charge payments.
The MDRI became effective for the ADF on 1 September 2006. As of that date, the ADF wrote down its balance of disbursed andoutstanding loans net of HIPC relief by an amount of UA 3.84 billion, with a corresponding decrease as of that date in the ADF’s net
assets. Reduction in ADF net assets results in a decrease in the value of the Bank’s investment in the Fund. Subsequent writedownof loan balances is affected as and when other countries reach their HIPC completion point and are declared beneficiaries of
MDRI loan cancelation. The reduction in the net asset value of the ADF does not include loans outstanding to MDRI countries
that have not reached their HIPC completion points at the end of the year.

NOTE T-3: Special Funds
Under Article 8 of the Agreement establishing the Bank, the Bank may establish or be entrusted with the administration of special
funds.
At 31 December 2022 and 2021, the following funds were held separately from those of the ordinary capital resources of the Bank:i) The Nigeria Trust Fund (NTF) was established under an agreement signed on 26 February 1976 (the Agreement) between the
African Development Bank and the Federal Republic of Nigeria. The Agreement stipulates that the NTF shall be in effect for aperiod of 30 years from the date the Agreement became effective and that the resources of the NTF shall be transferred to theGovernment of Nigeria upon termination. However, the 30-year sunset period may be extended by mutual agreement between
the Bank and the Federal Republic of Nigeria.
Following the initial expiry of the agreement on 26 April 2006, and the successful completion of independent reviews of its
performance, the Agreement has been extended several times, most recently for five years from 25 April 2023.
The initial capital of the NTF was NGN 50 million payable in two equal installments of NGN 25 million each, in freely convertible
currencies. The first installment, equivalent to USD 39.90 million, was received by the Bank on 14 July 1976, and payment of thesecond installment, equivalent to USD 39.61 million, was made on 1 February 1977.
During May 1981, the Federal Republic of Nigeria announced the replenishment of the NTF with NGN 50 million. The first
installment of NGN 35 million (USD 52.29 million) was paid on 7 October 1981. The second installment of NGN 8 million(USD 10.87 million) was received on 4 May 1984. The payment of the third installment of NGN 7 million (USD 7.38 million) was
made on 13 September 1985.
During the year ended 31 December 2014, the Government of the Federal Republic of Nigeria authorized the withdrawal ofan amount of USD13 million (UA 8.41 million) from reserves to settle its commitment on the arrears clearance of debt owed by
Liberia under the internationally coordinated arrears clearance mechanism for Post Conflict Countries.
During the year ended 31 December 2015, following a request by the Government of Nigeria, on 13 May 2015, a withdrawal of
USD 10 million (UA 7.14 million) was made from the resources of the Fund and paid to the Government of Nigeria.

107African Development Bank

The resources of the NTF at 31 December 2022 and 2021 are summarized below:(UA thousands)

2022

2021

Contribution received

128,586

128,586

Funds generated (net)

151,054

151,657

Adjustment for translation of currencies(91,482)(100,788)

188,158

179,455

Due from banks

5,486

3,283

Investments

91,216

87,078

Accrued income and charges receivable on loans

276

316

Accrued interest on investments

438

294

Represented by:

Other amounts receivable
Loans outstanding
Less: Current accounts payable

551

337

92,35589,699190,322

181,007(2,164)(1,552)

188,158

179,455ii) The Special Relief Fund (for African countries affected by drought) was established by Board of Governors’ Resolution 20–74
to assist African countries affected by unpredictable disasters. The purpose of this fund was subsequently expanded in 1991 toinclude the provision of assistance, on a grant basis, to research institutions whose research objectives in specified fields are likely
to facilitate the Bank’s objective of meeting the needs of Regional Member Countries in those fields. The resources of this Fundconsist of contributions by the Bank, the ADF and various member states.
The summary statement of the resources and assets of the Special Relief Fund (for African countries affected by drought) as at
31 December 2022 and 2021 follows:(UA thousands)

2022

2021

132,462

125,404

6,425

6,353

2

2

(130,777)(130,329)

8,112

1,430

Due from bank

1,395

297

Investments

6,675

1,834

42

(701)

8,112

1,430

Fund balance
Funds generated
Funds allocated to Social Dimensions of Structural Adjustment (SDA)
Less: Relief disbursed
Represented by:Accounts receivable/ (payable)

At 31 December 2022, a total of UA 0.47 million (USD 0.63 million) compared with UA 0.57 million (USD 0.80 million) in 2021, hadbeen committed but not yet disbursed under the Special Relief Fund.

108

Financial Report 2022iii) Africa Growing Together Fund (AGTF): Pursuant to the Board of Governors resolution B/BG/2014/06 of 22 May 2014, theagreement establishing the Africa Growing Together Fund was signed between the Bank and the Peoples Bank of China on 22
May 2014 to co-finance alongside the AfDB eligible sovereign and non- sovereign operations. Following the entry into force of
the AGTF agreement, an initial contribution of USD 50 million towards the Fund was received by the Bank on 28 November 2014.
The summary statement of the resources and assets of the Africa Growing Together Fund as at 31 December 2022 and 2021
follows:(UA thousands)

2022

2021

304,064(25,137)
278,928

200,913(9,693)
191,220

Due from bank

3,366

2,978

Investments

3,771

-

Loans outstanding

274,961

189,886

Accrued income and charges receivable on loans and investments
Less: Current accounts payable

3,442(6,612)278,928

1,199(2,843)
191,220

Contribution received
Funds generated (net)
Represented by:

NOTE T-4: Trust Funds
The Bank has been entrusted, under Resolutions 11–70, 19–74 and 10–85 of the Board of Governors, with the administration of
the Mamoun Beheiry Fund, the Arab Oil Fund, and the Special Emergency Assistance Fund for Drought and Famine in Africa.
These funds, held separately from those of the ordinary capital resources of the Bank, are maintained and accounted for in
specific currencies, which are translated into Units of Account at exchange rates prevailing at the end of the year.
•

The Mamoun Beheiry Fund was established under Board of Governors’ Resolution 11–70 of 31 October 1970, whereby
Mr. Mamoun Beheiry, former President of the Bank, agreed to set up a fund, which could be used by the Bank to reward
staff members who had demonstrated outstanding performance in fostering the objectives of the Bank.

•The Special Emergency Assistance Fund for Drought and Famine in Africa (SEAF) was established by the 20th
Meeting of Heads of State and Governments of member countries of the African Union formerly Organization of African
Unity (OAU) held in Addis Ababa, Ethiopia, from 12 to 15 November 1984, under Resolution AHG/Res. 133 (XX), with theobjective of giving assistance to African member countries affected by drought and famine.

109African Development Bank

The financial highlights of these Trust Funds at 31 December 2022 and 2021 are summarized below:(UA thousands)

2022

2021

Contribution

152

152

Income from investments

157

171

309

323

Less: Prize awarded

(46)

(46)

Gift

(25)

(25)

238

252

238

252

238

252

Contributions

22,722

22,722

Funds generated

7,785

7,716

30,50730,438(29,524)(27,935)

983

2,503

983

2,499

‑

4

983

2,503

1,221

2,755

Mamoun Beheiry Fund

Represented by:
Due from banks

Special Emergency Assistance Fund for Drought and Famine in Africa

Less: Relief disbursed
Represented by:
Banks and Investment
Net Receivable
Total Resources & Assets of Trust Funds

NOTE T-5: Grants (Donor Funds)
The Bank administers grants on behalf of donors, including member countries, agencies and other entities. Resources for Grants
are restricted for specific uses, which include the co-financing of the Bank’s lending projects, debt reduction operations, technicalassistance for borrowers including feasibility studies and project preparation, global and regional programs and research andtraining programs. These funds are placed in trust and are not included in the assets of the Bank. In accordance with Article 11 of
the Agreement establishing the Bank, the accounts of these grants are kept separate from those of the Bank.

110

Financial Report 2022

The undisbursed balances of the grant resources at 31 December 2022 and 2021 were as follows:(UA thousands)

Trust Fund Name
AFAWA Risk Sharing Facility
Africa Circular Economy Facility
Africa Climate Change Fund
Africa Digital Financial Inclusion
Africa Disaster Risk Trust Fund
Africa Growing Together Fund
Africa Integrity Fund
Africa Investment Facility
Africa Renewable Energy Initiative
Africa trade Fund
Africa Water Facility Fund
African Energy Leaders Group
African Legal Support Facility
Agriculture fast track fundAgri-Food SME Catalytic Financing Mechanism (IF)Agri-Food SME Catalytic Financing Mechanism (TAF)
AMINA
Bill and Melinda Gate Foundation TCA
Boost Africa Entrepreneurs Lab Trust Fund
Boost Africa Financial Instrument
Boost Africa Technical Assistance
Canada AfDB Climate Fund
Canadian Grant for Technical Assistance
Capital Market Development Trust Fund
Chinese Government Fund
Clean Technology Fund
Climate Development
Congo Basin Forest Fund
EU Africa Infrastructure Trust Fund
Facility for Energy Inclusion financial Instrument
Facility For Energy Inclusion Technical AssistanceFertilizer Financing Mechanism
FinlandFranceFund For African Private Sector Assistance (FAPA)
Gender Equality Trust Fund
Global Agriculture And Food Security Programme (GAFSP)
Global Environment Facility
Global Infrastructure Facility FundGreen Climate Fund
India
Infrastructure Consortium For Africa (ICA)
Initiative Migration and Development (IMDE)
Investment Climate Facility for Africa
ItaliaKorea Trust Fund
Making Finance Work for Africa (MFW4A)
MENA Transition Fund
Microfinance Trust Fund
Multi-Donor Water Partnership Programme
Nepad Infrastructure
Nigeria Technical Cooperation Fund (NTCF)
NorwayPrivate Sector Credit Enhancement Facility
Programme For Infrastructure Development in Africa (PIDA)
Rockefeller Foundation
Rural Water Supply and Sanitation Initiative
SFRD (Great Lakes)
South South cooperation Trust Fund
Statistical Capacity Building (SCB)
Strategic Climate Fund
Sustainable Energy Fund for Africa
Switzerland Technical Assistance Grant
Trust Fund for Countries in Transition
Uganda Road Sector Project
United Kingdom
Urban Municipal Development FundValue for Money Sustainability and Accountability Trust Fund
Women Entrepreneurs Finance Initiative Trust Fund
Youth Entrepreneurship Innovation Trust Fund
Zimbabwe Multi-Donor Trust Fund
OthersTotal

2022
46,791
1,619
12,954
18,312
5,305
6,787
42,24237,781
2,965
3,080
41,101353
23,171
4,119
45,453
11,409
1,574
6,510
1,419
3,562
558
75,763
256
4,443
256
56,452
5,340
12,0193,506
18,474612
12,66057
554
42,597
17,761
21,792
42,593889
19,554
1,189
349
60
372
3,550
31,096
387
1,081
2,298
294
27,0533,354
46
217,989112
899
21,539435
443
548
50,315
191,357
409
2,110
1,374
74
2,216
902
10,15520,0992,142
881,246,978

2021

39,297
11,33913,062
6,913
2,978
39,68881,983
3,609
3,398
30,668354
20,622
6,161
1,576
7,994
1,414
4,183
573
75,636
227
4,271
243
13,036
6,275
12,048
1,663
21,077
1,027
6,831
2,803
554
37,567
15,06732,234
15,731
1,018
743
1,216
230
60
374
4,036
9,718
590
8,444
2,460
319
26,632
3,314
46
197,285
112
1,390
28,308
431
454
541
9,525
162,732
843
5,967
1,371
74
3,079
945
13,332
22,192
4,823
719

1,035,425
111

African Development Bank
Avenue Joseph Anoma
01 BP 1387 Abidjan 01
Côte d’Ivoire

Independent Auditor’s Report on the Financial Statements
Year ended December 31, 2022
To the Board of Governors of the African Development Bank

OpinionWe have audited the accompanying financial statements of the African Development Bank which comprise the balance sheet
as at December 31, 2022, and the income statement, the statement of other comprehensive income, the statement of changes
in equity and the statement of cash flows for the year then ended, and notes comprising a summary of significant accounting
policies and other explanatory information as set out in notes A to T.
In our opinion, the accompanying financial statements present fairly, in all material respects, and give a true and fair view of
the assets and liabilities and of the financial position of the Bank as at December 31, 2022 and of the results of its operations,and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
Audit Framework
We conducted our audit in accordance with International Standards on Auditing (ISA). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial
Statements” section of our report.
Independence
We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants (IESBA), andwe have fulfilled our other ethical responsibilities in accordance with these requirements.
Key Audit Matters
We inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were ofmost significance in our audit of the financial statements of the current period, as well as how we addressed those risks.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Impairment based on expected credit losses for loans classified in stages 1 and 2
Risk
identified

In addition to the impairment methodology for incurred credit loss (stage 3 - see key audit matter mentioned
below), the IFRS 9 impairment rules related to expected credit losses require the recording of impairments
calculated as follows:• stage 1 representing an expected loss within 1 year from initial recognition of the financial asset;• stage 2 which represents an expected loss at maturity, in the event of a significant increase in credit risk
since initial recognition.
The estimate of expected credit losses requires the exercise of judgment to determine in particular:• the rating procedures for loans covered by this impairment model;• the rules for mapping loans to their appropriate staging;• criteria for the determination of increase in credit risk;• key parameters for calculating expected credit losses, such as the probability of default (PD) and loss
given default (LGD), notably this year with the methodology change in the determination of the LGD
sovereign curve;• the methodology for taking into account macroeconomic projections for both increase in credit risk andmeasurement of expected losses.
These parameters are integrated into the model used by the Bank for each type of loan portfolio (sovereignloans and non-sovereign loans) to determine the amount of expected credit losses.
In addition, these parameters are more sensitive in the current context of multiple crises which led toa macro-economic environment with higher uncertainties and volatility that is likely to affect the
reimbursement ability of some borrowers, with contrasting situations.
The accounting principles applied and the impact of those IFRS 9 impairment rules are detailed in notes
B, C and G.
Thus, the impairment charge on loans classified in stages 1 and 2 amounted to UA 150,213 thousand forthe year ended December 31, 2022 (out of a total amount of impairment charge on all loans of UA 97,017
thousand for the year ended December 31, 2022 due to a net reprisal impact in stage 3).
Consequently, as at December 31, 2022, the accumulated impairment for expected losses on loansclassified in stages 1 and 2 amounted to UA 280,847 thousand for a total impairment amount of UA
953,682 thousand.
Given the scope of the IFRS 9 standard, the complexity of its implementation and the importance of theaccounting estimates, we considered that impairments based on expected credit losses on loans classified instages 1 and 2 is a key audit matter for the year ended December 31, 2022, more particularly in the current
context, which is marked by significant uncertainty linked to the prevailing macroeconomic environment
and the absence of a comparable historical situation.

Our
response

Our work has been strengthened to take into account the evolution of risks and the increased level of
uncertainty related to the prevailing macroeconomic situation. In this context, we have assessed theadequacy of the level of stages 1 & 2 credit risk coverage and the overall level of the associated cost ofrisk, as well as the relevance of the internal control system and, in particular, its adaptation to the current
economic environment.
With the assistance of our experts, our work consisted mainly, in:• analyzing compliance of calculation and calibration methods with the IFRS 9 standards, in particularon:- the loans rating process, the significant increase in credit risk criteria and the rules for mapping loans
to their appropriate staging;- calculation of expected losses (review of the models, calibration of PDs, LGDs with a specific focus
on the methodological changes to LGDs for sovereign loans, review of forward-looking assumptions
parameters with regard to the evolution of the macro-economic context, etc.);• carrying out independent calculations with our own tools.
Finally, our audit work also included the review of the impact of expected credit losses on the financial
statements as at December 31, 2022 and the review of the relevant explanatory information provided in therelated notes to the financial statements.

Impairment based on incurred credit risk for non-sovereign loans classified in stage 3
Risk
identified

The African Development Bank is exposed to credit and counterparty risks on sovereign and non-sovereignloans that it grants. These risks result from the inability of its clients and counterparties to meet their financial
commitments when contractually due.
In accordance with the IFRS 9 impairment rules, the African Development Bank records impairments tocover expected credit losses (loans classified in stages 1 and 2 - see key audit matter mentioned above) andincurred losses (loans classified in stage 3).
Impairment on incurred losses for loans classified in stage 3 are determined on an individual basis. These
individual impairments are determined by the management based on the estimated future recoverable cash
flow estimated on each of the concerned loans.
These individual impairments are also determined by the management in the current context of multiple
crises which led to a macro-economic environment with higher uncertainties and volatility that is likely toaffect borrowers’ ability to reimburse, with contrasting situations depending notably on the business sectorof the counterparties.
As indicated in notes B, C and G to the financial statements, the outstanding sovereign loans classified instage 3 concentrated in one counterparty are slightly increasing, mainly due to currency translation changes(UA 207 million as at December 31, 2022 compared to UA 196 million as at December 31, 2021) whereas
the Bank’s total non-sovereign loans outstanding amounted to UA 2,930 million, including UA 499 million
outstanding loans classified in stage 3 with an impaired amount of UA 378 million as at December 31, 2022
(compared to UA 3,076 million total outstanding non-sovereign loans of which UA 492 million classified instage 3 with an impaired amount of UA 360 million as at December 31, 2021).
Given that the assessment of impairment requires a significant accounting estimate and use of management’s
judgement, we consider that the identification and evaluation of incurred credit loss on non-sovereign loans(which represents an increased risk compared to sovereign risks) is a key audit matter, more particularlyin the 2022 context, which is marked by significant uncertainty linked to the prevailing macroeconomic
environment and the absence of a comparable historical situation.

Our
response

Our work has been strengthened to take into account the evolution of risks and the increased level of
uncertainty related to the prevailing macroeconomic situation. In this context, we have assessed theadequacy of the level of stage 3 credit risk coverage and the overall level of the associated cost of risk, aswell as the relevance of the internal control system and, in particular, its adaptation to the current economic
environment.
As part of our audit procedures, we reviewed the control framework for identifying exposures, monitoring
credit and counterparty risks, assessing non-recovery risks and determining related impairment andprovisions.
Our work consisted of assessing the quality of the monitoring system for watchlisted and impaired loans
and the credit review process, particularly by the Credit Risk Committee (CRC).
In addition, based on a sample selected on materiality and risk criteria, we performed an independent
analysis of the amounts of provisions.

Valuation of financial assets, financial liabilities and derivatives of level 2 and 3 under the IFRS 13
Risk
identified

The African Development Bank holds on its balance sheet a significant amount of financial assets
and financial liabilities (including derivatives) with fair value of UA 6.7 billion and UA 26.6 billion,
respectively, at December 31, 2022.
For the purposes of measurement in accordance with IFRS 13, financial instruments are grouped into
three different levels on the basis of observability of inputs used in the fair value measurement. Levels 2
and 3 include financial instruments valued on the basis of valuation models whose significant parameters
are or are not observable on the market, as the case may be (UA 2.7 billion of financial assets and UA
10.9 billion of financial liabilities valued at levels 2 and 3 as at December 31, 2022 - see note D to thefinancial statements). The measurement of the fair value of Level 2 and Level 3 financial instruments istherefore based on valuation techniques that involve a significant amount of judgment as to the choice of
methodologies and data used:• determination of unobservable market valuation parameters;• use of internal valuation models;• estimation of additional valuation adjustments to take into account certain market, counterparty or
liquidity risks.
We considered that financial instruments classified as Level 2 and 3 in the fair value hierarchy were a key
element of the audit because of the materiality of the exposures and the use of judgment in determining
fair value, especially for some financial instruments whose valuation is volatile in the current uncertain
economic context (with higher interest and inflation rates notably) caused by the uneven and disparate
recovery from the pandemic and ongoing geopolitical crises.

Our
response

We have reviewed the internal control systems governing the identification, measurement and recognitionof Level 2 and Level 3 fair value financial instruments. We have taken note of relevant reports and minutesof committees (particularly ALCO) that could take a position on this subject.
We tested the controls (notably those by the back and the middle office) that we considered relevant for
our audit, in particular those relating to:• independent verification of the valuation parameters,• determination of the main valuation adjustments and corrections made.
We have performed these procedures with the assistance of our valuation experts, with whom we have also
carried out independent valuation work involving the examination, based on samples, of the assumptions,
methodologies and models used to estimate the main valuation adjustments.
The impact of the current economic environment marked by different crises on the valuation of level 2 and3 financial instruments was taken into account in our work, with particular attention to the estimates used.
We also examined the main existing margin call spreads and the losses and/or gains on sales of instruments
to determine the appropriateness of the Bank’s valuations.
Finally, we examined the disclosures relating to the valuation of financial instruments published in thenotes to the financial statements.

Assessment of Employee Benefits
Risk
identified

The African Development Bank offers its employees:• a defined benefit pension plan for employees hired prior to 1st July 2019 or, for those hired after thisdate a mandatory membership to a hybrid pension plan (combination of defined benefit scheme anddefined contribution scheme); and• a defined benefit medical plan that also provides medical benefits to eligible former employees,
including retirees.
For the defined pension plan, an actuarial valuation of the cost of the plan is performed using the projected
unit credit method. Liabilities represent the present value of the defined benefits that the Bank must pay,less the fair value of plan assets.
For the defined medical plan, the liability represents the present value of the defined post-employment
benefits to be paid by the Bank less the fair value of plan assets.
As disclosed in note P of the financial statements, the Bank’s liability to the pension and medical planamount to UA 67 million and UA 162 million respectively as at December 31, 2022.
The valuation of the present value of the liabilities arising from the pension and medical plans is based on
various parameters (discount rate, rate of salary increase, mortality rate, future rate of pension increase,rate of increase in cost of medical care, etc.).
We considered that the assessment of these social and contractual commitments was a key audit matter,
given the use of judgment in determining these parameters, particularly in the current macro-economic
environment (marked by the increase of both interest and inflation rates notably) which could affect thelevel of the parameters used in the estimation as well as the impact of certain pension eligibility rules(optional change in the retirement age for employees present in the Bank’s workforce as at December 31,2022).

Our
response

With the support of our experts, we assessed the process for monitoring and determining the valuation ofthese social commitments.
In particular, we carried out the following work:• reviewed the terms and conditions of these defined benefit plans (pension and medical plans) and anychanges that may have occurred during the 2022 financial year (notably the potential impact related tothe optional change in the retirement age for employees present in the Bank’s workforce as at December
31,2022);• compared with external sources and examined the reasonableness of assumptions for determining thevarious parameters used, in particular the discount and inflation rates in relation to the 2022 macroeconomic context;• carried out an independent valuation of each defined benefit plan by verifying the data on the basis of asample of individuals who are beneficiaries of the pension and medical plans and then recalculating theoverall commitment on the basis of the data and parameters retained by the Bank.
Finally, we examined the appropriateness of the information on employee benefits disclosed in the notes
to the financial statements.

Other information
Management is responsible for the other information. The other information comprises the information included in the African
Development Bank Group Annual Report but does not include the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information, and we do not and will not express any form ofassurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained
during the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, andfor such internal control as management determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it
is expected to liquidate the Bank or to cease operations.
The Audit & Finance Committee of the Board, and more generally those charged with governance, are responsible foroverseeing the Bank’s financial reporting process and to monitor the effectiveness of the internal control and risk management
systems, as well as the internal audit, as regards the procedures relating to the preparation and processing of accounting andfinancial information.
The financial statements were approved by the Board for transmission to the Board of Governors.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
In accordance with International Standards on Auditing (ISA), our role as external auditor does not consist in guaranteeing theviability or quality of management of the audited entity.

As part of an audit conducted in accordance with ISA, the auditor exercises professional judgment throughout the audit andfurthermore:• Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs
and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient andappropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,or the override of internal control;• Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for expressing an opinion on the effectiveness of the internal control;• Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management in the financial statements;• Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Bank’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the dateof his audit report. However, future events or conditions may cause the Bank to cease to continue as a going concern. If
the auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to therelated disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion
expressed therein;• Evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding theaccounting and financial reporting procedures that we have identified.
From the matters communicated with those charged with governance, we determine those matters that were of most significancein the audit of the financial statements of the current period and are therefore the key audit matters. We describe these mattersin our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.
Paris – La Défense, April 27, 2023
The independent auditor
Deloitte & Associés

Jean-Vincent COUSTELPartnerFinancial Report 2022

ADB administrative budget for financial year 2023
(UA thousands)
Description
Personnel Expenses
Salaries

170,033

Benefits

82,776

Other Employee Expenses

11,597

Short Term and Technical Assistance Staff

5,471

Consultants

44,532

Staff Training

4,612
319,021

General Expenses
Official Missions

36,202

Accommodation

16,139Equipment Rental, Repairs and Maintenance

12,124

Communications Expenses

10,027

Printing, Publishing and Reproduction

577

Office Supplies and Stationery

414

Library

287

Other Institutional Expenses

27,178102,948

Total Administrative Budget

421,969

Depreciation

35,010

Provision for SRP & MBP

66,380

Total

523,359

Less Management Fees*(261,910)

Net Administrative Budget

261,449* The amount represents the African Development Fund and the Nigeria Trust Fund’s share of the fair value of the Bank’s expenses in respect of officers, staff, organization,
services and facilities based on formula approved by the Boards.

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