New Development Bank

New Development Bank
Abbreviation NDB, or NDB BRICS
Formation July 2014 (Treaty signed)
July 2015 (Treaty in force)
Type International Financial Institution
Legal status Treaty
Headquarters Shanghai, China
Membership
 Brazil
 Russia
 India
 China
 South Africa
Official language
English
President
 K.V. Kamath
Website www.ndb.int

The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS states (Brazil, Russia, India, China and South Africa).[1] According to the Agreement on the NDB, "the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments." Moreover, the NDB "shall cooperate with international organizations and other financial entities, and provide technical assistance for projects to be supported by the Bank."[1]

The initial authorized capital of the bank is $100 bln divided into 1 mln shares having a par value of $100,000 each. The initial subscribed capital of the NDB is $50 bln divided into paid-in shares ($10 bln) and callable shares ($40 bln). The initial subscribed capital of the bank was equally distributed among the founding members. The Agreement on the NDB specifies that the voting power of each member will be equal to the number of its subscribed shares in the capital stock of the bank.[1]

NDB is currently headquartered in Oriental Financial Centre in Shanghai

The bank is headquartered in Shanghai, China.[2] The first regional office of the NDB will be opened in Johannesburg, South Africa.[3]

History

The idea for setting up the bank was proposed by India at the 4th BRICS summit in 2012 held in Delhi. The creation of a new development bank was the main theme of the meeting.[4] BRICS leaders agreed to set up a Development bank at the 5th BRICS summit held in Durban, South Africa on 27 March 2013.[5] According to Devex, the name of the bank is believed to have been proposed by Indian Prime Minister Narendra Modi.[6]

On 15 July 2014, the first day of the 6th BRICS summit held in Fortaleza, Brazil, the BRICS states signed the Agreement on the New Development Bank, which makes provisions for the legal basis of the bank.[1] In a separate agreement, a reserve currency pool worth $100 bln was set up by BRICS nations.[7] Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also signed.[8]

On 11 May 2015, K. V. Kamath was appointed as the President of the bank.[9]

The 7th BRICS summit in July 2015 marked the entry into force of the Agreement on the New Development Bank.

On 27 February 2016, the NDB signed Headquarters Agreement with the Government of the P.R.C. and the Memorandum of Understanding with Shanghai Municipal People’s Government concerning the arrangements in relation to Headquarters of the bank in Shanghai. The documents were signed on the sidelines of G20 Finance Ministers and Central Bank Governors meeting in Shanghai.[10][11]

According to the bank, most of the NDB policies and procedures for all functional areas were approved at the Board of Directors meeting in January 2016.[12]

In March 2016, the New Development Bank announced that it is planning to recruit 100 staff from BRICS countries by the end of 2016.[13]

On 19 July 2016, the NDB reported that it successfully issued the bank's first green financial bond with issue size of RMB 3 billion, tenor of 5 years in the China interbank bond market.[14]

On 20 July 2016, the first annual meeting of the NDB Board of Governors was held in Shanghai. The participants of the meeting discussed Bank's future work and development and gave a positive assessment to the bank's work. At the meeting, the first green financial bond issuance in Renminbi was highlighted as a milestone event for the NDB. It was decided that the next annual meeting of the board will be held in India in 2017.[15]

Timeline showing NDB creation milestones
NDB Creation Milestones

In 2016, the NDB Board of Directors approved seven projects in all members of the bank involving financial assistance of over USD 1.5 bln.[16][17][18]

On 21 December 2016, the NDB signed its first loan agreement.[19]

Structure and Objectives

Corporate Governance

According to the Articles of Agreement, the main organs of the bank are:

As of August 2016, the members of NDB Board of Governors are as follows:

The NDB President will be elected on a rotational basis from one of the founding members, and there will be at least one Vice President from each of the other four founding members.[20]

K. V. Kamath, from India, is the first elected president of the NDB.

The first chair of the Board of Governors is from Russia and the first chair of the Board of Directors is from Brazil.[21]

Development capital

The bank's primary focus of lending will be infrastructure and sustained development projects [22][23] with authorized lending of up to $34 bln annually.[23] The bank will have starting capital of $50 bln, with capital increased to $100 bln over time.[24] Brazil, Russia, India, China and South Africa will initially contribute $10 bln each to bring the total to $50 bln.[24][25] Each member cannot increase its share of capital without all other four members agreeing. This was a primary requirement of India.[26][27] The bank will allow new members to join but the BRICS capital share cannot fall below 55%.[24]

Objectives

The bank aims to contribute to development plans established nationally through projects that are socially, environmentally and economically sustainable. Taking this into account, the main objectives of the NDB can be summarized as follows

  1. Promote infrastructure and sustainable development projects with a significant development impact in member countries.
  2. Establish an extensive network of global partnerships with other multilateral development institutions and national development banks.
  3. Build a balanced project portfolio giving a proper respect to their geographic location, financing requirements and other factors.

Membership

The Agreement on the New Development Bank entered into force in July 2015, with the ratification of all five states that have signed it. The five founding members of the Bank include Brazil, Russia, India, China and South Africa.

Bank's Articles of Agreement specify that all members of the United Nations could be members of the bank, however the share of the BRICS nations can never be less than 55% of voting power.

Expanding the NDB's membership is considered by some experts to be crucial to its long-term development by helping boost the bank’s business growth.[28] According to the NDB vice-president Zhu Xian, it is very likely that new members will join the bank in 2017 or 2018. He noted that the expansion of membership is unlikely in 2016, as it takes time to go through procedures and discussions with interested countries.[28]

In May 2017 it was reported that 15 countries including Bangladesh have been offered membership in the NDB.[29]

Shareholding structure

According to Articles of Agreement of the New Development Bank, the initial authorized capital of the bank is divided into 1 mln shares, having a par value of $100,000. The value of one share is also the minimum amount to be subscribed for participation by a single country. Attachment 1 to this document states that each founding member of the bank will initially subscribe 100,000 shares, in a total of $10 bln, of which 20,000 shares correspond to paid-in capital, in a total of $2 bln and 80,000 shares correspond to callable capital, in a total of $8 bln.[1]

Pie chart showing equal distribution of shares between the NDB shareholders
Equal distribution of shares between the shareholders of the NDB

The current distribution of shares between NDB member countries is presented in the following table.

Countries by Shareholding at the New Development Bank
Country Number of
Shares 		Shareholding
(% of Total) 		Voting Rights
(% of Total) 		Authorised Capital
(bln USD)
 Brazil 100,000 20 20 10
 Russia 100,000 20 20 10
 India 100,000 20 20 10
 China 100,000 20 20 10
 South Africa 100,000 20 20 10
Unallocated Shares 500,000 - - 50
Grand Total 1,000,000 100 100 100

Activities

Projects

The BRICS New Development Bank is planning to give a priority to projects aimed at developing renewable energy sources. As it was stated by the NDB Vice President, the Bank wants to cooperate with other institutions in accelerating ‘green’ financing expansion and promoting environment protection. He also pointed out that the NDB is planning to finance one project from each member state with the money raised via its first bond issue.[30]

The NDB has expressed interest in funding projects that conform to high environmental standards, including those in the field of infrastructure, such as energy, railways and highways in the future.[31] At the same time, according to K. V. Kamath, the President of the NDB, one of the key strategies of the bank will be financing profitable projects (bankable) with return on capital.[32][33] The NDB wants "to fund projects that are creative and bring benefits to the local people and environment", said Vice President Zhu Xian.[34]

The leadership of the member countries task the bank with developing a strong pipeline of projects and responding in a fast and flexible manner to aspirations and interests of its members.[35]

In 2016, the NDB Board of Directors approved loans for 7 projects in all members of the bank for the total amount of over USD 1.5 bln.

On 21 December 2016, the NDB signed its first loan agreement. The loan agreement approving the provision of RMB 525 mln sovereign project loan for the Bank's first project in China (Shanghai Lingang Distributed Solar Power Project) was signed by the Chinese Vice Minister of Finance Shi Yaobin and the NDB President K.V.Kamath.[36]

The NDB plans to approve USD 2.5 bln of loans in 2017.[34]

On 30 March 2017, the NDB and the Indian government signed a loan agreement approving the provision of USD 350 mln for Madhya Pradesh major district roads upgrade project.[37]

Loan agreement for the first Brazilian project was signed on 26 April 2017. The loan with the amount of USD 300 mln aiming at developing the renewable energy sector in Brazil will be provided to BNDES, national development bank.[38]

Projects Supported by the NDB in 2016
Country Loan Amount Sov. / Non-sov. Borrower Guarantor End-user / Onlendee Modality Target Sector Impact
 Brazil USD 300 mln Non-sovereign BNDES - Sub-projects - National financial intermediary

- Two step loan

 Renewable energy

(wind, solar etc)

 - 600 MW renewable energy

- Avoided 1 mln t CO2/year

 Russia USD 100 mln Non-sovereign EDB / IIB - - Nord Hydro-Bely Porog

- Other subprojects

 - National financial intermediary

- Two step loan

 - Renewable energy (hydropower)

- Green energy

 - 49.8 MW renewable energy

- Avoided 48 000 t CO2/year

 India USD 250 mln Sovereign guaranteed Canara Bank Government of India Sub-projects - Sovereign guaranteed

- 3 transactions

 Renewable energy

(wind, solar etc)

 - 500 MW renewable energy

- Avoided 815 000 t CO2/year

 India USD 350 mln Sovereign Government of India - Government of Madhya Pradesh Sovereign Project Finance Facility Upgrading Major District Roads - About 1,500 km of MDRs will be upgraded
 China RMB 525 mln

(USD 81 mln)

 Sovereign PRC Government - Shanghai Lingang Hongbo New Energy Development Co. Ltd. Sovereign project loan Renewable energy

(solar roof-top PV)

 - 100 MW solar energy

- Avoided 73 000 t CO2/year

 China RMB 2 bln (USD 298 min) Sovereign PRC Government - Fujian Investment and Development Group Project Loan Renewable energy (wind power) - 250 MW wind energy

- avoided 869 900 t CO2/year

 South Africa USD 180 mln Sovereign guaranteed ESKOM Government of RSA ESKOM Sovereign guaranteed project loan Renewable energy (transmission) - 670 MW renewable energy evacuated (transmitted)

- Avoided 1,3 mln t CO2/year

Source: NDB Handout materials, Press Release of the NDB (22 November 2016)

Bonds

In March 2016, the NDB announced that it will do a bond issue in China to raise funding domestically on the Chinese market. The bond issue is likely to happen in the second quarter of the year 2016, said the NDB Vice President Leslie Maasdorp. He added the bank is starting to finalize the exact size of this bond issue.[30]

On 18 July 2016 the NDB successfully issued its first green financial bond with issue size of RMB 3 billion, tenor of 5 years in China onshore interbank bond market. The bond's nominal interest rate is 3.07%. The bank became the first international financial institution that issued a green financial bond in the China onshore bond market. The proceeds of the bond will be used for infrastructure and sustainable development projects in the member countries.[39]

Relations With Other Institutions

Approach

The Articles of Agreement of the bank say that the NDB was established to complement the existing efforts of multilateral and regional financial institutions for global growth and development. Moreover, the NDB is authorized by its founders to cooperate within its mandate with other international organizations, as well as national entities (public or private), in particular with international financial institutions and national development banks.[1]

The NDB President K.V.Kamath stresses that the bank regards other international financial institutions, including IMF and World Bank as partners, not rivals.[40]

Asian Development Bank

In July 2016, the NDB signed with Asian Development Bank (ADB) a memorandum of understanding on strategic cooperation. The two institutions expressed willingness to work together through co-financing and knowledge exchanges in areas including sustainable development projects in renewable energy, energy efficiency, clean transportation, sustainable water management, and sewage treatment.[41]

Asian Infrastructure Investment Bank

Although some analysts hypothesize that Asian Infrastructure Investment Bank (AIIB) and the NDB would compete with one another, currently there is no evidence of competition among theses institutions.

Talking about the relations with AIIB, officials from the NDB's member-states point out the difference in the member-states of the NDB and AIIB as well as a potential to complement in working together to meet development and infrastructural needs.[42]

According to a representative of the Bank's management, the NDB and AIIB are sister institutions in many respects. These two banks have complementary mandates and different geographic focuses, with the NDB being more focused on BRICS countries. At the same time, there is a certain overlapping between mandates of the NDB and the AIIB, as both of them are aimed at developing infrastructure and pay a special attention to sustainable development. However, due to the fact that current financing and investment patterns are inadequate in meeting investment needs, there is "space for newcomers", he said.[43]

In February 2016, the president of the NDB dismissed concerns over overlapping of interests of China-backed Asian Infrastructure Investment Bank (AIIB) and the NDB.[44]

World Bank

According to media reports, other multilateral development institutions, including the World Bank Group (WBG), have expressed an intention to work together with the NDB.[45]

In September 2016, NDB and World Bank Group signed a memorandum of understanding on cooperation and it was announced that the NDB and WBG’s cooperative efforts will focus primarily on infrastructure.[46]

Reception

Prominent Scholars

In July 2014, Nobel Prize winning economist Joseph Stiglitz said the NDB marks a "fundamental change in global economic and political power." In his opinion, "The existing institutions just don’t have enough resources."[47]

Officials

Chinese Premier Li Keqiang called the opening of the NDB an "important step forward" in cooperation among BRICS countries. "This is great progress in financial cooperation among developing countries and emerging economies, as well as a helpful supplement to the global financial system," Li Keqiang said at a meeting with K. V. Kamath in Beijing in July, 2015.[48]

China Finance Minister Lou Jiwei said that the establishment of the NDB and the Beijing-led AIIB would encourage existing multilateral institutions to do better. At a news conference at the conclusion of the G20 meeting of finance ministers and central bank governors in Shanghai he added that the New Development Bank could help drive aggregate global demand.[49]

Bankers

8 July 2015, VTB CEO Andrey Kostin said that the NDB is "important because it’s a first institution created by the BRICS countries." "Actually we are talking about the institutionalization of the BRICS process, and that’s quite important I think. It’s a permanent working instrument which will be working every day and which will be in the heart of BRICS cooperation," he added.

According to former Reserve Bank of India governor Raghuram Rajan, the NDB "Is a co-operative effort between all BRICS countries." "We have already reached contingency reserve agreement (CRA). This is second. Let’s see how it develops. Lots of hopes embedded in it for greater cooperation (among the) BRICS countries,” he told reporters in February 2016.[50]

Logo and Identity

Bank's logo and BRICS flags
The logo of the NDB in the bank's HQ in Shanghai

The logo of the New Development Bank borrows from the mathematical concept of a Mobius strip that symbolizes the idea of continuous transformation. Its nature is not to disrupt but drive change in the existing system from within.[51][52]

The logo consists of a triangle in motion at one end signifying balanced evolution. The other end, moving in the opposite direction, is a propeller that represents speed and dynamism. These two entities are held together by a wireframe, the skeletal basic of infrastructure. The logo is rendered in gradient of green that symbolizes sustainability. This constant motion symbolizes the values that the bank strives to live by – agility, innovation and continuous transformation.[53]

See also

References

  1. 1 2 3 4 5 6 "Agreement on the New Development Bank – Fortaleza, July 15" (PDF). NDB Official Website. 15 July 2014.
  2. ↑ Lewis, Jeffrey; Trevisani, Paulo. "Brics Agree to Base Development Bank in Shanghai". The Wall Street Journal. Retrieved 16 July 2014.
  3. ↑ "Brics Bank now hiring in Johannesburg". Times LIVE. 7 March 2016. Retrieved 13 March 2016.
  4. ↑ "BRICS Summit 2012: A long Journey to cover; Overview, Outcomes and Expectations". The World Reporter. 31 March 2012. Retrieved 31 March 2012.
  5. ↑ Powell, Anita. "BRICS Leaders Optimistic About New Development Bank". Voice of America. Retrieved 27 March 2013.
  6. ↑ "Modi budget hikes Indian aid, mum on regional bank". www.devex.com. Retrieved 2 May 2016.
  7. ↑ "Brics nations to create $100bn development bank". BBC.com. 15 July 2014
  8. ↑ "BRICS establish $100bn bank and currency reserves to cut out Western dominance". RT.com. 15 July 2014
  9. ↑ "K V Kamath, non-executive chairman of ICICI, is now BRICS Bank head". Hindustan Times. New Delhi. 11 May 2015. Retrieved 16 May 2015.
  10. ↑ "NDB Official Website - Newsroom - Press Releases -- The New Development Bank Signed Headquarters Agreement with the Government of the People's Republic of China". Retrieved 11 April 2016.
  11. ↑ CCTV+ (2016-02-28), BRICS Countries Sign HQ Agreement, MOU for New Development Bank, retrieved 2016-04-11
  12. ↑ NDB Press Release entitled "Press Conference by NDB on the Eve of Signing Headquarters Agreement with Government of China" (http://www.ndb.int)
  13. ↑ "Recruitment drive begins at BRICS Development Bank - SA News". www.sanews.gov.za. Retrieved 2016-04-07.
  14. ↑ "NDB Successfully Issued First RMB-denominated Green Financial Bond". www.ndb.int. Retrieved 2016-08-15.
  15. ↑ "NDB boards congratulate bank on its progress at the first annual meeting". www.ndb.int. Retrieved 2016-08-15.
  16. ↑ "BRICS bank to allocate $100 mln for financing small-scale energy project in Karelia". www.ndb.int. Retrieved 2016-08-15.
  17. ↑ "First Set of Loans Approved by the Board of Directors of the New Development Bank". www.ndb.int. Retrieved 2016-08-15.
  18. ↑ "NDB BOARD OF DIRECTORS APPROVES LOANS FOR TWO PROJECTS IN CHINA AND INDIA DURING 7TH MEETING IN SHANGHAI". www.ndb.int. Retrieved 2016-11-28.
  19. ↑ "NDB SIGNS FIRST LOAN AGREEMENT FOR FINANCING SHANGHAI LINGANG DISTRIBUTED SOLAR POWER PROJECT". www.ndb.int. Retrieved 2016-12-30.
  20. ↑ "Agreement on the New Development Bank". University of Toronto. BRICS Information Centre. 15 July 2014. Retrieved 16 March 2016.
  21. ↑ Ebeling, Paul (20 March 2016). "BRICS New Development Bank Launched In Shanghai". Live trading news. Retrieved 21 March 2016.
  22. ↑ "What the new bank of BRICS is all about". The Washington Post. 17 July 2014. Retrieved 20 July 2014.
  23. 1 2 "New BRICS Bank a Building Block of Alternative World Order". The Huffington Post. 18 July 2014. Retrieved 20 July 2014.
  24. 1 2 3 "BRICS Bank ready for launch - Russian Finance Minister". Russia & India Report. 10 July 2014. Retrieved 20 July 2014.
  25. ↑ "BRICS countries launch $100 billion developmental bank, currency pool". Russia & India Report. 16 July 2014. Retrieved 20 July 2014.
  26. ↑ "Indian media: Brics bank 'a step in right direction'". BBC. 16 July 2014. Retrieved 20 July 2014.
  27. ↑ "Victory for Modi, India as BRICS summit clears setting up of a new development bank". India Today. 16 July 2014. Retrieved 20 July 2014.
  28. 1 2 "BRICS New Development Bank hopes to expand by drawing other nations as members". Retrieved 2016-08-24.
  29. ↑ Kabir, FHM Humayan (2017-05-06). "Bangladesh now mulls joining New Development Bank, with voting right on offer". The Financial Express. International Publications Ltd. Retrieved 2017-05-09.
  30. 1 2 "BRICS Bank to prioritize renewable energy projects — official". TASS. Retrieved 2016-03-24.
  31. ↑ "New Development Bank defines its brand identity as an eco-friendly lender". The Hindu. 2016-07-21. ISSN 0971-751X. Retrieved 2016-08-24.
  32. ↑ "BRICS set to create new financial architecture". Russia & India Report. 22 June 2015. Retrieved 27 March 2016.
  33. ↑ "World Bank & IMF ‘corroded’ - Jim Rogers to RT". RT News. 18 June 2015. Retrieved 27 March 2016.
  34. 1 2 F_200762. "BRICS New Development Bank aims to offer 2.5 bln USD of loans in 2017 - People's Daily Online". en.people.cn. Retrieved 2016-11-28.
  35. ↑ "NDB should focus on creating strong project pipeline: Finance Minister Jaitley". 2016-07-21. Retrieved 2016-08-24.
  36. ↑ "NDB SIGNS FIRST LOAN AGREEMENT FOR FINANCING SHANGHAI LINGANG DISTRIBUTED SOLAR POWER PROJECT". www.ndb.int. Retrieved 2016-12-30.
  37. ↑ "NDB and Government of India Sign Loan Agreement for Financing Madhya Pradesh Major District Roads Upgrade Project - New Development Bank". New Development Bank. Retrieved 2017-03-31.
  38. ↑ "NDB Signs First Loan Agreement in Brazil for Financing Renewable Energy Projects - New Development Bank". New Development Bank. Retrieved 2017-04-28.
  39. ↑ "NDB Successfully Issued First RMB-denominated Green Financial Bond". www.ndb.int. Retrieved 2016-08-16.
  40. ↑ "Not here to compete with IMF, World Bank: NDB chief KV Kamath - The Economic Times". Retrieved 2016-08-30.
  41. ↑ "President of the New Development Bank K. V. Kamath Met President of the Russian Federation Vladimir Putin". www.ndb.int. Retrieved 2016-08-26.
  42. ↑ "No competition between BRICS bank and AIIB – Russian deputy foreign minister". Retrieved 2016-08-25.
  43. ↑ "5 Minutes with Leslie Maasdorp of the New Development Bank – Insight". Insight. Retrieved 2016-03-29.
  44. ↑ "First Brics bank loan to India likely for solar project: Kamath - Times of India". The Times of India. Retrieved 2016-03-18.
  45. ↑ "China Headlines NDB president says to work with AIIB, hails bloc's significance - Xinhua". news.xinhuanet.com. Retrieved 2016-03-30.
  46. ↑ "World Bank Group, New Development Bank Lay Groundwork for Cooperation - New Development Bank". New Development Bank. Retrieved 2017-04-28.
  47. ↑ "Nobel Economist Joseph Stiglitz Hails New BRICS Bank Challenging U.S.-Dominated World Bank & IMF". Democracy Now!. Retrieved 2016-03-16.
  48. ↑ "NDB president says to work with AIIB - China.org.cn". www.china.org.cn. Retrieved 2016-03-30.
  49. ↑ "China finmin says establishment of NDB may help drive global demand". Reuters. 2016-02-27. Retrieved 2016-03-18.
  50. ↑ "BRICS bank a ‘worthwhile venture’, off to good start: RBI guv Rajan". Hindustan Times. Retrieved 2016-03-18.
  51. ↑ "DY Works bags integrated branding rights for BRICS bank". timesofindia-economictimes. Retrieved 2016-04-04.
  52. ↑ "New Development Bank | DYWORKS". dyworks.in. Retrieved 2016-04-04.
  53. ↑ "Our Identity | New Development Bank". www.ndb.int. Retrieved 2016-04-04.
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