Global Development Banks Push for Fairer Credit Ratings in High-Level Talks with Agencies

The dialogue aimed to deepen mutual understanding and refine methodologies so that ratings better reflect MDBs’ financial resilience and risk management practices.

Senior financial leaders from multilateral development banks (MDBs) and development finance institutions have intensified efforts to reshape how credit rating agencies assess their financial strength, holding a high-level roundtable with S&P Global Ratings, Moody’s, and Fitch to push for more accurate and forward-looking methodologies.

The seventh such dialogue since 2023, and the first in 2026, brought together Chief Financial Officers and Chief Risk Officers from leading global institutions in a bid to better align credit ratings with the unique mandates and risk profiles of development banks.

Rethinking How Development Banks Are Rated

At the heart of the discussions was a shared objective: ensuring that rating frameworks fully capture the distinctive nature of MDBs, which operate with public mandates, strong capital structures, and historically low default rates.

Participants emphasized that traditional rating models—often designed for commercial financial institutions—do not adequately reflect MDBs’ policy-driven roles, preferred creditor status, and long-term development focus.

The dialogue aimed to deepen mutual understanding and refine methodologies so that ratings better reflect MDBs’ financial resilience and risk management practices.

Progress on Capital Adequacy Reforms

A major focus was the implementation of the Capital Adequacy Framework (CAF) Review, a landmark initiative aimed at optimizing MDB balance sheets and unlocking additional lending capacity.

Out of 17 key recommendations, most have now been integrated into MDB operations, capital planning, and risk management systems. These reforms are being monitored under a broader roadmap supported by the MDB Global Risk and Finance Forum (GRaFF).

Recent initiatives—including expanded data transparency through the Global Emerging Markets (GEMs) database and comparative performance reports—were highlighted as critical tools for improving external understanding of MDB financial models.

Key Methodological Debates with Rating Agencies

The roundtable featured in-depth discussions on several technical aspects of credit rating methodologies:

• Local vs. foreign currency lending: MDBs presented evidence that local currency lending carries different—and often lower—risk characteristics, which should be reflected in ratings.

• Asset performance metrics: Concerns were raised about potential “double counting” of risk when loan impairments are already accounted for through provisions.

• Hybrid capital instruments: MDBs sought clearer recognition of innovative capital structures that strengthen financial resilience.

• Preferred creditor status: Discussions focused on how this unique MDB advantage should be treated within rating frameworks.

These exchanges highlighted the need for more nuanced, data-driven approaches that align ratings with real-world performance.

Rising Importance of Risk Transfer Tools

MDBs also underscored the growing role of risk transfer mechanisms—including guarantees, insurance, securitization, and exposure exchange agreements—in managing risk and mobilizing private capital.

These tools are increasingly central to MDB strategies for scaling up development finance, particularly in emerging markets. However, participants noted that current rating methodologies often lack clarity on how such instruments are evaluated.

Calls were made for more consistent and transparent treatment of these tools to support their broader adoption.

Data and Analytics: Strengthening the Evidence Base

The discussion highlighted the importance of robust data in shaping rating decisions, with the Global Emerging Markets (GEMs) Risk Database Consortium playing a key role.

Recent upgrades—including the onboarding of a new service provider—are expected to enhance data quality, accessibility, and analytical capabilities, providing a stronger empirical foundation for assessing MDB risk profiles.

Engagement on Moody’s Methodology Review

A dedicated session focused on Moody’s proposed revisions to its rating methodology for MDBs and supranational institutions.

Fifteen MDBs submitted a joint response in March 2026, broadly welcoming the move toward a more risk-adjusted and forward-looking framework. They highlighted the importance of:

• Recognizing balance-sheet optimization strategies

• Accounting for risk-transfer mechanisms

• Improving calibration and comparability across institutions

• Maintaining analytical rigor while aligning with historical loss experience

The feedback aims to ensure that future rating methodologies better reflect the evolving financial strategies of MDBs.

Broad Coalition of Global Financial Institutions

The roundtable brought together a wide array of global development institutions, including the World Bank, African Development Bank, Asian Development Bank, European Investment Bank, International Finance Corporation, and others, alongside major credit rating agencies.

This broad participation underscores the global significance of the issue, as MDB credit ratings directly influence their ability to raise capital and finance development projects worldwide.

Looking Ahead: Toward More Accurate and Transparent Ratings

Participants reaffirmed the importance of continued, structured engagement between MDBs and credit rating agencies, recognizing that evolving methodologies must keep pace with changing financial practices and development needs.

The next roundtable is scheduled for April 2027, with ongoing dialogue expected to further refine rating approaches and enhance alignment with MDB mandates.

As development banks play an increasingly critical role in addressing global challenges—from climate change to infrastructure financing—the outcome of these discussions could have far-reaching implications for the scale and effectiveness of development finance.