The New Development Bank, the Shanghai-based lender known as the “BRICS Bank”, is in talks with Saudi Arabia about accepting the country as a ninth member, a move that would boost financing options as founding shareholder Russia struggles under the influence. of penalties.
The addition of the kingdom will strengthen relations between the bank, which was established by the world’s largest developing economy as an alternative to the Western-led Bretton Woods institutions, and the world’s second largest oil producer.
“In the Middle East, we attach great importance to Saudi Arabia and are currently engaged in qualified dialogue with them,” the New Development Bank told the Financial Times in a statement.
The talks with Saudi Arabia come as the National Development Bank prepares to embark on a formal assessment of its financing options, which have been called into question by Russia’s invasion of Ukraine. The Bank holds its annual meeting on Tuesday and Wednesday.
Membership would strengthen Riyadh’s ties with BRICS countries at a time when Saudi Arabia, the world’s largest exporter of crude oil, is seeking closer ties with China. Chinese President Xi Jinping hailed a “new era” in relations between the two countries when he visited the kingdom late last year, and Beijing in March brokered an agreement between Saudi Arabia and Iran to resume diplomatic relations.
It was not possible to obtain comment from Saudi officials.
The National Development Bank was set up in 2015 by the so-called BRICS countries – Brazil, Russia, India, China and South Africa – to lend to development projects in emerging economies. It has lent $33 billion to more than 96 projects in the five founding member states, and has expanded its membership to include the United Arab Emirates, Egypt and Bangladesh.
Saudi Arabia will be another revolutionary contributor as the National Development Bank assesses its ability to mobilize funds, after the war in Ukraine raised concerns about the bank’s dependence on Russia. As a founding member, Russia holds a stake of about 19 percent in the bank.
The National Development Bank was forced to suspend its exposure to Russia worth $1.7 billion, or about 6.7 percent of its total assets, and stop financing new Russian projects to reassure investors that it is complying with Western-led sanctions against Moscow.
Fundraising options are “the most important thing right now,” Ashwani Muthu, director general of the National Development Bank’s Independent Evaluation Office, which was set up last year, said in an interview. “We are struggling to mobilize resources.”
Muthu, who declined to comment on the Saudi talks, said the board wanted to study alternative tools and currencies to bring in resources. The National Development Bank raised the money in Chinese renminbi and is seeking to raise the South African rand this year.
We’ll have to analyze the situation in Russia, the war. . . “These are the things we’ll have to look at,” said Muthu.
Moscow has said it views the bank as a tool to help mitigate the impact of Western sanctions and move away from dollar-pegged oil sales. Russian Prime Minister Mikhail Mishustin said on a visit to China this week that Moscow sees “one of the main goals of the bank” as defending the bloc from “illegal sanctions from the collective West”.
The Asian Infrastructure Investment Bank, another multilateral bank in which China is the largest shareholder, also froze its business in Russia last year, although it was exposed to much less risk.
The moves by the National Development Bank and the Asian Infrastructure Investment Bank reveal how institutions intended as competitors to Western multilateral organizations have largely cooperated with financial sector sanctions against Russia for its reliance on access to dollar financing.
Ratings agency Fitch downgraded the National Development Bank’s credit rating to double A from double A plus last July, warning that “reputational risks” from its Russian stake could limit access to the dollar bond market.
This month, the agency revised its outlook for the bank from “negative” to “stable,” indicating steps it had taken to mitigate its exposure to Moscow. Multilateral lenders generally rely on higher ratings and lower financing costs to lend at a lower cost.
Additional reporting by Max Sedon in Vilnius