The New Development Bank, a Shanghai-based lender also known as the “BRICS Bank,” is in talks with Saudi Arabia to admit the country as its ninth member, a move that would strengthen its financing options as founding shareholders Russia flounders under the onslaught of sanctions.
The kingdom’s accession will strengthen ties 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 the Kingdom of Saudi Arabia and are currently engaged in conditional dialogue with them,” NDB told the FT in a statement.
The talks with Saudi Arabia come as the NDB prepares to conduct a formal review of its financing options, which have been called into question by Russia’s invasion of Ukraine. The bank holds its annual meeting on Tuesdays and Wednesdays.
Joining the BRICS group would strengthen Riyadh’s ties with the group at a time when Saudi Arabia, the world’s top crude exporter, is also seeking closer ties with China. Chinese President Xi Jinping hailed a “new era” in relations between the two countries during a visit to Saudi Arabia late last year, and Beijing brokered an agreement in March to restore diplomatic ties between Saudi Arabia and Iran.
Saudi Arabian officials could not be reached for comment.
The New Development Bank was established 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 five founding member countries and expanded its membership to include the United Arab Emirates, Egypt and Bangladesh.
Saudi Arabia will represent another deep-pocketed shareholder in NDB as it 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 about 19 percent of the bank.
NDB was forced to shelve its $1.7 billion exposure to Russia, about 6.7% of its total assets, and stop funding new Russian projects to reassure investors that it is complying with Western-led sanctions on Moscow. cut.
Ashwani Muthoo, director of the Independent Evaluation Office of the New Development Bank, which was formed last year, said in an interview that the funding package is “the most important thing right now”. “We’re working hard to mobilize resources.”
Muthoo declined to comment on the Saudi talks, saying the board wanted to study alternative tools and currencies to bring in resources. NDB raises money in yuan and is seeking to raise South African rand this year.
“We’re going to have to analyze the situation in Russia, the war … . . those are the things we have to think about,” Muthoo said.
Moscow has said it sees the bank as a tool to help soften the impact of Western sanctions and move away from dollar-pegged oil sales. During a visit to China this week, Russian Prime Minister Mikhail Mishustin said Moscow considered “one of the main objectives of the bank” to protect the group from “illegal sanctions from Western collectives”.
The Asian Infrastructure Investment Bank, another multilateral bank in which China is the largest shareholder, also froze its operations in Russia last year, although its exposure is much smaller.
The moves by the New Development Bank and the AIIB show that even institutions intent on challenging Western multilateral organizations are largely cooperating with financial sector sanctions against Russia because of their reliance on U.S. dollar funding.
Ratings agency Fitch downgraded NDB’s credit rating to double-A from double-A+ in July last year, warning that “reputational risk” of its Russian stake could limit access to the dollar-denominated bond market.
This month, the agency revised its outlook on the bank to “stable” from “negative,” noting that it had taken steps to reduce its exposure to Moscow. Multilateral lenders typically rely on high ratings and low funding costs to lend cheaper.
Additional reporting by Max Seddon in Vilnius