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Citibank has seen its revenues from supporting clients along the Belt and Road Initiative (BRI) growing, and considers credit risk as minimal, according to Alan MacDonald, Citibank Vice Chairman.
“Our revenues are growing at double-digit in countries along the Belt and Road. It's difficult to separate the causality of revenue. But it's pretty clear that the broader part of double-digit growth has resulted from the BRI,” MacDonald said.
In the last 12 months, Citibank's revenues from supporting clients across the Belt and Road are up 30 percent, according to its official website.
A combination of supporting global multinational corporations and banking leading Chinese corporations across the Belt and Road has underpinned the growth. “Citibank is close to 90 percent of the Fortune 500 on the Belt and Road,” its website revealed.
As Citibank supports largest multinational companies and international companies that have very strong balance sheets, MacDonald claimed that the credit risk is “minimal.”
But he listed other special risks along with the BRI projects, like risks related to sovereign credit, and exchange rate risks.
“Exchange rate risks mean the projects are executed in local currency. And the currency has to be converted into other currencies, like renminbi, euro or U.S. dollar. So the exchange rate risk is associated with the projects,” he explained.
Many risks can be hedged, he said “while some cannot be.” MacDonald added that BRI projects need the private sector and capital market to help recycle capital and mitigate financing risk.
“It's very unusual for a single bank or financial institution to take 100 percent of the risk. We always work together in syndicated loans or underwriting bonds. Long term key will be to do much of financing with the private sector and the capital market. And that would help recycle the capital,” MacDonald said.
“There are various phases of all projects. There is a construction phase where all construction projects are supported by bank financing. And that frequently is taken out by more permanent funding which comes from the capital market with re-financing. The refinancing is part of the overall development project,” he claimed.
“The project has to be bankable, investable from a private sector point of view,” he suggested, adding that large institutional investors should judge “the project characteristics. And the risk of the project should be acceptable to them as long term investment.”
(CGTN)
