Development banks in Asia

National development banks (NDBs) are normally defined as state-owned financial institutions with a mandate to provide credit to borrowers that would otherwise be underserved by private lenders. NDBs operate in virtually every country in developing Asia and often constitute the main source of long-term credit. ¹ Asia is also served by bilateral development finance institutions (BDFIs), such as the Japan Bank for International Cooperation (JBIC) and China Development Bank (CDB), and international multilateral development banks (MDBs), such as the World Bank and the Asian Development Bank (ADB), and more recently the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NeDB). ² This chapter covers all three types of development banks in Asia – national, bilateral, and multilateral – and examines the rationale for their establishment, what services they render, how well they perform, and what challenges they face. The chapter concludes that while the rationale for establishing NDBs may have been laudable, their record has been mixed for political economy and other reasons. Nevertheless, even though NDBs have been criticized for their poor performance, they retain a significant presence in every developing Asian economy – in numbers and in their relative share of the banking system’s assets and lending. MDBs, on the other hand, have been generally seen as helpful in supporting Asia’s development, yet their presence appears to be shrinking in overall financial inflows and they now face intense competitive pressure from new competitors that will test their resilience and their business model in coming years.