Banks are suffering today as large provisions will be needed given the scale of the impact of Covid-19 on infrastructure assets—especially those linked to commodity prices. While it is true that pandemics like this one are black swans; given the long term nature of project finance loans, their economics must be robust for projects to survive and thrive in such situations.
Even considering a scenario in which the pandemic had not occurred, banks, especially in emerging markets, are saddled with large infrastructure loans which are turning into bad debt. Thought needs to be given to the root cause of this. The challenge will be further exacerbated in this decade as technology risk will make certain elements of the infrastructure chain obsolete, resulting in stranded assets in the bank portfolio.
Based on our decades of experience in financing infrastructure projects in over 50 countries, we have identified ten guiding principles aimed at avoiding these pitfalls.