multilateral development banks part 2
DESCRIPTION
GBRW Consulting has been analysing the major Multilateral Development Banks - International Bank for Reconstruction & Development, or World Bank; International Finance Corporation; Inter-American Development Bank; African Development Bank; Asian Development Bank and European Bank for Reconstruction and Development- since the late 1990s. This is the second of two presentations available on SlideShare. It illustrates some of the main characteristics of the financial statements of this very specialised group of institutions, which we refer to as MDBs.TRANSCRIPT
LONDON WASHINGTON DC SINGAPORE
GLOBAL EXPERIENCE, PRACTICAL EXPERTISE
PART 2 OF 2: AN INTRODUCTIONTO MULTILATERAL DEVELOPMENT BANKS
MULTILATERAL DEVELOPMENT BANKS
GBRW Consulting has been analysing the major Multilateral Development Banks (International Bank for Reconstruction & Development, or World Bank; International Finance Corporation; Inter-American Development Bank; African Development Bank; Asian Development Bank and European Bank for Reconstruction and Development) since the late 1990s.
We provide analysis, training and consultancy for Government shareholders and other interested parties on issues which include strategy, governance, communication with stakeholders and capital adequacy.
This is the second of two presentations available on SlideShare. It illustrates some of the main characteristics of the financial statements of this very specialised group of institutions, which we refer to as MDBs.
INTRODUCTION
The first slide shows the Total Assets of each bank.
After a flat period between 2003 and 2007, they have grown significantly in the past six years.
Data used in the following slides are based December 2012 year end accounts (for the Inter-American Development Bank; African Development Bank; Asian Development Bank and European Bank for Reconstruction and Development) and June 2013 accounts (for International Bank for Reconstruction & Development and International Finance Corporation).
MDB Total Assets ($million)
IBRD IADB ADB EBRD AfDB IFC0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2006 2007 2008 2009 2010 2011 2012 2013
The next slide compares the loans made by each MDB.
Loans are the largest component of Development Related Exposure (DRE), the term used to describe the development financing activities of each of the banks.
The other elements of DRE are equity investments by the banks (mainly IFC and EBRD) and guarantees issued by them on behalf of borrowers.
MDB Total Loans ($million)
IBRD IADB ADB EBRD AfDB IFC0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2008 2009 2010 2011 2012 2013
Total Development Related Exposure for each bank is shown next.
This provides the most comprehensive way of comparing the development financing activities of each bank.
Total Development Related Exposure (DRE) ($ million)
IBRD IADB ADB EBRD AfDB IFC -
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
The breakdown of Development Related Exposure which follows again shows the predominance of lending in the banks’ development financing.
Guarantees represent less than 2% of total DRE, even though many parties believe that MDB guarantees represent a highly effective means of leveraging additional private sector financing.
IFC’s and EBRD’s activity as providers of equity financing is clearly illustrated.
What does DRE involve?
IBRD IADB ADB EBRD AfDB IFC0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
LoansEquity investmentsGuarantees
By looking at the relative composition of the banks’ balance sheets, the size of their investment portfolios (“Liquid assets”) in relation to their DRE can be seen in the following slide.
Interest rate and currency swaps are an important feature of the MDBs’ fund raising operations. Their contractual rights to receive payments under swap contracts are included in the “Other Assets” balances (the Liabilities & Equity side of of each MDB’s balance sheet similarly shows its obligation to make payments under swap contracts).
The IBRD and AsDB show the highest levels of entries under this heading, which increases their balance sheet totals when compared to the other MDBs.
Comparison of balance sheets: Assets
IBRD IADB ADB EBRD AfDB IFC0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Liquid assetsTotal DREOther Assets
The banks’ investment portfolios are shown as a percentage of their Development Related Exposure in the following slide.
In the case of the EBRD and AfDB, liquid assets are respectively 78% and 65% of DRE; the IFC has liquid assets exceeding 100% of its assets used in development financing.
Investment portfolio as % of DRE
Series10%
20%
40%
60%
80%
100%
120%
IBRD IADB ADB EBRD AfDB IFC
An important factor underpinning MDBs’ “AAA” credit ratings is their callable capital, which represents an obligation by shareholders to pay in additional capital if this is ever required.
The size of this callable capital for each bank can be seen in the next slide. The slide also shows each bank’s equity, or shareholders’ funds, which consists of paid in capital and retained profits.
IFC (which is a member of the World Bank Group) is the only MDB not to have callable capital.
Equity and Callable Capital ($ million)
IBRD IADB ADB EBRD AfDB IFC0
50,000
100,000
150,000
200,000
250,000
Equity Callable Capital
It is important not to confuse the lending activities of the MDBs, which are generally done at commercial interest rates, with those of their concessional, or “soft lending” affiliates.
The concessional arm of the World Bank group, the International Development Association, or IDA, is the longest established. The Asian, African and Inter-American Development Banks have the Asian Development Fund, African Development Fund and Fund For Special Operations. (No fund is shown against the IFC as it is also part of the World Bank group.)
The EBRD is the exception; although it has a number of special trust funds, it does not have a concessional arm because of its mandate to focus on the private sector. The relative sizes of the MDBs and their concessional funds are shown in the next slide.
MDBs and “Soft lending” affiliates(total balance sheets, $ billion)
IBRD IFC IADB AsDB EBRD AfDB0
50
100
150
200
250
300
350
MDBConcessional
GBRW regularly provides training on the role of MDBs in international financial markets to delegates from major development institutions (contact us for a course outline).
The major ratings agencies (Fitch, Standard & Poor’s and Moody’s) produce credit analyses on the MDBs which are available on their websites.
Copies of the MDBs’ annual financial statements can be downloaded from the MDBs’ own websites.
For discussion of some of the general issues relating to MDBs, please see Part 1 of this presentation on Slideshare.
FURTHER INFORMATION
PROFILE AND CONTACTS
You can find out more about GBRW Consulting by visiting our website on http://www.gbrw.com
Visit my LinkedIn profile at http://www.linkedin.com/in/paulrexgbrw and feel free to connect
Email us at [email protected]
Paul is the Managing Director of GBRW and began his career with 18 years of lending, credit and management experience at senior level with Chemical Bank (now JP Morgan Chase) and Crédit Agricole.
He has been involved in international development finance consulting for the past 20 years and has worked on assignments in more than 20 countries, including Bahrain, Bangladesh, Belize, China, Egypt, Mongolia, Poland, Russia, Serbia, Sierra Leone, Singapore, Uganda, Ukraine, and West Bank/Gaza.
Paul has an MA from the University of Oxford, is a Fellow of the Academy of Experts, a Freeman of the City of London and a member of the Worshipful Company of International Bankers.
Paul Rex,Managing Director