The World Bank has cut its loan fees and raised the maximum amount it would lend to a single country by 1 billion US dollar (6 mia. DKR) to 14,5 billion dollar, reflecting an increase in its financial capacity.
The decisions, approved by the Banks board, affect countries borrowing from the World Bank affiliate known as the International Bank for Reconstruction and Development (IBRD), which lends to middle income developing countries.
– We have been able to cut our fees and increase our capacity to lend which should help our ability to provide more resources for the poor in middle income developing countries, said John Wilton, the World Banks Acting Chief Financial Officer and Vice President for Strategy, Finance and Risk Management, adding:
– We have been able to do this because the Bank is adequately capitalized and has a favorable medium-term financial outlook.
IBRD cut front-end fees by 25 basis points (0,25 percentage points of the loan amount) by increasing the existing fee waiver to 75 from 50 basis points. The fee cut affects all loans presented to the Banks board from July 1, 2005 and applies through June 30, 2006. The Bank introduced its 100 basis point front-end fee in 1998 and first waived part of it in fiscal 2005 with the 50 basis point waiver.
The borrowing limit increase was the first such increase the institution has adopted since the previous single borrower limit of 13,5 billion dollar was set in 1997. It was motivated by a strengthened equity base together with improvements in the credit quality of IBRDs portfolio.
IBRDs equity to loans ratio rose to 31,4 percent in fiscal 2005 from 29,4 percent when compared to the year before, while its loan loss provisions fell to 3 billion from 3,5 billion dollar over the same period.
The decision was also validated by IBRDs methodology for assessing the risks facing the institution from a concentration in lending to several big borrowers. These developments have reduced the risk that a default by one of IBRDs largest borrowers would impair the Banks ability to carry on with its mission of reducing poverty around the world.
The borrowing limit increase was achieved while preserving IBRDs AAA rating in the bond markets, which it exploits to borrow cheaply and lend at competitive interest rates.
The decision to raise the limit was not driven by the need to accommodate the immediate demands of any of the Banks borrowers. None of the Banks largest borrowers is expected to hit the previous limit under existing country lending programs agreed with the Bank.
The increase simply gives the IBRD the flexibility to lend more to such large borrowers at a later stage should the need arise. IBRDs biggest borrower is China, with 11 billion dollar in loans outstanding at the end of fiscal year 2005, followed by Mexico, Indonesia, and Brazil.
The World Bank lends to middle income countries on terms that are financially competitive when compared with other multilateral development banks.
After contributing to reserve capital, IBRD allocates roughly 40 per cent of its income to the World Bank affiliate, the International Development Association (IDA) which provides grants and subsidized loans to the poorest countries, as well as to the Heavily Indebted Poor Countries (HIPC) initiative. For fiscal 2005, the World Banks board has approved a transfer of 400 million dollar to IDA and 210 million to HIPC.
IBRD reported a fall in net allocable income to 1,252 billion in fiscal 2005 from 1,675 billion the year before. Most of IBRD income comes from the return on its capital and this has been lower in recent years as a result of historically low levels of U.S. interest rates. IBRDs income is projected to rise in the medium term as interest rates rise and lending volumes increase.
IBRDs loan and guarantee commitments and guarantee facilities totaled 13,6 billion dollar in fiscal 2005, 23 per cent higher than in the previous fiscal year, and the highest IBRD lending of the past six years.
For IBRD loan charges and a comparison of those charges with those of other multilateral development agencies visit: World Bank Treasury: LIBOR-Equivalent of Lending Rates
For IBRD loan conditions visit: Financial Terms and Conditions of IBRD Loans, IBRD Hedging Products, and IDA Credits
Kilde: www.worldbank.org
