World Bank Shows Strong Financial Results in First Half of Fiscal Year 1987

Net income of the World Bank for the six months ended December 31, 1986, the first half of its 1987 fiscal year, was $655 million. That amount has been exceeded only by the

$695 million the Bank, formally known as the International Bank for Reconstruction and Development (IBRD), earned in the first half of the preceding fiscal year.

The World Bank borrowed the equivalent of $4.9 billion at an average cost of 5.80 percent in leading capital markets during the first half of FY87. The average maturity of the borrowings was 11.7 years. These figures compare to $6.8 billion at a cost of 7.25 percent and an average maturity of 11.3 years in the first half of FY86.

Major contributions to net income came from the Bank's low cost of borrowing, its large equity base, and capital gains on its liquid assets portfolio.

Two factors largely accounted for the Bank's low cost of borrowing. One was the lower interest rates on the currencies to which the Bank has substantial access, particularly Swiss francs, Japanese yen, Deutsche mark, Dutch guilders and US dollars. These currencies comprised 88 percent of the Bank's borrowings, before swaps, in the first half of FY87. The balance was in Austrian schilling, Belgian francs, Canadian dollars, Swedish kronor and European Currency Units.

The World Bank's use of currency swaps also contributed to its low borrowing costs. Swaps reduced the average cost of the Bank's new medium- and long-term borrowings from 6.60 percent to 5.77 percent.

Capital gains of $107 million were realized on the Bank's liquid asset portfolio during the first half of FY87, compared to $208 million a year earlier. These gains resulted from the maturity positioning of the Bank's portfolio and subsequent interest rate declines, which were less substantial in the last six months than in the first half of FY86. The World Bank's liquid assets as of December 31, 1986 were $19.0 billion, compared to $19.7 billion a year earlier.

The World Bank’s equity, i.e. paid-in capital and retained earnings, on December 31, 1986 amounted to $11.6 billion, consisting of $4.6 billion of usable paid-in capital and $70.6 billion of reserves and accumulated net income.

The average cost in the first half of FY87 of total available funds (outstanding borrowings, usable paid-in capital, and reserves and accumulated net income) of $87.8 billion on December 31, 1986 was 6.82 percent compared to 7.22 percent and a total of $70.6 billion a year earlier.

The lower cost of borrowing enables the World Bank to reduce its interest charges on loans from 8.23 percent to 7.92 percent for the six months beginning January 1987. This is the ninth consecutive reduction of the World Bank´s lending rate since July 1982 when variable rates were introduced. The lending rate is determined by adding 0.50 percent to the average cost, in the preceding six months, of all outstanding borrowings made by the Bank since July 1982.

1/ IBRD Borrowings First Half FY87 (July 1 - December 31, 1986)

(US$ Equivalent, millions)

1/ Medium- and long-term fixed rate borrowings except for a $300 million increase in one-year Central Bank Facility outstanding.

2/ Minus numbers reflect currency swaps out of pre-FY87 borrowings.

3/Includes Austrian schilling ($27.8 million), Belgian francs ($162.6 million) Swedish kronor ($42.9 million), and European Currency Units ($155 million).

2/ Average Returns/Costs on IBRD Assets and Liabilities First Half FY87 1/

(July 1 – December 31, 1986)

Cumulative through December

Amount          Return/Cost