The World Bank continued to strengthen its financial structure in the just completed FY90," Ernest Stern, Senior Vice President for Finance said today, wand is well-positioned to meet borrowing member countries' evolving needs for development finance.”
The new currency management policies adopted last year were successfully implemented in FY90 and the World Bank's reserves-to-loans (R/L) ratio continued to increase, rising to 10.8 percent from 10.2 percent at the end of FY89. Implementation of the new policy of matching the currencies of reserves and loans protected the R/L ratio from exchange rate risk. Interest rate risk to the Bank's net income was also reduced by the steady decline of outstanding fixed-rate loans -- those approved before FY82 -- as a proportion of the loan portfolio. They now represent less than $35 billion out of $89 billion of total outstanding loans, and less than $1 billion remains to be disbursed on them.
Net income for FY90, which ended June 30, 1990, was $1,046 million, compared to $1,094 million for FY89. The figure is net of a $106 million one-time charge to fund staff post-retirement health and insurance benefits and provisioning of $357 million losses on loans to countries in nonaccrual status. The FY90 net income also reflects a reduction of about $150 million resulting from the Bank's lowering by 50 basis points the commitment fee charged in FY90 on undisbursed loan balances from 0.75 percent to 0.25 percent.
Member countries demonstrated their strong support for the Bank. They provided increasingly liberal access to World Bank borrowing in their financial markets. In May 1990, the Development Committee underscored the Bank's crucial role in the international financial system and reiterated the significance of the Bank's preferred creditor status. And member countries continued the steady pace of their subscriptions to the Bank's $75 billion General Capital Increase (GCI), approved in April 1988. As of now, $32 billion or 43 percent of the shares allocated under the GCI have been subscribed by 42 countries.
Other major financial achievements in FY90 relate to:
Borrowers' Payment of Arrears. In FY90 Guyana and Honduras, two of the nine countries that had been in nonaccrual status, fully paid their Bank. This contributed $124 million to net income in FY90. Nicaragua, Panama and Zambia also paid part of their arrears. Moreover, at the end of PY90 several countries in nonaccrual status were in various y soon be able to become programs of adjustment that give hope that they, too, may current in servicing their debt to the Bank.
Loan Disbursements. Record gross disbursements to member countries totaled Loan Disbursements. Record gross disbursements o Net disbursements $13.9 billion equivalent, compared to $11.3 billion in FY89. Net disbursements to countries that are active borrowers from the Bank were $6.3 billion, compared to countries that are active borrowers to $2.5 billion in FY89. The increase in net disbursements was largely explained by disbursements of $2.0 billion to Mexico in support of its debt and debt-service reduction agreements with commercial banks and by a decline in prepayments from $2.6 billion in FY89 to $0.6 billion in FY90.
Borrowing Program. The Bank successfully borrowed in the world's financial markets $11.7 billion equivalent, consisting of $11.6 billion of medium- and long-term borrowings and $0.1 billion of incremental short-term borrowings, at an after swaps cost of 7.99 percent and an average life of 7.7 years, compared with 7.73 percent and 7.8 years in FY89. The borrowing program excludes $1.1 billion of refinancing of Japanese yen loans that were prepaid and refinanced with the original lenders and $5.2 billion of refinancing of short-term borrowings that were outstanding at the end of FY89. Official source borrowings (directly from central banks and other government institutions) accounted for
$1.2 billion of the borrowing program and for $2.6 billion of short-term borrowings under the Central Bank Facility.
About 76 percent of the borrowing program before swaps and 98 percent after swaps were in the loan pools three major currency groups -- the Deutsche mark group (consisting of Deutsche mark, Netherlands guilders and Swiss francs), Japanese yen and U.S. dollars. The World Bank, however, pursued its policy of diversifying borrowings in a large number of markets and currencies by borrowing $11.7 billion equivalent in 15 currencies; 10 were used as vehicle currencies. The Bank swapped the vehicle currencies to obtain two target currencies, Deutsche mark and U.S. dollars, at lower costs than it could have obtained through direct borrowings in those target currencies. Currencies borrowed and retained included Austrian schilling, Deutsche mark, French francs, Japanese yen, Swiss francs, and U.S. dollars.
A major accomplishment in FY90 was the introduction of U.S. dollar global bonds. Two $1.5 billion global bond issues were offered -- one in September 1989 and the other in February 1990 -- in the international capital markets and in the government agency markets in the United States simultaneously. The global bonds and a system for their distribution and trading were designed to permit the full range of international and domestic demand to be reflected in a world price by eliminating impediments to liquid, Trans regional trading by investors and financial intermediaries.
Investment Program. The liquid assets portfolio was $17.2 billion at June
30, 1990, compared to $19.4 billion a year earlier. The Bank's liquidity policy is targeted at an amount equal to at least 45 percent of the next three years' net cash requirements and the reduction in the volume of liquid assets was due to bringing holdings closer to this target after being substantially in excess of the policy objective for several years. At June 30, 1990 liquidity stood at 47 percent and the realized return on average investments during FY90 was 8.37 percent, compared to 8.20 percent in the previous year.
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On the basis of its annual review of net income and financial prospects in future years, the Bank determined that in FY91 it would:
(i) Add $750 million of FY90 net income to its General Reserve, an amount projected to bring the end of FY91 R/L ratio to 11 percent.
(ii) Waive in FY91, for the second consecutive year, all but 0.25 percent of the 0.75 percent annual commitment fee on undisbursed loan balances. (The continued waiver of part of the commitment fee is projected to reduce FY91 net income by about $225 million.)
(iii) Increase its accumulated loan loss provision to $1,250 million at the end of FY90.
The total principal balance of loans in nonaccrual status declined from $3.2 billion at the end of FY89 to $2.9 billion at the end of FY90. On July 2, Guatemala went into nonaccrual status because payment on its loans from the Bank became six months overdue. The principal balance outstanding on loans to Guatemala as of June 30, 1990 is $268 million. The accumulated loan loss provision is now 40 percent of outstanding loans in nonaccrual status.
The Bank's gross yield on average total earning assets -- both disbursed and outstanding loans and liquid investments -- was 8.12 percent in FY90, compared to 8.20 percent in FY89. The average yield on its disbursed and outstanding loans, which totaled $89.0 billion at the end of FY90, was 7.90 percent, compared to 7.86 percent at the end of FY89.
The average cost of total funds, consisting of outstanding debt which averaged $84.5 billion and the Bank's equity which averaged $15.8 billion, was 6.21 percent, compared to 6.31 percent during FY89. The Bank's equity at June 30, 1990, consisted of $6.2 billion of usable paid-in capital plus $10.5 billion of reserves and accumulated net income, compared to $5.7 billion and $9.0 billion, respectively, at June 30, 1989.
Data in this release are preliminary and unaudited. Borrowing and swap data represent transactions settled in FY90.
WORLD BANK AVERAGE COSTS, PROFITABILITY AND RETURNS
(Percentages, based on average balances during fiscal year)
Fiscal Year Costs
Average Cost of:
New Borrowings 1/
Total Debt Outstanding
Total Funds (Debt & Equity 2/
Spread Between Return on Total Earning
Assets and Cost of Total Funds
Net Income as a Percent of Average Equity 2/
Net Income as a Percent of Average
Liquid Assets and Loans (Return on Assets)
Reserves to Loans Ratio
Ratio of Outstanding Loans to Equity2/
Ration of Outstanding Debt to Equity 2/
1/ Does not include refinancing of prepaid yen borrowings of $3.0 billion in FY89 and $1.1 billion in FY90.
2/ Equity defined as usable paid-in capital, reserves and accumulated net.
3/ Interest on loans as a percent of average disbursed and outstanding loans.
4/ Includes realized capital gains (losses).
5/ Includes for FY89 and FY90 $139 million, respectively, of commitment fees on undisbursed loan balances in addition to returns on liquid investments and from interest on loans disbursed and outstanding.
World Bank Borrowings
(Fiscal Year Ended June 30, 1990, Amount in US$ million)
Swaps a/ (amount)
Medium-and Long-term Fixed Rate Borrowing
Japanese yen b/
Central Bank Facility (US dollars)
Note: Details may not add to total because of rounding.
a/ Currency swap transaction totaled $3,124 million.
b/ Does not include $1.1 billion of refinancing of prepaid borrowings.
c/ Represents borrowings in Australian dollars ($286.5 million), Austrian schillings ($84.3 million), Belgian francs ($253.1 million). Canadian dollars ($346.9 million), ECU ($384.4 million), French francs ($179.3 million),Hong Kong dollars ($64.1 million), Italian lire ($788.4 million), Luxembourg francs ($55 million), Netherland guilders ($157.6 million), Pound sterling ($317.6 million) and Spanish pesetas ($232.1 million).