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PRESS RELEASE June 20, 1991

World Bank Revised Loan Loss Provisioning Policy

The World Bank announced today that it has revised its loan loss provisioning policy and set its provisions, inclusive of a long-standing Special Reserve, to 2.5 percent of its total portfolio of outstanding loans and guarantees. The Bank noted that net income for the current fiscal year, after provisioning, is expected to exceed $1 billion, as for the last five years.

Under the revised policy, the annual review of provisions will be based on an assessment of collectability risk of the total portfolio, including a specific assessment for loans in nonaccrual status. Only the latter assessment was made under the previous policy. The extension of the provisioning policy required an increase in provisions to $2,076 million, compared to $1,250 million a year ago. Together with $293 million in the Special Reserve, the provisions amount to 2. 5 percent of the Bank's portfolio, expected to be about $94.3 billion equivalent on June 30, the end of the current fiscal year.

During the current fiscal year, Guatemala and Iraq entered non-accrual status, while Zambia has brought its payments to the Bank completely up-to-date. As a result, the principal amount of Bank loans in non-accrual status declined from $2, 871 million, or 3.2 percent of the outstanding loans and guarantees at the end of FY90, to about $2,500 million or 2.7 percent this year.

The Bank has never incurred a loss on loans or guarantees to any of its borrowers.