"Fiscal 1991 was a year of solid financial achievement for the World Bank," Ernest Stern, Senior Vice President for Finance said today. The Bank earned over $1 billion for a seventh consecutive year. Net income for the fiscal year ended June 30, 1991 was $1.2 billion, up 15 percent from $1.05 billion in FY90.
The Bank achieved this income after strengthening its balance sheet by adding $775 million to its Loan Loss Provision in the course of implementing a revised, improved loan loss provisioning policy.
The Bank's financial achievements in FY91 encompassed a number of areas:
Strengthening the Balance Sheet –
Revised Provisioning Policy.
The Bank amended its policy of provisioning against possible loan losses to include an assessment of the risks of its entire portfolio of outstanding loans. In prior years the policy only focused on loans to borrowers in nonaccrual status. In implementing the revised policy, the Bank increased its consolidated provision to $2.0 billion which, together with the $0.3 billion Special Reserve, amounts to 2.5 percent of the total portfolio.
Disbursed and outstanding loans to countries in nonaccrual status at the end of FY91 amounted to 2.8 percent of total loans down from 3.2 percent at the end of FY90. During FY91 Zambia cleared all its loan arrears to the Bank. Five of the eight countries that remain in nonaccrual status are now making current debt service payments to the Bank: Guatemala Nicaragua, Panama, Peru, and Sierra Leone.
The Bank's reserves-to-loans (R/L) ratio reached 11.2 percent at the end of FY91, a steady increase from 8.5 percent in FY86. Reserves amounted to $10 billion equivalent at the end of FY91. Yesterday, in acting on the disposition of its FY91 net income, the Bank allocated $250 million dollars to the General Reserve to maintain its targeted 11 percent R/L ratio in FY92.
The Bank borrowed $11 billion equivalent on highly attractive terms in the world's financial markets. All but $60 million of incremental borrowings was medium- to long-term (MLT) fixed-rate funds borrowed in fourteen currencies, at an average cost, after swaps, of 8.06 percent and an average life of 6.7 years, compared to 7.97 percent and 7.7 years in FY90. After swaps, borrowings were accounted for by four core currencies in the Bank's loan pool: US dollars; Deutsche mark; Swiss francs and Japanese yen.
The Bank's FY91 offerings featured several bench-mark issues -- two us dollar global bond offerings totaling $3.5 billion, a DM 750 million issue and a SwF 600 million issue, the largest of its kind. The Bank also launched a NZ $250 million issue, making it the first offshore borrower in the domestic New Zealand market.
At the end of FY91 liquid assets investments totaled $20 billion equivalent, compared to $17.2 billion a year earlier. The Bank's primary objective in holding such liquidity (in an amount not less than 45 percent of the next three years' net cash flow needs) is to ensure flexibility in its borrowing decisions. In FY91 the liquidity earned a financial return of 9.23 percent, compared to 8.15 percent in FY90.
Assistance to Borrowers –
Reduction of Loan Charges
Yesterday the Executive Directors of the Bank, acting on the disposition of its FY91 net income, adopted, for borrowers that service their loans from the Bank in a timely manner, a waiver for FY92 of one-half of the 50-basis point premium the Bank charges over its average cost of borrowings. The Bank allocated $200 million to the General Reserves to fund in advance the waiver. The Executive Directors also approved a waiver of two-thirds of the 0.75 percent commitment fee on undisbursed loan balances for the third consecutive year. This waiver reduces net income by about $200 million per year.
Disposition of FY91 Net Income
In addition to the allocation to reserves, the Bank´s Executive Directors yesterday recommended to the Board of Governors that $350 million of FY91 net income be transferred as a grant to the International Development Association (IDA). The grant to IDA was to help finance programs in several newly eligible member countries. IDA is the Bank's affiliate which provides no-interest loans to the world's poorest countries. The Directors also recommended that the Bank retain the remaining $4.00 million of FY91 net income as surplus.
Commitments and Disbursements
Commitments in FY91 amounted to $16.4 billion, compared to $15.2 billion in FY90. Disbursements on loans to countries were $11.4 billion equivalent, compared to the record $13.9 billion in FY90. Over half of the decline in FY91 was due to disbursements of $1.4 billion in FY90 in support of special debt reduction operations to Mexico and the Philippines.
Member governments continued their subscriptions to the current General Capital Increase. By the end of FY91, 50-member countries had subscribed to 57 percent of the shares available to them from the FY88 General Capital Increase; the Bank's total subscribed capital was $139.1 billion.
Data in this release are preliminary and unaudited.