Appendix D. IFC and MIGA Projects

Transcription

1 Appendix D. IFC and MIGA Projects 1. The Sample IFC Financial Sector Investment Projects Reviewed Table D.1. IFC Transactions Investment number Investment name Loan Guarantee Client risk management Project type EAST ASIA AND PACIFIC PEEP - BPI ,299,255 0 Guarantee BTPN Convertible 0 70,000, Loan IIFF 40,000, BOS RI III 38,586, BRCB RI 37,084, DYCCB 31,555, AEP 25,000, CRAGF 25,000, EUROPE AND CENTRAL ASIA BCC 100,000,000 85,000, Mix CI RREEF-Agri 0 30,207, Loan MRIF 100,000, CBM A + B Loan 0 40,000, Loan ATF Bank 0 60,000, Loan BCC DPR/SME 0 45,000, Loan SwedBank Ukraine 0 40,000, Loan Risk BoG Swap II ,000,000 management LATIN AMERICA AND THE CARIBBEAN Banorte EQ 217,700, Bancamia II 13,468, Daycoval III ,946, Mix Patagonia CL 0 30,000, Loan BBVA Paraguay CL 0 30,000, Loan Bic Banco H and E 0 25,000, Loan Daycoval Mobiliz 0 25,000, Loan QBEDIR 19,000, WCAPH EQ 15,536, Enfoca 15,000, MIDDLE EAST, NORTH AFRICA, AND SOUTHERN EUROPE BoA 196,672,

2 Investment number Investment name Loan Guarantee Client risk management Project type Byblos 99,999, Akbank SME Loan 0 75,000, Loan BCR Agribusiness 0 70,615, Loan BT Health 0 61,563, Loan YKL Health, EE/RE 0 45,000, Loan MENA JI Fund 25,000, SOUTH ASIA Macq-SBI Int F 148,988, IDFC CC Loan 0 75,000, Loan Chola DBS 22,286, Avigo Fund III 20,000, Ventures Bangla 12,000, SUB-SAHARAN AFRICA SABIF-Absa 0 120,000, Loan Macquarie Africa 100,000, FBN Nigeria 0 87,500, Loan Helios Fund II 60,000, CAPE III 30,000, BCI Fomento II 0 30,000, Loan ZANACO 0 25,000, Loan ECP Africa III 25,000, ADP I 20,275, IDA IFC EBMali 0 0 5,905,886 0 Guarantee WORLD EMSF 25,000, LeapFrog Fund 20,000, Note: Because of lack of project approval documents, five originally selected projects (PIDs 29346, 27910, 23957, 29220, and 29836) were dropped and replaced with five other projects (PIDs 28240, 28633, 29117, and 26934) next in respective project lists ranked top-down by commitment amount. 237

3 Table D.2. List of Recap Fund Transactions Reviewed Transaction name Country/region Number CF BSP Debt and Papua New Guinea CF ETI Africa Region CF KBB Convert Serbia b. CF Banco de Oro Unibank Philippines Banco Continental Paraguay CF Vietinbank Vietnam Table D.3. List of IFC Transactions Reviewed Transaction name Country/region Number Cai Mep-Sub Loan Vietnam Calidda Peru Peru Table D.4. List of DARP Transactions Reviewed Transaction name Country/region Number Asia Debt Management Central and Eastern Europe, Central Asia, and Turkey Aluar Argentina Avtokran Russia Bancolombia Colombia Covinoc Colombia CRG Capital Eastern Europe DARP Southern Financial Partners AMC Latin America DARP Standard Bank NPL Facility Emerging Europe Special Situations Fund Commonwealth of Independent Countries EOS Eastern Europe HSBC Emerging Markets Recovery Fund World c. Tata Capital Services India Collections Management, Ltd. India Varde Eastern Europe, including Russia, Ukraine, Poland, Hungary, and Romania Note: AMC = Asset Management Company; DARP = Debt and Asset Recovery Program; NPL = nonperforming loan. 238

4 Table D.5. List of Advisory Services Projects Reviewed Project name Country/region Number Banking Market Development Armenia Financial Management Crisis Russia Financial Management Crisis Management Program Georgia Financial Management Crisis Management Project Azerbaijan Financial Management Crisis Management Program Eastern Europe Crisis Management Project Ukraine MIGA Projects Table D.6. MIGA s Crisis Guarantee Projects, FY09 11 Host country Gross exposure ($ millions) Reinsurance ($ millions) Risk coverage FY09 10 Bosnia and TR, EXP Herzegovina Russian Federation TR, EXP, WCD Ukraine TR, EXP Ukraine TR, EXP Moldova TR, EXP, WCD Russian Federation TR, EXP, WCD Kazakhstan TR, EXP, WCD Hungary TR, EXP, WCD Latvia TR, EXP Serbia and TR, EXP, WCD Montenegro Serbia TR, EXP Croatia TR, EXP, WCD Serbia TR, EXP, WCD Latvia TR, EXP, WCD Croatia TR, EXP, WCD Kazakhstan EXP FY11 Hungary EXP Source: MIGA. Note: TR = risk; EXP = expropriation; WCD = war and civil disturbance. 239

5 3. Crisis-Related MIGA Guarantee Projects A Summary In response to the crisis, MIGA underwrote 17 guarantee projects ( the crisis guarantees ) in nine host countries: Bosnia, Croatia, Hungary, Kazakhstan, Latvia, Moldova, Russia, Serbia and Montenegro, and Ukraine. The risks covered were in nearly all cases risk and expropriation and, in some instances, war and civil disturbance also. 53 MIGA s crisis guarantees were intended to provide support for additional capital injections into banks in the Europe and Central Asia Region. In all 17 guarantee projects, the underlying project enterprise, i.e. the subsidiary financial institution, received a shareholder loan from the parent bank so as to recapitalize the subsidiary, and that loan received a MIGA guarantee. In a number of host countries, including Hungary, Latvia, and Ukraine, the banking system had intermediated a rapid expansion of credit, including significant foreign currency exposures. When the crisis hit, there was a sharp rise in the level of nonperforming loans. Uncertainty about the solvency of banks in general led to liquidity problems, with the drying up of local interbank funding (or its severe restriction to short-term maturities). In this environment, MIGA s guarantees enabled parent banks to add extra capital to subsidiaries while limiting their country (sovereign political risk) exposure. 54 A review of the 17 crisis projects, plus a detailed examination of four project enterprises (which does not claim to be statistically significant) indicates that the output, consisting of extra capital by parent banks, produced a number of beneficial outcomes. In all cases, the MIGA guarantees played a role on a small scale in contributing to the outcomes: it would be an unwarranted overestimation to attribute outcomes solely to MIGA interventions. In anticipation of the added capital, parents provided liquidity lines to subsidiaries. The liquidity lines provided an escape from liquidity problems. Subsidiary banks then were perceived to be stable deposit-taking institutions capable of accommodating a flight of capital from the local currency to the US dollar or the euro (as occurred in some of the Europe and Central Asia host countries). A particular value of MIGA guarantees was their long-term tenor (maturity of coverage), because subsidiaries were often seeking a long-term component to financing that could not be obtained in local financial markets. Additionally, guarantees against risk (in particular) were both needed and valued, because of the risks of currency devaluations. The risks at the time are illustrated by, for example, the major deval- 53 Methodological note: For the real-time evaluation of the present report, the 17 crisis guarantees have been assessed with a focus on outputs and outcomes to date. The mixed methods employed include document review, staff interviews, four country case studies, visits to two host countries, one completed project evaluation report (PER) and three preliminary drafts of PERs. For the one project with a completed PER, the host country was Russia. This project was the only one among MIGA s crisis response projects that was included in the set of PERs examined in the recent report MIGA s Financial Sector Guarantees in a Strategic Context (IEG 2011a). 54 Typically, the parent banks concerned had a long-term commitment to the host country in question. So it is not possible to assert that the recapitalizations covered by MIGA would never have taken place without its support. But the evidence suggests that MIGA guarantees were highly valued and enabled parent banks to optimize their usage of country exposure lines. 240

6 uation that took place in the Ukraine, and the loss of about one-third of foreign exchange reserves (while defending its currency) in Moldova. In a few cases, the subsidiaries were proactive in restructuring troubled assets, reflecting the financial know-how of the parent banks. In this way, MIGA s cross-border support to foreign banks in countries threatened by banking crisis and currency devaluation helped to meet a number of crisis needs: liquidity provision; recapitalization; workout of troubled assets; financial stability; a stable foreigncurrency depository institution in some highly dollarized economies; and not least in Latvia and Ukraine, a reduction in the fiscal costs of banking collapse. The foregoing considerations reinforce the conclusion reached above that MIGA s crisis response was strong in strategic relevance. MIGA also contributed to private sector development and did so in an economically sustainable manner, as assessed within the framework of real-time evaluation to date. Banking systems in the nine host countries have stabilized, and the level (volume) of nonperforming loans has bottomed out, for example around mid-2010 in some of the most severely affected countries. Banks balance sheets have stopped contracting and banks have returned to positive profits and positive net lending. In respect of sustainability of the financial system and the economy, therefore, the preliminary assessment is favorable. Furthermore, foreign bank subsidiaries benefiting from MIGA guarantees have contributed to private sector development in a number of ways, including helping to promote transparency of bank ownership, risk management practices, and information technology systems. The objective of funding small and medium enterprises (SMEs) was part of the broader objectives of the FSI (as noted above). This objective has been harder to attain, however, judging from the findings for four guarantee projects. A case in point is Moldova, an IDA country, which suffered from a sudden drop-off in foreign direct investment during the crisis and benefited from a small cross-border investment, guaranteed by MIGA, in a financial sector enterprise. During the crisis, the enterprise concerned extended little credit to SMEs. These findings are in accord with preliminary indications throughout the Europe and Central Asia Region that SMEs were afforded little financial access during the crisis. At a time of heightened uncertainty, banks tend to penalize smaller firms even more than usual. It remains to be seen how SMEs will fare post-crisis. 55 MIGA s crisis response was concentrated 100 percent on one sector, the financial sector, and one region, the Europe and Central Asia region. The overall portfolio already had significant concentrations in that sector and region at the inception of the FSI. The issue arises, therefore, as to whether the additional exposures were imprudent. Year-by-year concentrations are only a prudential concern to the extent that they affect the overall portfolio concentrations, taking account of reinsurance and cancellations. Consequently, it is MIGA s net portfolio that is relevant to risk exposures (figure D.1). 55 In the Europe and Central Asia Region, broadly speaking, SMEs tended to have lower financial leverage than did large firms, and hence emerged from the crisis with relatively sound balance sheets. 241

7 The concentrations by sector and by region were increased (toward the financial sector and Europe and Central Asia) by the crisis response. There is no clear dividing line between reasonable risk bearing and imprudent risk bearing, however. A recent IEG report (IEG 2011) has noted that MIGA s exposure was well within its own country and project limits, even during the crisis, and exposures were reinsured even though limits were not close. 56 A second pertinent factor is that throughout the crisis period under review, MIGA s economicto-operating capital ratio remained low, standing at 31 percent at the end of FY10. These considerations indicate that the portfolio concentrations arising from MIGA s crisis guarantees cannot be considered to be imprudent. Figure D.1. MIGA s Outstanding Portfolio FY08-FY10: Composition by Sector and Region Source: MIGA. Note: Net exposure. 56 It was also noted in that report that MIGA had not made use of its discretionary authority to increase exposure limits from their Board-approved April 2007 levels. 242