IBRD Lending Rates and Spreads Applicable July 1, 2015

Transcription

1 Public Disclosure Authorized From: The President July21,201 5 IBRD Lending Rates and Spreads Applicable July 1, 2015 I. Introduction Public Disclosure Authorized Public Disclosure Authorized Semi-annually, IBRD provides an update of the lending rates and spreads app licable to its finan cing products as set out in the terms of each product. The purpose of thi s paper is to summarize the lending rates and spreads applicabl e to IBRD loans outstanding as of July 1, II. The Structures of IBRD Lending Rates and Spreads The structure of lending rates and spreads applicable to the IBRD loans outstanding can be broadly grouped into three categories: fixed spreads over a market reference rate (the Reference Rate), variable spreads over the Reference Rate, and currency pool based rates. Fixed spreads and variable spreads are currently offered under the IBRD Flexible Loan (IFL) product which consolidated the two previously offered LIBOR products: the Variable Spread Loan (VSL) and the Fixed Spread Loan (FSL). 1 In add ition, there are other LIBOR based products 2 and cmrency pool based products in IBRD 's po1tfolio. Those products have been discontinued for new loan commitments but will continue to require rate resetting for outstanding loans. The rate structure of each product group is described below. Fixed Spread The IFL fi xed spread over the Reference Rate consists of five components as shown below: Where: ffl Rate with Fixed Spread = RR + els + mp + pfs + mrp + bsa Spread RR = Reference Rate which varies by currency choice Public Disclosure Authorized els = contractual lending spread which is approved by IBRD 's Executi ve Directors and reviewed annually mp = maturity premium charged on loans with average maturities greater than 8 years which is approved by IBRD's Executive Directors and reviewed annua lly pfs = projected USD funding spread to the Reference Rate where IBRD expects, on average, to be able to fund over the Ii fetime of the loan mrp = market risk premium renecting fund ing and refinancing risks involved in providing loans with a fi xed spread at commitment bsa = projected basis swap spread applied to non-usd loans (currently EUR and JPY) to adjust the projected USO funding spread for other cujtencies 1 In addition, IBRD offers other financial products includi ng: hedging products, guarantees, and disaster risk financing. 2 Aside from VS Ls and FSLs, in FY07, IBRD offered the borrowers of currency pool and US dollar pool loans the option to convert their terms to a LIBOR based loan with a spread or I 00 basis points fixed for the remaining life of the converted loans.

2 2 Because 1BRD absorbs the full ri sk offuture financing costs for th e fi xed spread loans, the pricing princ iple of the fi xed spread is to cover the IBRD's projected funding cost for the li fe of the loan. Accordingly, IBRD regularly reviews the technical components 3 of the fixed spread to ensure that these reflect underlying market conditions. T he current level of the technical compone nts has been in effect since July I, The fixed spread for a loan is determined at loan signing and remains constant over the life of the loan. Variable Spread The pricing princ iple of the variable spread is to pass through the benefits and risks of changes in IBRD's cost of borrowing to the borrowers. The variable spread consists of the fo llowing components: IFL Rate with Variable Spread = RR+ e ls+ mp + afs Where: RR = Reference Rate which varies by currency choice Spread els = contractual lending spread which is approved by the IBRD's Executive Directors and reviewed annually mp = maturity premium charged on loans with average maturities greater than 8 years which is approved by IBRD's Executive Directors and reviewed annually afs = IBRD's average funding spread relative to the Reference Rate which is calculated every January I and July I based on the actual cost incuned during the previous six months for funding the loans The variable spread is determined on the lending rate reset dates and is applicable for the fo llowing six months. Currency Pool Products The C urrency Pool products, offered between I 982 and 200 I, are based on the pools of borrowings either in a basket of currencies or in a single currency and their lending rates are derived from the pooled cost of borrowings allocated to each product pool. The pooled cost of borrowings for each pool is calculated at the end of each semester and the semester rate is equitably charged to all applicable loans in the pool for rate setting for the subsequent semester. As of June 30, 2015, the currency pool products which have not been converted to LIBOR based pricing have outstanding balances of $ million a nd all will mature by the end of FY The technical components include the projected fonding cost, the market risk premium, and the basis swap adjustment.

3 3 III. Lending rates and spreads applicable to fixed and variable spread IFL as of July 1, 2015 The lending rates and spreads applicable to IFLs as of July I, are summarized below. 4 For variable spread, these spreads w ill be used for rate resetting dates between July 1, 2015 and December 3 1, (For historical spread analysis of the IFL, please see Annex I.) Box 1. IFL Lending Spreads Applicable as of July 1, (in basis poin ts) b Loan Currcnn Refer ence Rate ' Awrage i\'faturily 8 years and below LFL Fixed Spread (IFL FS) L5D 6-monlh LJBOR Grealer than 8 Greater lhan I 0 Greater lhan 12 Greater lhan I 5 Greater lhan 18 and u1>10 I 0 years and up to 12 years and up lo 15 years and up to 18 years and up to 20 years Projecled Funding Spread Market Risk Premium Contractual 1-"nding Spread Maturity Premium Total Spread- Currenl Total Spread - Prior Reference Rate nt July 1, IFL Variable Spread (WL VS) Awrage l\lalu rily Grealer lhan' 8 Grcaler lhan I 0 Grealer lhan 12 Grealer lhan 15 Grealer lhan 18 8 years and below and up lo I 0 years and up lo 12 years and up to 15 years and up lo 18 years and up lo 20 years Actual Funding Spread Contractual Lending Spread l\laturily Premium Total S pread - Current Total S1iread - Prior Refer ence Rate at July Indicative Total Unding Rated a. Loans for which the Invitation to Negotiate was issued on or before Jw1e 30, 2014 and approved by the Executive Directors on or before September 30, 20 14, include an annual maturity premiwn of 0. I 0% for loans with average repayment maturities of greater than 12 to 15 years, or 0.20% for loans with average repayment maturities of greater than 15 to 18 years. b. A basis swap adjustment of -0.05% is applicable to EUR ftxcd spread and % is applicable to the JPY fo:ed spread. The current ftxed spread for loans denominated in GBP is set at the same rate as the fixed spread for loans denominated in USO. c. All euro-denominated loans for which the invitation to negotiate is issued on or after July 31, 2010 have EU Kl80 R as the re ference rate. d. The total lending rate is only indicative. The lending rate of a loan is determined based on the Reference Rate effective on the reset date Please see Annex 2 for the listing of the additional variable rates and spreads applicable to lfls and discontinued products for rate resetting dates between July I and December 3 I,

4 4 IV. Notification to Borrowers lbrd will notify current borrowers, as required, of the rates and spreads (both inclusive of waivers for eligible borrowers) applicable for interest periods beginning on or after July I, Jim Yong Kim President by Bertrand Badre Managing Director, Finance & World Bank Group CFO

5 5 Annex 1. Historical Trend of IFL Spreads a Cl. 80 IJ) ' {II Q) "' ~ F/G L [" Fix 18-20y! "~ B ~ Fix 15-18y,.,."r \ = = ~ ~=... \ 1c1 IE1 1. j ' ,.. p L=.. J J'j Fix 12-15y ; ' t t' i... i i fj.--i i, 1! Fix 10-12y.- :..,..., i. ;, ; 'I. : ar 18-20y l '! _,.., l ~ Fix 8-10y i ' r----" i ~.A~.,, r,~:'.'.":'.'.-:::-::'.:'.~:~:~: : ~~ , i ~-----"""* Fix upto8y I ',~ / L.. -=--~=:~=:~:--~=~~::::: :a--~~--~--~------~----~~~ J i ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Jan-10 Jul- 10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul -14 Jan-15 Jul-15 A. On June 22, 20 I 0, IBRD 's Executive Directors approved the introduction of a maturity premium for all loans and guarantees with maturities greater than 12 years. All loans and guarantees approved after June 30, 20 Id would be subject to a I 0 basis point (0. 10%) annual prem ium for average maturities greater than 12 years and up to 15 years, and a 20 basis point (0.20%) annual premium for average maturities greater than 15 years and up to 18 years (the maximum average maturity available). The introduction of a maturity premium required a corresponding realignment of the average maturity buckets introduced for IFL fixed spread loans in March B. On August 12, 20 I 0 and on May 4, 20 I I, Management reduced the technical components of the fi xed spread over the Reference Rate for lbrd Flexible Loans (IFLs) with average repayment maturities greater than 12 years due to a reduction in projected funding costs for these loans. On both occasions, the specific decreases were 5 bas is points for loans with average repayment maturities greater than 12 years and up to 15 years, and I 0 basis points for loans with average repayment maturities greater than 15 years and up to I 8 years. The pricing for loans with average repayment maturities of 12 years or less remained unchanged. These changes affected all loans signed on or after August 13, 20 I 0 for changes announced on August 12, 20 I 0 and all loans signed on or after May 6, 2011 for the changes announced on May 4, C. On April 5, 20 12, Management further reduced the technical components of the fixed spread over the Reference Rate fo r JBRD IFLs across all maturity categories. The decrease was made up of lower projected funding costs for all currencies by 10 basis points for loans with average repayment maturities of 1 5 years or less and 5 basis points for loans with average repayment maturities greater than 15 years and up to 18 years. In addition, for euro and yen denominated loans, the projected basis swap adjustment was lowered by 5 basis points compared to the previous level. This change affected all fixed spread lfls signed on or after April 6,

6 6 D. On April 26, 20 13, Management increased the projected funding spread component of the fixed spread over the Reference Rate by 10 basis points for IBRD IFLs with average repayment maturities of 15 years or less. This change affected all fixed spread IFLs signed on or a~er Apri l 27, E. On April 22, 20 14, Management increased the projected fundin g spread component of the fixed spread over the Reference Rate by 5 basis points for IBRD lfls for all maturiti es. This change affected all fixed spread IF Ls signed on or after Apri l 23, F. On February 11, 20 14, rbrd 's Executive Directors approved the extension of the maximum maturity for loans and guarantees to 35 years with the revision to the maturity premium schedule. The revision of the maturity premium schedule required a corresponding realignment of the average matmity buckets set in June 20 l 0. All eligible loans and guarantees wi ll be subject to a 10 basis points annual premium for average maturities greater than 8 years and up to I 0 years, a 20 basis points annual premium for average maturities greater than I 0 years and up to 12 years, a 30 basis points annual premium for average maturities greater than 12 years and up to 15 years, a 40 basis points annual premium for average maturities greater than 15 years and up to 18 years, and a basis point annual premium for average matmities greater than 18 years and up to 20 years (the maximum average maturity available). This change came into effect on July I, lt does not affect loans or guarantees for which (i) the Invitation to Negotiate was issued before June 30, 201 4, and (ii) that were approved by Executive Directors on or before September 30, G. As of July I, 20 14, the projected funding spread component of the fi xed spread for average maturities 8 years and below has been set at zero basis point.

7 7 Annex 2. Additional Variable rates and spreads applicable to IFLs and discontinued products for rate resetting between Jul 1, 2015 and December 31, 2015 Loa n Product Funding Contractual Eligibility Criteria cost/cost of Lending borrowing Spread Maturity Premium Total Spread/Hate IF L VS' Loans approved between June I 0 and June 30, 2014 with average maturity of 12 years or less -1 5 bps bps O bps 35 bps Loans approved between June 30, 2010 and June IFL vs 30, 2014 with average maturity greater than bps bps 10 bps 45 bps years and up to 15 years Loans approved between June 30, 2010 and June IFL VS ' 30, 2014 with average maturity greater than bps bps 20 bps 55 bps years and up to 18 years IFL VS issued (i) on or afier July 23, 2009; or (ii) prior to July 23, 2009, and which were not approved by November 30, bps bps NIA 35 bps IFL VS issued Prior to July 23, 2009, and which were -15 bps 30 bps NIA 15 bps approved by November 30, 2009 VS Lb Loans signed on or after Septe111ber 28, bps 30 bps NIA 15 bps VSLb issued: On or after July 31, 1998 and signed -15 bps 74 bps' NIA 59 bps before September 28, 2007 VSI} VLR89 VLR89 issued: Prior to Ju ly 31, 1998 Invitation to Negotiate date issued prior to July 31, 1998 Invitation to Negotiate date issued on or afier July 3 1, bps 49 bps' NIA 34 bps 7.44% bps NIA 7.94% 7.44% 75 bps NIA 8. 19% SCPD USD denominated 8.09% bps NIA 8.59% SCPM EU R de110111inated -0.17% bps NIA 0.3 3% a. Includes loans for which the invitation to negotiate was issued before June 30, 2014 and that have been approved by Executive Directors on or before September 30, b. Rates do not take interest waivers into account for loans signed before September 28, Interest waivers do not apply on loans signed on or after September 28, c. Effecti ve July 1, 2008, as part of the migration into a unified loan product (IFL), all loans under the lfl program,and VSLs signed on or after September 28, 2007, have a contractual lending spread that is not adjusted for day count (see R ). The total spread for other variable spread loans is adjusted to account for the different day conventions between borrowi ng transactions and the Bank's loans.