FINDINGS OF THE 2017 GLOBAL SURVEY ON DEVELOPMENT BANKS September 19, 2017 José de Luna Martínez Lead Financial Sector Specialist
Contents 1 Background Information 2 Main Findings 3 Challenges for DFIs
Development Banks Banobras (Mexico) KfW (Germany) China Development Bank Agriculture Bank of Turkey Brazil National Development Bank Development Bank of Southern Africa Malaysia Development Bank Vietnam Bank for Social Policies NABARD (India) WBG is also DB Our collaboration with DBs has been historically important through lending, TA, capacity building, etc.
Typical Queries Received by the WBG - What is a good example of an SME development bank, agriculture bank, infrastructure bank, etc.? - Should DBs provide lending at subsidized interest rates? If so, how can a DB become financially selfsustainable? - Should DBs be regulated in the same way that private banks are? - As government-owned institutions, how can DBs be protected from undue political interference? - What are the best tools to monitor and assess performance and economic impact of DBs? 4
Topics Covered in the 2017 Survey (12 topics with 150 questions) Policy mandates Ownership Composition of loan portfolio Funding Business models Pricing of products Regulation Corporate governance Financial performance Monitoring and evaluation practices Restructuring Challenges
Survey Coverage (2011 and 2017) 135 DBs from 76 Countries Africa Asia Europe and Central Asia 1. Angola 2. Cote d Ivoire 3. Democratic Republic of Congo 4. Gabon 5. Ghana 6. Kenya 7. Mauritanie 8. Nigeria 9. Rwanda 10. Senegal 11. South Africa 12. Sudan 13. Swaziland 14. Tanzania 15. Uganda 16. Zimbabwe 17. Bangladesh 18. Bhutan 19. Cambodia 20. China 21. Cook Islands 22. Micronesia 23. Fiji 24. India 25. Malaysia 26. Mongolia 27. Nepal 28. Niue Island 29. Pakistan 30. Palau 31. Philippines 32. Republic of Vanuatu 33. Samoa 34. Sri Lanka 35. Thailand 36. Tonga 37. Vanuatu 38. Vietnam 39. Austria 40. Bulgaria 41. Croatia 42. Finland 43. Germany 44. Hungary 45. Latvia 46. Norway 47. North Cyprus 48. Poland 49. Russia 50. Slovakia 51. Slovenia 52. Switzerland 53. Turkey Americas 54. Antigua and Barbuda 55. Argentina 56. Bolivia 57. Brazil 58. Canada 59. Chile 60. Colombia 61. Costa Rica 62. Curacao 63. Dominican Republic 64. Ecuador 65. El Salvador 66. Guatemala 67. Mexico 68. Paraguay 69. Peru 70. Uruguay 71. Venezuela Middle East and North Africa 72. Egypt 73. Kuwait 74. Morocco 75. Oman 76. Tunisia
DBs by Year of Establishment 35% 33% 33% 30% 25% 20% 20% 15% 13% 10% 5% 0% Before 1945 1945 to 1979 1980 to 1999 Since 2000 New national institutions: Development Bank of Austria, PT Sarana Multi Infrastruktur (Persero), SFIL (France) and Development Bank of Nigeria. New institutions at regional level: Asian Infrastructure Investment Bank and New Development Bank (BRICs Development Bank).
The Countercyclical Role of DBs After theglobal FinancialCrisis (2010-2015) As a group, DBs experienced 64% growth in their lending portfolios for the period 2010 to 2015 or 13% per year. 82% of all DBs in the survey had positive growth and only 18% negative growth in their loan portfolios.
Policy Mandates of DBs DBs by Type of Mandate Market niche Percent of DBs in the survey 1. Specific 50% Agriculture 5% SMEs 13% International trade 11% Housing 2% Infrastructure 8% Local governments 3% Savings and microfinance 8% 2. Broad 50% Total 100%
What are the target markets of DBs? Target Market % of DBs SMEs 83% Large private corporations 78% Other financial institutions 58% State-owned enterprises 49% Individuals and households 41% Local governments 36% Among DBs, there is a strong orientation to serve the private sector (SMEs and large private corporations) Also,there is a strong orientation to provide financing to private financial institutions in order to reach out end-customers
Regulation and Supervision of DBs Regulation and Supervision of DBs Yes No Is the DB supervised by the same institution that supervises private commercial banks? 72% 28% If you follow the Basel Capital Accord, doyou apply: Basel 1 Basel 2 Basel 3 24% 44% 31% Is your institution rated by an international rating agency? 54% 46%
Most DBs are Owned by the State Percentage of State Ownership in DBs 3% State owns 100% 24% 73% State owns 50% to 99% State owns less than 50% 73% of DBs are fully owned by the State. Private sector is a minority shareholder in 24% of DBs. In 3% of cases, the State is a minority shareholder.
Corporate Governance of DBs Boards of DFIs are dominated by government representatives: Average board size is 9 members with a wide range of government representatives (Ministries of Finance, Labor, Social Affairs, Housing, Trade, Industry, etc.) Although 83% of boards in DBs have independent members, they are usually a minority in the board. By large, the government appoints all board members and CEOs of the DBs.
Main Challenges Faced by DBs 1. Strengthen risk-management capacity 2. Become financially selfsustainable 3. Improve corporate governance and transparency 4. Acquire more flexibility to hire and retain highly qualified staff 5. Reduce undue political interference 14
Are DBs Ready to Fulfill their Developmental Mandates? Category 1 Poorly prepared Category 2 Satisfactorily prepared Category 3 Well prepared High dependence on government funds Recurrent financial losses Conflicting social and economic objectives Limited economic impact Vulnerable to undue political interference Profitable institutions Well-administered Fbut there is room to improve: Policy mandates Corporate governance Risk management Financial strength High innovation capability (financial products, outreach target market in collaboration with private financial institutions) Right combination of financial and advisory services High standards of corporate governance and accountability
Conclusions DBs remain an important policy tool to foster economic development around the world. More than ever, DBs can play a catalytic role by crowding in private sector institutions into strategic sectors of the economy or serving specific niches of the market. Although some DBs perform well, others underperform. Strengthening DBs requires revising their policy mandates, upgrading governance structures, enhancing regulation and supervision, enhancing business models, and strengthening risk management. 16
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