FINDINGS OF THE 2017 GLOBAL SURVEY ON DEVELOPMENT BANKS September 19, 2017 José de Luna Martínez Lead Financial Sector Specialist
Contents Background Information 1 Main Findings 2 Challenges for DFIs 3
Development Banks KfW (Germany) China Banobras Development (Mexico) Bank Agriculture Brazil National Bank of Development Turkey Bank Development Malaysia Bank of Development Southern Africa Bank Vietnam Bank NABARD for Social (India) Policies • 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 self- sustainable? - 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) Composition Policy Ownership of loan mandates portfolio Business Pricing of Funding models products Corporate Financial Regulation governance performance Monitoring and evaluation Restructuring Challenges practices
Survey Coverage (2011 and 2017) 135 DBs from 76 Countries Africa Asia Europe and Americas Middle East and Central Asia North Africa 1. Angola 17. Bangladesh 39. Austria 54. Antigua and 72. Egypt 2. Cote d’Ivoire 18. Bhutan 40. Bulgaria Barbuda 73. Kuwait 3. Democratic 19. Cambodia 41. Croatia 55. Argentina 74. Morocco Republic of 20. China 42. Finland 56. Bolivia 75. Oman Congo 21. Cook Islands 43. Germany 57. Brazil 76. Tunisia 4. Gabon 22. Micronesia 44. Hungary 58. Canada 5. Ghana 23. Fiji 45. Latvia 59. Chile 6. Kenya 24. India 46. Norway 60. Colombia 7. Mauritanie 25. Malaysia 47. North Cyprus 61. Costa Rica 8. Nigeria 26. Mongolia 48. Poland 62. Curacao 9. Rwanda 27. Nepal 49. Russia 63. Dominican 10. Senegal 28. Niue Island 50. Slovakia Republic 11. South Africa 29. Pakistan 51. Slovenia 64. Ecuador 12. Sudan 30. Palau 52. Switzerland 65. El Salvador 13. Swaziland 31. Philippines 53. Turkey 66. Guatemala 14. Tanzania 32. Republic of 67. Mexico 15. Uganda Vanuatu 68. Paraguay 16. Zimbabwe 33. Samoa 69. Peru 34. Sri Lanka 70. Uruguay 35. Thailand 71. Venezuela 36. Tonga 37. Vanuatu 38. Vietnam
DBs by Year of Establishment 33% 33% 35% 30% 25% 20% 20% 13% 15% 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 the Global Financial Crisis (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 Market niche Percent of Mandate 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 83% SMEs 78% Large private corporations 58% Other financial institutions 49% State-owned enterprises 41% Individuals and households 36% Local governments • 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, do you apply: Basel 1 24% Basel 2 44% Basel 3 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% State owns 50% to 99% State owns less 73% 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 self- sustainable •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 Category 2 Category 3 Poorly prepared Satisfactorily Well prepared prepared • High dependence on • Profitable institutions • Financial strength government funds • Well-administered • High innovation • Recurrent financial capability (financial losses Fbut there is room to products, outreach • Conflicting social improve: target market in and economic collaboration with objectives • Policy mandates private financial • Limited economic • Corporate governance institutions) impact • Risk management • Right combination of • Vulnerable to undue financial and advisory political interference 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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