“Seminar on Specialized Financial Institutions in the New Edition: Role of Financial Inclusion for Inclusive and Sustainable Growth” Role and Challenges of Specialized Financial Institutions Jose De Luna Martinez Bangkok, Thailand, August 23, 2016 WORLD BANK GROUP Finance & Markets The findings, interpretations, and conclusions expressed in this presentation are entirely those of the author. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Contents Overview of SFIs – Learning from the past 1 Features of SFIs and challenges 2 Financial inclusion in ASEAN 3 Final remarks 4
Overview of SFIs (Development Banks)
Development Banks (DBs) Sectors Clients Instruments Agriculture Households Loans Infrastructure SMEs Guarantees Promote International Local Advisory economic trade governments services development Industry Large private Technical firms assistance Housing Private financial Tourism institutions
DBs – Demand for Technical Assistance - What is a good example of an SME development bank, agriculture bank, infrastructure bank? - How do you make a DB independent from undue political interference? - How can a DB become financially self-sustainable? - Should DBs be regulated in the same way private commercial banks are regulated? - How should the performance of a DB be evaluated? - How to enhance transparency and governance of DBs? 5
Survey Respondents 90 DBs from 61 Countries Africa Americas Asia Europe and Middle East and Central Asia North Africa 1. Angola 12. Antigua and 27. Bangladesh 48. Bulgaria 60. Egypt 2. Côte d'Ivoire Barbuda 28. Bhutan 49. Croatia 61. Oman 3. Democratic 13. Bolivia 29. Cambodia 50. Finland Republic of 14. Brazil 30. China, 51. Germany Congo 15. Canada People's Rep. 52. Hungary 4. Ghana 16. Colombia 31. Cook Islands 53. Latvia 5. Kenya 17. Costa Rica 32. Fiji 54. North Cyprus 6. Nigeria 18. Curacao 33. India 55. Norway 7. Rwanda 19. Dominican 34. Malaysia 56. Poland 8. South Africa Republic 35. Micronesia 57. Slovakia 9. Sudan 20. Ecuador 36. Mongolia 58. Slovenia 10. Tanzania 21. Guatemala 37. Nepal 59. Turkey Uganda 11. 22. Mexico 38. Niue Island 23. Paraguay 39. Pakistan 24. Peru 40. Palau 25. Uruguay 41. Philippines 26. Venezuela 42. Samoa 43. Sri Lanka 44. Thailand 45. Tonga 46. Vanuatu 47. Vietnam Source: WB Global Survey of Development Banks, 2012.
Features of Development Banks KfW (Germany) China Banobras Development (Mexico) Bank There are differences in terms of: • Policy mandates (broad vs. Brazil National narrow) Agriculture Development • Ownership (state-owned vs. Bank of Turkey Bank mixed ownership) • Funding (deposit vs. non- deposit taking institutions) • Lending models (wholesale vs. retail) Development Malaysia • Regulation Bank of Southern Development • Corporate governance Africa Bank • Performance Vietnam Bank NABARD for Social (India) Policies
Performance - DBs Category 1 Category 2 Category 3 Poor performance Satisfactory High performance (20%) performance (70%) (10%) • • • High dependence on Profitable institutions Financial strength • • government funds Well-administered High innovation • Recurrent financial capability (financial …but there is room to losses 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
Features of SFIs and Challenges
Most DBs are fully owned by the State Percentage of State Ownership in DBs • 74% of DBs are fully owned by the State. • Private sector is a minority shareholder in 21% of DBs. • In 5% of cases, the State is a minority shareholder.
Funding Features of DBs Features Yes No Does your institution take deposits from the general 41% 59% public? Can your institution borrow from other financial 89% 11% institutions or issue debt in local markets? Does your institution receive direct budget transfers 40% 60% from the government? Does the government guarantee your institution’s 64% 36% debt?
Policy Mandates of DBs DBs by Type of Market niche Percent of Mandate DBs in the survey 1. Specific 53% Agriculture 13% SMEs 12% International trade 9% Housing 6% Infrastructure 4% Local governments 3% Industrial and other 6% 2. Broad 47% Total 100%
Type of Clients Served by DBs Other financial institutions 46% Other state-owned 54% enterprises Individuals and households 55% Large private corporations 60% SMEs 92% 0% 50% 100%
How Do DFIs Lend? Wholesale vs. Retail Lending How does your institution lend? Only wholesale 12% Both retail and wholesale 52% Only retail 36%
Use of Subsidized Interest Rates by DBs DFIs that Provide Some Lending Products at Subsidized Interest Rates No Yes 50% 50% • 50% of DBs that provide loans at subsidized interest rates cover the cost the subsidies through government transfers. • 26% finance them through cross-subsidization (profits from profitable business lines). • 38% finance through other means (mainly cheaper credit lines from IFIs)
Minimum Return on Capital Are DFIs Required by the State to Achieve a Minimum Return on Capital or Equity? Yes 22% No 78% • For institutions that are required to achieve a minimum return on capital, targets include: – Maintaining real capital constant (earn a return not lower than the inflation rate) – Achieving a rate of return not lower than the governments' long-term borrowing cost – Explicit return on capital
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 75% 25% Does the DB comply with the same prudential rules (capital adequacy ratio, loan classification, loan provisioning, etc.) as commercial banks? 79% 21% Is the DB rated by an international rating agency? 48% 52%
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 79% of boards in DBs have independent members, they are a minority in the board. • By large, the government appoints all board members and CEOs of the DBs. Transparency • High disclosure of annual reports and audited financial statements (90%), but less disclosure in terms of regulatory capital and capital adequacy ratio (less than 60%).
Key Challenges for DBs • The key challenge is to continuously balance two competing objectives: Policy Financial Objectives Sustainability Failure to balance this two objectives has resulted in: • High dependence of DBs on government budget and transfers • High NPLs with ultimate failure in the long-run. • Broad, unfocused and conflicting mandates of DBs. • DBs competing with private financial institutions and undermining the development of a private financial system. • Limited economic impact. 19
Areas of Opportunity for DBs Clear Mandate Sound Governance Development Banks Effective Risk Management Performance Monitoring and Evaluation 20
Financial inclusion in ASEAN
In ASEAN, 50% of adults reported having an account in 2014 Adults with an account (%) ASEAN 50 2011 2014 Source: Global Findex database. Lao PDR data is 2011. The share of adults with an account increased by 8 percentage points, from 42% in 2011 to 50% in 2014.
36% of adults in rural areas reported having an account Adults in rural areas with account (%) ASEAN 36 Source: Global Findex database. Lao PDR data is 2011. Account penetration in rural areas in high income OECD economies is 2.6 times ASEAN’s .
In ASEAN, 71% of adults reported receiving their wages in cash Adults receiving wage payments by method Into an account Source: Global Findex database. In cash The ratio of ASEAN to high-income OECD economies of people receiving wages in cash is 6 times
In ASEAN, 69% of adults that reported receiving government transfers did so in cash Adults that receive government transfers in cash (% of adults receiving government transfers) ASEAN 69 Source: Global Findex database. However, some countries are moving towards cashless government transfers schemes
In ASEAN, 61% of adults that sent remittances used cash and 33% used informal channels to do their transactions How adults sent remittances? (%) In cash Money transfer operator Financial institution Mobile phone Source: Global Findex database. Note: Respondents could report using more than one method.
But only 15% of all MSMEs have access to credit Source: IFC
Final remarks
Recommend
More recommend
