State Owned Financial Institutions in Europe and Central Asia A selective first glimpse from a recent WBG survey Ilias Skamnelos Lead Financial Sector Economist Finance & Markets Global Practice Kuala Lumpur September 19, 2017
Table of Contents Context and perspective Design and caveats A selective first glimpse
Why Europe and Central Asia… the historic context and perspective
Table of Contents Context and perspective Design and caveats A selective first glimpse
As with all surveys, the sample’s interpretation needs to be approached with caution • State ownership >50 percent (e.g. plus 1 voting rights share) • Assigned to one of three geographic areas – Benchmark Design Europe (B-Europe), West ECA (W-ECA) and East ECA (E-ECA) • Commercial SOFIs (C-SOFIs) – state commercial and hybrids; Development SOFIs (D-SOFIs) – state development banks, agencies or narrow institutions. • Quantitative information at three time points: 2007, 2011 and 2015 • Commercial 7 Sample of 41 institutions distributed across 22 countries EAST ECA Development 4 • 15 institutions classified as C-SOFIs and 26 as D-SOFIs Sample • W-ECA sample holds highest number of SOFIs (18), followed Commercial 6 WEST ECA by an almost equal share in B-Europe (12) and E-ECA (11) Development 12 • Commercial 2 Representation of sample in terms of sector or SOB assets Benchmark Europe Development 10 varies considerably 0 5 10 15 • D-SOFIs make up more than 80 percent of the sample in B- frequency Europe and 60 percent in W-ECA, while C-SOFIs account for more than 60 percent of the sample in E-ECA
Table of Contents Context and perspective Design and caveats A selective first glimpse
Some interesting observations on SOFI characteristics • Establishment year Four created since GFC, and over 60 percent since 1990 (i.e. post Soviet era) • Around 60 percent are financial groups (no big difference among C- and D-SOFIs) 4 • Over 40 percent of C-SOFIs have foreign branches, only EXIMs among D-SOFIs • 15 Only 30 percent of C-SOFIs listed (and none of D-SOFIs) Before 1990 • Unlike C-SOFIs, only 60 percent of D-SOFIs have banking license and about 50 1990-2007 After 2007 percent are exempt from parts of com. banking law • More D-SOFIs created by law or act, have always been state-owned, and have a 22 specific police mandate compared to C-SOFIs • Almost 40 percent of D-SOFIs and 20 percent of C-SOFIs have revised mandate in last 10 years Mandate and • objectives Just 30 percent of SOFIs have a specific policy for increasing lending during downturns • Over 50 percent of SOFIs (both types) have mandate that includes financial sustainability • SME financing dominates mandates, and is particularly prevalent among C-SOFIs • D-SOFIs have wider range of objectives, and significantly more focused on infr. and exports • SME financing is key objective for more than half of the SOFIs in B-Europe and W-ECA, while its importance is more in line with other objectives in E-ECA • EXIM function is particularly pronounced in W-ECA • E-ECA targets more prominently large private corporations and SOEs • No SOFIs indicated start-ups as a primary target market
Some interesting observations on SOFI characteristics • About 20 percent of C-SOFIs also do on-lending, and almost 70 percent of D-SOFIs do a Instruments combination of direct and on-lending and portfolio • About 60 percent of D-SOFIs offer subsidized products (term or rate) vs 20 percent among C- SOFIs, and D-SOFIs are significantly more likely to risk-share with private banks • Technical assistance is offered by just 25 percent of all SOFIs • Almost all C-SOFIs offer guarantees, and about 40 percent offer leasing and factoring • More than a third of D-SOFIs provide equity financing and venture capital financing • Very few SOFIs offer matching grants, and most introduced the product after 2007 • Venture capital financing is significantly more prevalent in B-Europe, as is leasing and factoring in E-ECA (possible given the higher presence of commercial banks) • B-Europe’s top lending sector is energy, W-ECA’s manuf., and E-ECA’s manuf. and energy • Agriculture is consistently present, but low compared to other sectors
Some interesting observations on SOFI characteristics • C-SOFIs rely mostly on general public and corporate deposits, and D-SOFIs on government, Fin. structure & multilaterals and securities performance • Both types of SOFIs have been receiving EU fund support • Receiving government funding is more prevalent in E-ECA, multilateral funding in W-ECA, and B- Europe and E-ECA SOFIs rank bonds as a significant source of funding • C-SOFIs were considerably more profitable than D-SOFIs in 2007 • Profitability suffered since 2007, but trend stabilizes after 2011 (mostly W-ECA) • Income appears to be dropping fast, with only a lagged and relatively muted response in operating expenses • NPLs exposure has increased significantly, driven primarily by direct lending operations • C-SOFIs experienced NPL spike earlier than D-SOFIs • SOE related NPL rate is consistently low • Since the crisis, several SOFIs have been recapitalized • Capital adequacy ratios are relatively high among SOFIs, with the highest observed among D- SOFIs that have actually experienced an upward trend
Some interesting observations on SOFI characteristics • Sup. Board is mostly appointed by the shareholder, but in 22 percent of the cases by a legislative Governance body, and appears to be often subject to multiple actors, layers or steps • 40 percent of SOFIs indicate “other” as means of appointment for the Chairman, followed by 36 percent by the Sup. Board and 20 percent by the Minister of Finance • About 80 percent of SOFIs have formal requirements for Sup. Board and senior management members, offer Sup. Board members fixed-terms contracts, and evaluate senior management performance • Over 80 percent of SOFIs have in place several review functions, but just half have a risk committee, and just 60 percent of D-SOFIs have an internal control function • About 90 percent of all SOFIs are audited by professional external auditor and about 80 percent Monitoring & have IFRS based audit report evaluation • Impact evaluation units are scarcely present among SOFIs, and less than 20 percent undertake impact evaluations
A look into asset and loan growth rates raises interesting questions with no easy answers • Countercyclical expansion, with C- Median assets growth rates Median assets growth rates SOFIs faster off the start line Median loans growth rates Median loans growth rates 100% 120% 100% 120% 160% 160% (instrument bias?) • 120% 120% Expanded C-SOFI role in non-loan 80% 80% assets post 2011 (gov. bonds?), vs 60% 60% 80% 80% D-SOFIs sustained loan growth 40% 40% rate (due to narrower policy 40% 40% 20% 20% mandates?) when asset growth 0% 0% 0% 0% collapses (reigning in the Commercial Commercial Development Development Commercial Commercial Development Development 2007/2011 2007/2011 2011/2015 2011/2015 2007/2011 2007/2011 2011/2015 2011/2015 countercyclical expansion?) • Significantly higher median asset Median assets growth rates and loan growth rates in E-ECA Median loans growth rates 40% 80% 120%160%200%240%280% 40% 80% 120%160%200%240%280% (where mostly C-SOFIs) • B-Europe and W-ECA (where more D-SOFIs) witness drops in asset growth rates post 2011 (post GFC scale back?), but W- ECA sustained median loan 0% 0% growth rates Benchmark Europe WEST ECA EAST ECA Benchmark Europe WEST ECA EAST ECA 2007/2011 2011/2015 2007/2011 2011/2015
Extra slides (not for presentation)
% country banking Country Geography Num of Institutions assets Bosnia and Herz. West ECA 3 <1 Bulgaria West ECA 2 3.2 Croatia West ECA 1 5.0 Czech Rep. West ECA 1 <1 France Benchmark Europe 2 <1 Germany Benchmark Europe 3 5.1 Hungary West ECA 2 4.0 Kyrgyz Rep. East ECA 2 18.6 Latvia Benchmark Europe 1 1.3 Macedonia West ECA 1 <1 �etherlands Benchmark Europe 2 3.6 Poland West ECA 1 2.7 Portugal Benchmark Europe 1 24.8 Rep. of Belarus East ECA 3 51.1 Romania West ECA 2 7.5 Russia East ECA 3 21.8 Slovenia West ECA 1 23.3 Spain Benchmark Europe 2 2.7 Turkey West ECA 4 10.1 Ukraine East ECA 3 11.4 United Kingdom Benchmark Europe 1 <1 Total 41
Recommend
More recommend
