GBRW Consulting has been analysing the major Multilateral Development Banks (International Bank for Reconstruction & Development, or World Bank; International Finance Corporation; Inter-American Development Bank; African Development Bank; Asian Development Bank and European Bank for Reconstruction and Development) since the late 1990s. We provide analysis, training and consultancy for Government shareholders and other interested parties on issues which include strategy, governance, communication with stakeholders and capital adequacy. This is the first of two presentations on slideshare which set out some of the main issues relating to this very specialised group of institutions, which we refer to as MDBs.

1. LONDON WASHINGTON DC SINGAPORE
GLOBAL EXPERIENCE, PRACTICAL EXPERTISE
PART 1 OF 2: AN INTRODUCTION
TO MULTILATERAL DEVELOPMENT BANKS
MULTILATERAL
DEVELOPMENT BANKS

2.  GBRW Consulting has been analysing the major Multilateral Development
Banks (International Bank for Reconstruction & Development, or World
Bank; International Finance Corporation; Inter-American Development
Bank; African Development Bank; Asian Development Bank and European
Bank for Reconstruction and Development) since the late 1990s.
 We provide analysis, training and consultancy for Government
shareholders and other interested parties on issues which include
strategy, governance, communication with stakeholders and capital
adequacy.
 This is the first of two presentations on slideshare which set out some of
the main issues relating to this very specialised group of institutions,
which we refer to as MDBs.
INTRODUCTION

3.  1945: International Bank for Reconstruction & Development (IBRD or
World Bank)
 1956: International Finance Corporation (IFC)
 1959: Inter-American Development Bank (IADB)
 1964: African Development Bank (AfDB)
 1966: Asian Development Bank (AsDB)
 1991: European Bank for Reconstruction and Development (EBRD)
The MDBs focus mainly on sovereign lending, with the exception of the IFC
and the EBRD, whose mandate is to focus on the private sector. Both these
banks have substantial portfolios of equity investments as well as loans, while
the others are primarily only lenders.
DATES OF ESTABLISHMENT OF MDBS

4. Multilateral Development Banks have a number of characteristics which
differentiate them from large commercial banks. These are discussed under
the following headings:
 Regulation
 Business mix
 Pricing approach
 Capital
 The investment portfolio
 Credit risk and Non-Performing Loans (NPLs)
DIFFERENCES BETWEEN MDBS
AND COMMERCIAL BANKS

5. MDBs are not:
 Subject to Governmental or Central Bank supervisory or regulatory
controls, as they are supranational institutions (that is, not domiciled in a
specific country).
 Subject to regulation under Basel 2/3 regulatory guidelines. However, they
do have their own statutory and policy controls.
 Publicly quoted on any Stock Exchanges and therefore subject to listing or
disclosure requirements. Their shareholders are national governments.
MDB AND COMMERCIAL BANK
DIFFERENCES (REGULATION)

6. MDBs do not:
 Take deposits from the public but only from the wholesale markets (bonds
and bank loans).
 Have a complete range of banking products for clients, but primarily
provide loans and guarantees (and make equity investments in the case of
IFC and EBRD).
 Have a broad spread of risk, since their loans are strongly concentrated on
their regional sovereign shareholders (exceptions: IFC and EBRD).
MDB AND COMMERCIAL BANK
DIFFERENCES (BUSINESS MIX)

7. MDBs generally:
 Price loans on standard terms and conditions rather than according to
levels of risk.
 Charge costs to borrowers on a pass-through basis.
 Do not have substantial exposures to private sector borrowers/investee
companies (exceptions: EBRD and IFC).
 Do not take substantial loan loss provisions (exceptions: EBRD and IFC).
MDB AND COMMERCIAL BANK
DIFFERENCES (PRICING APPROACH)

8. MDBs have:
 Substantial amounts of uncalled share capital, which represents an
obligation by shareholders to pay in additional capital if this is ever
required.
 Access to international capital markets at low interest rates and for very
substantial amounts through their “AAA” credit ratings.
 No historic requirement to pay dividends or return capital to shareholders.
However, they do transfer some profits to their concessional, or “soft
lending” affiliates (see next presentation), which could be considered as
similar in nature to a form of dividend.
 No quoted share price and therefore no scrutiny by investment analysts.
MDB AND COMMERCIAL BANK
DIFFERENCES (CAPITAL)

9.  In commercial banks, capital is a scarce and expensive resource.
 In MDBs, capital is a free resource .
 In commercial banks, maintaining an investment portfolio for liquidity
purposes is a cost (because the return is lower than the cost of capital).
 In MDBs, the investment portfolio has historically been a profit generator
because of low borrowing costs and nil cost of capital.
 This difference enables MDBs to maintain very much higher portfolios of
high grade liquid investments than private sector banks.
CAPITAL AND THE
INVESTMENT PORTFOLIO

10.  Commercial Banks deal with Non-Performing Loans (NPLs) by initially
placing them on non-accrual; subsequently taking loan loss provision to
recognise expected losses; and finally writing off unrecovered balances
after a certain period.
 In the case of the sovereign loans which make up the majority of their
lending, MDBs do place loans on non-accrual when the borrower defaults
on interest or principal payments. However, MDBs usually recover unpaid
interest and principal in full eventually, because they enjoy so-called
“super-priority” status.
 In addition, international interventions such as the Heavily Indebted Poor
Countries (HIPC) and Multilateral Debt Relief (MRDI) initiatives make
payments on behalf of the weakest sovereign borrowers so that MDBs do
not suffer significant losses on these loans.
MDB & COMMERCIAL BANK
DIFFERENCES (NPLS)

11.  GBRW regularly provides training on the role of MDBs in international
financial markets to delegates from major development institutions
(contact us for a course outline).
 The major ratings agencies (Fitch, Standard & Poor’s and Moody’s)
produce credit analyses on the MDBs which are available on their
websites.
 Copies of the MDBs’ annual financial statements can be downloaded from
the MDBs’ own websites.
 For a comparison of the financial statements of the MDBs, please see Part
2 of this presentation on slideshare.
FURTHER INFORMATION

12. PROFILE AND CONTACTS
 You can find out more about GBRW
Consulting by visiting our website on
http://www.gbrw.com
 Visit my LinkedIn profile at
http://www.linkedin.com/in/paulrexgbrw
and feel free to connect
 Email us at mail@gbrw.com
 Paul is the Managing Director of GBRW and
began his career with 18 years of lending, credit
and management experience at senior level
with Chemical Bank (now JP Morgan Chase) and
Crédit Agricole.
 He has been involved in international
development finance consulting for the past 20
years and has worked on assignments in more
than 20 countries, including
Bahrain, Bangladesh, Belize, China, Egypt, Mong
olia, Poland, Russia, Serbia, Sierra
Leone, Singapore, Uganda, Ukraine, and West
Bank/Gaza.
 Paul has an MA from the University of Oxford, is
a Fellow of the Academy of Experts, and a
member of the Worshipful Company of
International Bankers.
Paul Rex,
Managing Director