World Bank Intends to Boost Lending With Existing Capital

The World Bank is exploring ways to boost its lending capacity and revenue without asking for fresh capital as part of a poverty-fighting strategy endorsed by member countries this month, the lender’s chief financial officer said.

Options include increasing some of the interest rates charged, loosening the limits on loans and offering new services, Bertrand Badre, who joined the bank in March, said in an interview. The measures would accompany cost cuts and have yet to be discussed with officials from the 188 member nations before their next meeting in April, he said.

“If we are serious about objectives, we can do more with what we have on the table today,” Badre, a former CFO of Paris-based Societe Generale SA, said yesterday. “If there is demand, can we supply the demand? We want to do everything possible without a capital increase.”

The review of the bank’s financial model is part of President Jim Yong Kim’s push to transform an institution he said has grown too fragmented, cautious and self-absorbed to accomplish its new goal of ending extreme poverty by 2030. After shaking up the management ranks earlier this year, Kim has pledged to reduce the lender’s annual expenses by $400 million over three years, including through job cuts.

‘That’s Changing’

“For too long, the World Bank itself has not followed its own advice,” Kim told finance officials in Washington on Oct. 11. “We have often postponed tough choices. That’s changing. We are taking our own medicine.”

The extra revenue can boost capital, enabling the bank to lend more, said Badre, one of two managing directors at the Washington-based bank.

“Pursuing higher loan charges from the borrowers without any commitment of new capital from the non-borrowers could prove to be a political challenge,” said Scott Morris, a former deputy assistant secretary for development finance and debt at the U.S. Treasury Department.

A change in price would affect the unit that lends to middle-income countries, which committed $15.2 billion in the fiscal year ended June 30, compared with $20.6 billion a year earlier and less than half the $32.9 billion committed in 2009. Shareholders may want to discuss charging wealthier countries more, he said.

Lending Terms

“Much more interesting is the debate that we need to have on the price of duration,” he said. “Do we need to pay more or less the same, or something very similar whether you borrow for five years or 20 years? Probably not.”

The board will also need to discuss what risks it would allow the bank to take with its balance sheet, Badre said. It is getting some of the money it lends by borrowing on markets at low rates thanks to its AAA rating.

A measure of the bank’s financial strength has declined in the five years since it stepped up loans to emerging countries hit by the global financial crisis. The lender seeks to keep its equity-to-loans ratio within a target range of 23 percent to 27 percent. It was under 27 percent last year, down from from nearly 38 percent in 2008.

“There is certainly scope to pursue a bit more balance-sheet leverage, which shouldn’t be particularly controversial among the bank’s shareholders or the ratings agencies,” said Morris, now a visiting policy fellow at the Center for Global Development, an aid research group in Washington.

Consulting Services

The bank can also find sources of income by offering new services in the field of finance, or ad-hoc studies for countries that don’t need to borrow money but want expert analysis, according to Badre.

Asked about job cuts at the 15,000-employee institution, Badre said there’s room to find savings on technology, travel and real estate first.

“I have an objective in millions of dollars of savings, I have no objective of number of people,’ he said. ‘‘And then if there is an impact on people and there is likely to be an impact on people -- don’t fool ourselves -- but the impact on people, first of all, we can limit it. And second, you have many ways to handle it.”

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