Growing Together: Economic Integration for an Inclusive and - escap

CHAPTER FOUR
97
Enhancing regional financial cooperation
TABLE TITLE
IV.2. Comparison of selected regional and national development banks
(In billions of US dollars)
Year established
EIB
1958
EBRD
1991
WB
1944
ADB
1966
BNDES
1952
CAF
1970
Total assets 563 52 283 100 331 18.5
Total loans 482 20 120 46 218 13.9
Subscribed capital 311 28 190 144 n.a. 2.8
Paid-up capital 16 8 12 7 .. ..
Equity 54 17 38 16 40 5.7
Loans disbursed 2010 79 12 29 6 101 7.7
Net income 2010 3 2 -1.1 0.6 6 0.2
Return on equity 5.3 % 10.8 % -2.9 % 3.8 % 15.2 % 3.0 %
Source: 2010 financial statement of each institution.
Notes: The abbreviations are: EIB: European Investment Bank; EBRD: European Bank for Reconstruction and Development; WB: World Bank; ADB:
Asian Development Bank; BNDES: Brazillian Development Bank; and CAF: Development Bank of Latin America. Data for EIB, EBRD and BNDES
converted into US dollars using market exchange rate of 31 December 2010: US$/Euro = 1.3412 and US$/Real = 0.6024
can subsequently be recouped through
user charges – by collecting road tolls, for
example. Many governments have been
keen to encourage private participation in
infrastructure, seeing this as a way to reduce
fiscal burdens. Consequently, since the 1980s,
they have privatized some infrastructure,
notably in telecommunications and power
supplies. By doing this, the state, instead
of being an owner and provider, serves as
the regulator for privately provided public
services. This has paved the way for many
private-sector companies to own and manage
infrastructure assets, with expectations of
attractive returns.
While this model has been employed
extensively in developed countries, it has
been slower to get off the ground in poorer
developing countries, where the private
sector has more limited access to funds. Such
funds come from four main sources: banks,
institutional investors, bond markets and
equity markets.
Bank lending
Commercial banks may be wary of lending
for infrastructure since they are likely to
face a maturity mismatch. Infrastructure
requires long-term funding while the bank
funds are primarily short-term in the form of
deposits and interbank borrowing. Nor do
banks necessarily have the skills to assess
the risks related to such lending. Risk officers
with limited experience will find it difficult
to price the risk involved in infrastructure
projects in which there is often a high degree
of uncertainty. In these circumstances,
when funds are offered, they are likely to
be expensive. As indicated in figure IV.1, in
projects with lower ratings the credit spread
can be higher than 20 percentage points.
Institutional investors
An alternative to bank funding is to seek
other investors that take a longer-term view.
Insurance companies, pension funds and other
institutional investors are likely to have a more
suitable asset-liability maturity structure, but
this assumes that these institutions have the
necessary in-house resources for acquiring,
managing and disposing of infrastructure
assets. The Asia-Pacific region has relatively
few institutions with this capacity.
Bond markets
In many countries, privately developed
infrastructure has been funded by issuing
bonds. In most Asia-Pacific countries, however,
bond markets are either non-existent or in
their infancy. Moreover, most projects in less
developed Asia-Pacific countries are likely
to be rated below a single B, for which the
premia charged over government bonds
can be prohibitively high (figure IV.1). An
alternative would be to issue bonds in
international markets, though few companies
in Asia and the Pacific have sufficient access