African Development Bank Financial and Operational Analysis May - - PowerPoint PPT Presentation

Financial and Operational Analysis

May 2005

African Development Bank

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Highlights 2000 to 2004 2004

 Commission for Africa established and UN Millennium Project launched  The tenth replenishment of the African Development Fund (ADF) was the highest ever  Launched US$ 14.2 billion Rural Water Supply and Sanitation Initiative to accelerate access to safe water for Africa  Post conflict country facility (PCCF) established  Reaffirmation of ‘AAA’ credit ratings by Fitch, JCR, Moody’s and Standard & Poor’s  Highest level of operations and income as well as lowest cost of funds ever achieved in the capital markets

2003

 African Ministers Council on Water (AMCOW) appoints Bank Group as host of the African Water Facility  Successful execution of business continuity plan and smooth relocation to back up facilities  Nigeria creates a Technical Co-operation Fund to promote intra-Africa technical cooperation  Upgrade by Standard & Poor's to 'AAA'  The largest bond transaction by the Bank - USD 1 billion global

2002

 Monterrey Consensus on Financing for Development  Ninth replenishment of the ADF  New organization structure and Strategic Plan 2003-2007 to enhance selectivity and responsiveness  Initiated the establishment of the African Law Institute  Championed a donor coordinated initiative to clear arrears owed by Democratic Republic Congo, the bulk of arrears owed to the Bank Group  International Financing Review's (IFR) Agency/Supranational Bond of the Year Award received for first global bond (US$ 500 million)

2001

 New Partnership for Africa's Development (NEPAD) launched by African Heads of State  NEPAD appoints the Bank Group as leader on infrastructure, banking and financial standards  First Bank Group Annual meeting outside Africa - Valencia, Spain  International Accounting Standard (IAS) 39 adopted by the Bank  Unlimited Global Debt Issuance Facility set up to enhance flexibility with respect to capital markets activities  First Hong Kong dollar and Singapore dollar bond transactions by the Bank

2000

 Millennium Development Goals adopted  Creation of the African Union  Omar Kabbaj re-elected as President of the Bank Group  New financial products, including guarantees and risk management products, approved  First guarantee transaction executed (a local currency syndicated loan to MTN-Cameroon)  JPY 50 billion bond transaction by the Bank

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Highlights 1995 to 1999 1999

 Enhanced Highly Indebted Poor Country Initiative (HIPC) implemented  Established Joint Africa Institute with World Bank and IMF  Developed Bank Group's Vision Statement through broad consultations with all stakeholders  Eight replenishment of ADF  One billion Euro-commercial Paper facility established

1998

 Fifth General Capital Increase raised authorized capital by 35 % to US$ 34 billion  Project AFRICA, a bankwide initiative to streamline business processes using SAP as platform  First Rand denominated line of credit to Development Bank of South Africa  First Rand denominated bond issue

1997

 Uganda becomes the first country to qualify for HIPC  New loan products offering clients interest rate and currency choice  South African Rand introduced as a borrowing and lending currency  First Yen structured private placement bond transaction issued by the Bank

1996

 HIPC Initiative approved  African Heads of State meet to deliberate on the future of the Bank Group  Seventh replenishment of ADF  Financial reforms initiated  FRF 2 billion bond transaction by the Bank

1995

 New Credit Policy adopted  Accession of Republic of South Africa to Bank membership  Omar Kabbaj elected as President of the Bank Group  Strategic renewal and Institutional reforms initiated  ‘AAA’ credit ratings by Fitch, JCR, Moody’s, AA+ by Standard & Poor’s  US$ 400 million subordinated debt issued in Yankee market

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Table of Contents

I. Bank Group Profile (1995 – 2004) II. Bank Group Action Plan for the Future III. ADB Financial Profile Appendices  ADB Financial Statements  Africa at a Glance

I. Bank Group Profile (1995 – 2004)

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The Bank Group embodies an effective partnership for the development of Africa

Africa

Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda

• S. Tome & Principe

Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo Cote d’Ivoire

• D. R. Congo

Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea Bissau Kenya Lesotho Liberia

 African Development Bank (ADB) – Established in 1964 – Subscribed capital - US$ 33.54 billion – 53 African and 24 non-African countries  African Development Fund (ADF) – Established in 1972 – Subscriptions - US$ 19.98 billion – Primarily financed by non-African countries  Nigeria Trust Fund (NTF) – Established by Nigeria in 1976 – Total assets of US$ 572 million

Europe

Austria Belgium Denmark Finland France Germany Italy Netherlands Norway Portugal Spain Sweden Switzerland UK

North & South America

Argentina Brazil Canada USA

Middle East

Kuwait Saudi Arabia

Asia

China Korea India Japan

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Through its three constituent windows, the Bank Group addresses the diverse needs of African countries

 African Development Bank – Up to 20 years maturity including 5-year grace period – Market-based lending terms  African Development Fund – Up to 50 years maturity including 10-year grace period – Service charge of 75 bp and commitment fee of 50 bp starting 120 days after signature – Grants represent 44% of ADF-X resources  Nigeria Trust Fund – All African countries are eligible to NTF funding – Up to 25 years maturity including 5-year grace period – Interest rate of 2% to 4% and commitment fee of 75 bp starting 120 days after signature

 Eligible to ADB funding (13 countries)  Eligible to ADF funding (38 countries)  Eligible to ADB and ADF funding (2 countries)

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The Bank Group supports critical sectors in all regions of Africa

Agriculture & Rural Developme nt 18.3% Finance 13.4% Transport 16.6% Social 11.6% Other 2.7% Multi-sector 15.3% Power Supply 9.1% Water Supply 7.5% Industry 5.5%

12.1% 14.8% 32.5% 13.8% 23.8% 3.0%

Central Africa East Africa North Africa Southern Africa West Africa Multiregional

Over 3,000 cumulative approvals amounting to USD 52 billion as of 31 December 2004

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Bank Group financial assistance is maintained at a level that ensures high quality operations

In SDR million

2004 APPROVALS IN US$

 Bank Group approvals amounted to

US$ 4.33 billion

 Heavily Indebted Poor Countries (HIPC)

approvals amounted to US$ 1.57 billion including US$ 905 million for Democratic Republic of Congo

 ADB approvals excluding HIPC

amounted to US$ 1.26 billion1

 ADF approvals excluding HIPC

amounted to US$ 1.49 billion

 NTF approvals amounted to

US$ 14.4 million

454 86 812 945 175 437 5 880 697 188 263 10 746 996 2 23 812 957 708 301 9

500 1 000 1 500 2 000 2 500 3 000 1995 2001 2002 2003 2004 ADB approvals excluding HIPC ADF approvals excluding HIPC HIPC approvals (ADB) HIPC approvals (ADF) NTF approvals

540 2 374 2 039 1 766 2 787

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3.29 3.07 2.97 2.97 2.92 1.00 3.00 5.00 7.00 9.00

2000 2001 2002 2003 2004

ADB Public Sector Portfolio Risk Rating on a risk scale of 1 (lowest risk) to 10 (highest risk)

 Credit policy directs ADB market-based lending to lower risk countries, while ADF

concessional resources are directed at the low income countries

 Heavily Indebted Poor Countries (HIPC) debt relief effectively guarantees debt

service on market-based ADB loans made to low income countries prior to the adoption of the credit policy in 1995

Country ownership, greater selectivity and rigorous project selection have resulted in a high quality portfolio

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68 949 1115 555 751 3.5 3.5 3.2 4.7 200 400 600 800 1000 1200 1995 2001 2002 2003 2004 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Cumulative Approvals Weighted Average Risk Rating

Finance 54.9% Oil & Gas 19.1% Miining 5.5% Infrastructure 19.1% Health 0.3% Manufacturing 2.8% Agribusiness 1.4% Tourism 2.8%

Development of competitive private sector across Africa is a strategic priority for the Bank Group

Weighted average risk rating Approvals in SDR million

 Non-sovereign guaranteed lending accounts for 6%

• f the total ADB portfolio

 New private sector strategy leverages the Bank’s

experience with sovereign guaranteed operations

 Introduction of private sector country profiles, a

country by country comprehensive analysis of private sector issues to be included in the Bank’s country strategy

 Dedicated portfolio management group to monitor

projects

 Continue to emphasize financial intermediation,

focusing on lines of credit with technical assistance, syndication, leasing and trade finance

 Expand infrastructure intervention through public

private partnerships, focusing on renewable energy such as hydro, wind, water purification in rural areas

 Expand franchising, support to women entrepreneurs,

corporate governance and corporate social responsibility

 Co-financing with partners to share risk and expertise Sector Distribution

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KEY HIGHLIGHTS OF ADF-X

 Grant resources more than doubled from

21% under ADF-IX to 44%

 To curtail their debt burden 26 countries will

receive 100% of assistance in the form of grants instead of loans

 Initial allocation of SDR 100 million

(US$ 155 million) made to the Bank’s Post- Conflict Country Facility (PCCF), with the possibility of further increases, if need be

 Up to 30% of the financial requirements of

the Rural Water Supply and Sanitation Initiative will be provided by ADF

 Allocation to multinational projects

increased from 10% to15% in the context of regional integration and NEPAD

The significant increase in the ADF replenishment level demonstrates support of the donor community to Africa

0.3 0.6 1.1 1.5 2.1 2.5 1.7 2.2 2.6 3.7 1 2 3 4 1976 ADF I 1979 ADF II 1982 ADF III 1985 ADF IV 1988 ADF V 1991 ADF VI 1996 ADF VII 1999 ADF VIII 2002 ADF IX 2005 ADF X ADF Resources (in SDR billion)

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13 Social sector 18% Power supply 4% Transport 33% Industry 5% Finance 6% Water supply 6% Agricultural & Rural development 19% Communication 9%

The Bank’s largest shareholder, Nigeria, supports the Bank Group and continent through the Nigeria Trust Fund

 NTF has approved 72 projects for US$ 402 million

in 30 countries since 1976

 Concessionality of loans extended by reducing

interest rates in 2003 to a minimum of 2%

 Participate in the HIPC Trust Fund through 10%

net income allocation

 Nigeria created a US$ 25 million technical

cooperation fund in 2004 Sector Distribution

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Cofinancing and partnership are critical elements of the Bank Group’s strategy

 Since inception, 833 projects have benefited from cofinancing with US$ 74 billion mobilised from sources other than the Bank Group  In 2004, 31 projects benefited from cofinancing with US$ 3.1 billion raised from other sources and implying a leverage of more than 2.3 times the Bank Group’s resources  Memorandum of Understanding with various multilateral agencies. 25 technical cooperation grants managed by the Bank Group

30% 26% 17% 8% 13% 5% 1% Multisector Energy Sector Poverty Reduction Water Supply and Sanitation Infrastructure Agricultural Sector Social Sector

Sector Distribution

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Rural Water Supply and Sanitation Initiative African Water Facility

The Bank Group champions critical initiatives for the continent

Governance Post-Conflict Country Facility HIPC Initiative International Comparison Program African peer review mechanism

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The Bank’s governance activities include the promotion of transparency, responsibility and accountability

 19 countries already rated by international

credit rating agencies while some other countries are in the process

 United Nations Development Program (UNDP)

and the United States (US) sponsored initiatives facilitate the process

Credit ratings African Peer Review Mechanism

 24 countries have so far acceded to the

African Peer Review Mechanism (APRM), a voluntary self monitoring governance mechanism

 The Bank Group is an APRM strategic

partner in economic and corporate governance and country assessment

II. Bank Group Action Plan for the Future

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Most African countries will not achieve the Millennium Development Goals if development efforts are not accelerated

Eradicate extreme poverty and hunger

1

A global partnership for development

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Reduce child mortality

4

Improve maternal health

5

Ensure environmental sustainability

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Achieve universal primary education

2

Promote gender equality and empower women

6 3

Combat HIV/AIDS, malaria, and other diseases

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The Bank Group is well positioned to scale up its activities to meet Africa’s development challenges

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The Bank’s comprehensive approach to re-engineering its operations is reflected in the shareholder support for its Action Plan

 US$ 80 million increase by 2007 in Bank

Group administrative budget to enhance institutional capacity

 Number of field offices to be increased

from 9 to 25 by 2006 1996 to 1999 2000 to 2004 2005 to 2007

 Three-year phased approach to leverage

the Bank’s experience with managing corporate growth

 Over 400 additional staff including 300 for

field offices by 2007

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Objectives of the Action Plan, a comprehensive time-bound program that consolidates the Bank’s achievements over the last decade

 Enhancing development effectiveness by

 strengthening diagnostic studies and country programming  managing for results  establishing the Bank as a leading knowledge institution  pursuing harmonization and alignment

 Strategic positioning through initiatives such as

 New Partnership for Africa Development (NEPAD)  Rural Water Supply and Sanitation Initiative (RWSSI)  building strategic partnerships;

 Building institutional capacity to deliver mandate by

 realigning resources to corporate priorities  increasing staffing for key activities  reinforcing the control framework  streamlining business processes.

 Accelerated decentralization program and new corporate governance functions

 16 offices in 2005-2006 for total of 25  inspection function  compliance review  anti-fraud and anti-corruption mechanisms.

III. ADB Financial Profile

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ADB Summary Financial Information

(in SDR million)3 1995 2001 2002 2003 2004 2004

US$ million

Approvals including HIPC 454 987 1,068 746 1,520 2,360 Assets 9,553 8,873 8,197 10,034 10,044 15,598 Subscribed Capital

4

15,750 21,491 21,510 21,564 21,597 33,542 Paid in Capital net of CEAS

5,6

1,445 1,770 1,803 1,866 1,920 2,982 Reserves before IAS 39

7,8

Adjustment 604 1,195 1,356 1,480 1,572 2,441 Net Income before IAS 39

8

Adjustment 69 125 189 178 220 341

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The Bank’s strong risk bearing capacity is reflected in the growth in its reserves to which more has been added in the past decade than in the first three decades

220 117 69 104 117 112 124 125 189 178 919 1 016 604 710 847 1 195 1 356 1 480 1 572 1 114

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Net Income excluding IAS 39 Adjustment Reserves net of CCTA excluding IAS 39 In SDR million

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10 6 5

1

13 15 10 9 10 54 45 10 6 37 30 10 36 11 5 15

1995 2001 2002 2003 2004*

DRC Special Account PCCF Allocation to ADF Special Allocation to ADF Allocation to HIPC Trust Fund Allocation to Special Relief Fund Allocation to Technical Assistance Funds* MIC Technical Assistance Fund

In SDR million

The Bank continues to allocate increasing amounts of net income

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to development initiatives to accelerate development

(*) Proposed allocation for 2004

22 57 115 144  HIPC initiative: 23 African countries

• ut of 32 eligible have received

US$ 4.2 billion in debt relief

 PCCF facilitates the reconstruction

efforts of post-conflict countries including arrears clearance. Burundi and Congo benefited in 2004

 Increased contribution to the Middle

Income Country (MIC) Technical Assistance Trust Fund to enhance competitiveness of operations in Middle Income Countries

10 11 13 12 14

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3,508 3,767 4,999 4,151

2,021 3,059 1,373 763

1998

1 803 5 492 169 1 866 1 920 1 445 1 770 3 508 4 151 4 885 4 981 1 250 1 154 737 3 059 10 056 13 240 13 248 13 713 12 186

5 000 10 000 15 000 20 000 25 000

1995 2001 2002 2003 2004

Paid-in Capital (net of CEAS) AAA Callable Capital AA Callable Capital Other Callable Capital

In SDR million

Strong shareholder support underscores the Bank’s strong financial and

• perational condition

 The Fifth General Capital increase

in 1998 raised authorized capital base by 35% to US$ 34 billion

 Shareholding of non-regional

countries increased form one-third to 40%

 Revised share transfer rules link

subscription to economic capacity

• f member countries and curtail

subscription arrears.

15746 21166 21178 21249 21294

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The Bank has substantially improved its risk

15 bearing capacity

1 480 1 572 1 920 1 445 1 803 1 866 1 770 604 1 356 1 195 450 469 243 492 494

1 000 2 000 3 000 4 000

1995 2001 2002 2003 2004

Paid-in capital Reserves before IAS 39 Adjustment Loan Loss Provisions

In SDR million

“…, its financial position has never

been healthier and its risk-bearing capacity is sufficient enough to meet expanding operations…” Japan Credit Rating Agency, 2004

2 292 3 459 3 651 3 815 3 942

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1.16 1.36 1.73 1.81 2.11 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 1995 2001 2002 2003 2004 Interest Coverage Ratio - Minimum 1.25

The Bank’s ratios are well within conservative interest coverage

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and debt limits

61.6% 61.7% 47.9% 51.2% 98.3% 0% 50% 100%

1995 2001 2002 2003 2004 Debt / Usable Capital Statutory Limit

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

Liquidity risk addressed by holding sufficient liquid assets to meet future cash requirements for at least one year



Interest rate risk management strategy stabilizes the Bank’s net interest margin



Statutory prohibition on taking foreign exchange risk

Bank wide financial controls and risk management culture lead to effective mitigation of non-core risks

Loan management practices Capital adequacy and provisioning policy

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

ADB capital adequacy policy is derived from the Basle Capital Accord and links its capital requirements to the risk profile of the portfolio



ADB ensures that adequate provisions are made for impaired loans

Market risk Operational risks



Operational risks are addressed by periodic review of internal controls and back-up procedures



Detailed and tested business continuity plan



COSO control framework under implementation



Strict sanctions practices including suspension of loan disbursements to clients in arrears for at least 30 days



No write-off on public sector loans

30

The Bank maintains conservative gearing and leverage ratios

Source: Standard & Poor’s Supranationals Report – October 2004 69% 83% 91% 99%

0% 50% 100% AfDB AsDB IADB IBRD

Gross Debt / Shareholders' Equity Adjusted + AAA Callable Capital

153% 121% 102% 109%

0% 50% 100% 150% AfDB AsDB IADB IBRD

Provisions for Losses + Adjusted Shareholders' Equity + AAA Callable Capital / Disbursed loans and Equity Investments and Guarantees

31

The Bank’s portfolio is better diversified than those of other MDBs

99% 170% 219% 140% 0% 50% 100% 150% 200% 250% AfDB AsDB IADB IBRD Disbursed Loans and Equity Inv estments to 5 largest Countries / Shareholders Equity Adjusted

Source: Standard & Poor’s Supranationals Report – October 2004

32

The Bank uses the derivatives market to provide the most attractive funding to its clients

Borrowing portfolio amounted to US$ 8.8 billion as of 31 December 2004

Before Swaps After Swaps

JPY 35.90% GBP 1.10% CAD 8.10% AUD 3.00% USD 42.60% EUR 5.94% HKD 0.15% SEK 0.21% CHF 3.00% JPY 8% USD 46% Others 7% EUR 39%

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• 45
• 35
• 25
• 15
• 5

5

Jan-04 Mar-04 May-04 Aug-04 Oct-04 Dec-04 AfDB 3.25% Aug 08 IADB 3.375% Mar 08 IFC 3% April 08 The Bank’s effective communication strategy is facilitating investor understanding of its strong credit story

Source: Bloomberg

ADB US$ 1 billion Global Bond - 1 August 2008

Spread against USD Libor

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The Bank is committed to the development of local capital markets

 South African Rand (ZAR): Full treasury

• peration and third largest lending currency

after US$ and EUR

 Communauté Financière Africaine (CFA):

Euro 13 million equivalent guarantee for a private sector project

 Egyptian Pound (EGP): USD 27 million

equivalent in Equity participation in Egypt

 Actively preparing to launch benchmark

issues in several local capital markets

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The Bank nurtures a diversified investor base with presence across capital markets

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The Bank leverages its AAA credit rating to accelerate economic and social development in Africa

Membership Support Preferred Creditor Status Franchise Value Strong Operational and Financial Condition Prudent Financial Policies and Management Cooperation With Partners

JCR

The ratings reflect the strong support that the African Development Bank (the Bank) draws from its members, particularly the industrialized countries, its solid capital base and sound financial position resulting from prudent

• perations and conservative risk

management, and the “preferred creditor status” that it enjoys

MOODY’s

Indeed, the AfDB’s indicators

• f risk-adjusted assets are on

a par with or compare favourably to those of other Aaa-rated multilateral institutions

S&P

In sum, while Africa remains a challenging environment in which to

• perate, the bank's management in

recent years has greatly strengthened the bank's financial profile. AFDB's capital and liquidity, as well as its qualitative features, place it solidly in the 'AAA' rating category.

FITCH

Capitalisation is sound at AfDB, ranking among the highest of the MDBs…

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More information is available at www.afdb.org

Financial and Operational Analysis Documentation for Debt Programs Rating Agencies Reports Financial Products for Borrowers Exchange Rates Annual Report

I. ADB Financial Statements Appendices

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ADB Statement of Income and Expenses

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ADB Balance Sheet Highlights

II. Africa at a Glance Appendices

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Steady and broad based economic growth across Africa

Africa: Real GDP Growth Rates, 1990-2004 (%)

• 1.2

0.9 3.2 5.6 1.3 2.6 3.6 3.2 3.2 3.4 3.9 3.5 4.4 5.1 1.3

• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

43

Sound macroeconomic policies are leading to a sharp decline in fiscal deficit

Africa: Fiscal Balance, 1990-2004 (% of GDP)

0.0

• 1.4
• 3.0
• 2.2
• 0.5
• 2.2
• 3.9
• 1.5
• 4.8
• 4.4
• 6.6
• 6.3
• 6.0
• 3.6
• 0.3
• 7.0
• 6.0
• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

44

The era of high inflation rates in Africa is over

(%)

Africa: Inflation, 1990-2004 (%)

28.6 26.2 7.7 10.0 9.1 10.5 13.5 11.8 9.6 14.2 42.0 16.2 24.5 27.9 30.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

45

Official Development Assistance to Africa is increasing albeit below what is needed to achieve the Millennium Development Goals

Official Development Assistance to Africa , 1990-2003 (US $ billions)

18.9 21.3 23.9 24.7 20.1 15.8 15.2 15.6 17.2 17.1 22.5 24.6 24.3 20.7

10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0 26.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

46 Population Growth Rates 2 4 1985 1990 1995 2001 2002 2003 2004 In % Africa Developing Countries

Infant Mortality Rates (per 1000)

20 40 60 80 100 120 1985 1990 1995 2001 2002 2003 2004

Africa Developing Countries

Adult Illiteracy Rates 10 20 30 40 50 60 70 1985 1990 1995 2001 2002 2003 2004

In %

Africa

Africa’s key social indicators are below the average for developing countries

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The Millennium Development Goals

Source: ADB Statistics Division, UNESCO database 2004, UN Population Division, World Bank

Notes and Glossary