New Equity-to-Loans Ratio and other measures could enable $150 bln over 10 years
WASHINGTON, October 15, 2024—The World Bank Group announced on Tuesday a package of financial measures that will boost lending capacity and make loans from the International Bank of Reconstruction and Development more affordable at a time of immense development need. Combined with previous reforms, the package could enable more than $150 billion in additional financing over 10 years.
Two key elements announced today are:
- The minimum Equity-to-Loans ratio is being lowered to 18% from 19%, generating $30 billion more in additional financing.
- In an effort to be a better partner to the countries we serve, we have removed some fees so they can borrow money and pay it back more easily. And we are charging less for loans to smaller countries that need our help the most. Together, these steps will make our loans easier to get and cheaper to repay.
“These new financial measures will boost our lending capacity and enable us to drive meaningful change in the lives of people. Our Equity-to-Loans change is the latest step of sustained effort, and whenever we are able to responsibly secure additional optimization to IBRD’s balance sheet – we will,” said World Bank Group President Ajay Banga.
IBRD was able to secure an additional percent reduction in its Equity-to-Loans ratio because of new protections that safeguard its triple-A rating. These include a strengthened IBRD credit rating monitoring system with contingency measures to restore IBRD’s financial health in a stress event. Contingency measures include cutting costs, adjusting lending volumes, raising loan prices, suspending income transfers, and possibly additional shareholder support.
In a move to better serve countries and ease costs, financing term changes include introducing a grace period for paying commitment fees on undisbursed balances, removing the pre-payment premium to widen clients’ repayment options, introducing discounted pricing for short maturity loans with a final maturity of seven years, and extending IBRD’s lowest pricing to more vulnerable, small states.
The latest package includes a new way to enhance the value of callable capital, part of stakeholders’ capital that can be called on in extreme circumstances. In a first for development banks, this Enhanced Callable Capital is a portion of callable capital that can be leveraged like equity and called on earlier if the Bank’s rating is under pressure. Shareholders can now sign up for this instrument.
The World Bank Group has implemented a series of reforms and developed innovative financial instruments as part of the Capital Adequacy Framework review, which was recommended by the G20 Expert Group. These reforms include:
- A shareholder hybrid capital product and a Portfolio Guarantee Platform – expanding lending by $70 billion over 10 years thanks to the generosity of 12 donors.
- The adjustment of the minimum Equity-to-Loans ratio since April 2023 adds $70 billion in additional capacity over 10 years.
- Increased limits for shareholder bilateral guarantees by up to $10 billion.
