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 on Thursday. “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 World Bank 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 US$400 million over three years, including through job cuts.
“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,” former deputy assistant secretary for development finance and debt at the US Department of the Treasury Scott Morris said.
A change in price would affect the unit that lends to middle-income countries, which committed US$15.2 billion in the fiscal year ended June 30, compared with US$20.6 billion a year earlier and less than half the US$32.9 billion committed in 2009.
Shareholders may want to discuss charging wealthier countries more, he said.
“Much more interesting is the debate that we need to have on the price of duration,” Scott 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 nearly 38 percent in 2008.
The bank can also find sources of income by offering new services in the field of finance, or ad-hoc studies for countries that do not need to borrow money, but want expert analysis, according to Badre.
Asked about job cuts at the 15,000 employee institution, Badre said there is room to find savings on technology, travel and real estate first.