pricing risks between loans and borrowings, IBRD uses derivatives to convert virtually all of the fixed interest rate loans into variable interest rate loans. See Figure 4d for the interest rate structure of IBRD’s loan portfolio.
SECTION VI: REPORTED BASIS ANALYSIS Basis of Reporting In IBRD’s balance sheet on the reported basis, the borrowing and investment portfolios are carried at fair value, while the loan portfolio is carried at amortized cost (except for loans with an embedded derivative which are reported at fair value). See Table 12 for IBRD’s condensed reported basis balance sheet with a reconciliation to fair value basis.
As of June 30, 2012, only 0.3% of IBRD’s loans were in nonaccrual status and were all related to one country. IBRD’s total provision for losses on accrual and nonaccrual loans accounted for 1.2% of the total loan portfolio. Net loans outstanding on a reported basis increased by $3,739 million in FY 2012. This increase was primarily due to net disbursements of $7,798 million, which were driven by the increase in demand for IBRD’s loans, partially offset by currency translation losses of $3,939 million, consistent with the depreciation of the euro against the U.S. dollar in FY 2012.
Reported Basis Balance Sheet Investment Portfolio As part of IBRD’s financial risk management, IBRD primarily holds short-term U.S. dollar fixed-income securities, as well as other securities swapped into U.S. dollars. The portfolio has an average duration of less than three months.
Borrowing Portfolio As of June 30, 2012, after the effects of derivatives, virtually all of IBRD’s borrowing portfolio (excluding discount notes) carried variable interest rates (See Figure 8). As mentioned previously, derivatives are used to manage the re-pricing risk between IBRD’s loan and borrowing portfolios.
At June 30, 2012, the net asset value of the investment portfolio increased by $4,795 million as compared to June 30, 2011 (See Notes to Financial Statements–Note C–Investments), primarily reflecting Management’s decision to bolster liquidity.
The borrowing portfolio, net of derivatives, increased by $10,574 million, as compared to June 30, 2011 (See Notes to Financial Statements–Note E– Borrowings). This was primarily due to net new borrowing issuances of $10,626 million, consistent with Management’s decision to bolster liquidity levels and unrealized mark-to-market losses of $2,247 million, primarily resulting from the downward shift in the major yield curves. This was partially offset by currency translation gains of $3,095 million, consistent with the depreciation of the euro against the U.S. dollar in FY 2012.
Loan Portfolio In FY 2012, borrowing member countries exhibited a preference for IFLs with variable-spread terms versus those with fixed-spread terms, since the spreads for the latter were higher. As a result, for FY 2012, 64% (FY 2011—89%) of the loan commitments carried variable spreads and the remainder carried fixed spreads. At June 30, 2012, 80% of the loans outstanding carried variable interest rates and the remaining carried fixed interest rates. To manage the re-
Table 12: Condensed Balance Sheets at June 30, 2012 and 2011 In millions of U.S. dollars June 30, 2012
Due from banks Investments Net loans outstanding Receivable from derivatives Other assets Total assets
Reported Basis $ 5,806 33,675 134,209 160,814 3,674 $338,178
Borrowings Payable for derivatives Other liabilities Total liabilities
$145,339 144,837 11,317 301,493
Paid in capital stock Retained earnings and other equity Total equity Total liabilities and equity
12,418 24,267 36,685 $338,178
June 30, 2011 Fair Value Basis $ 5,806 33,675 132,198 160,814 3,674 $336,167
Reported Basis $ 2,462 32,645 130,470 144,711 3,923 $314,211
(2)
$145,337 144,837 11,317 301,491
$135,242 130,429 8,857 274,528
(2,009) (2,009) $(2,011)
12,418 22,258 34,676 $336,167
11,720 27,963 39,683 $314,211
Adjustments
$(2,011)
$(2,011) $
(2)
a
Adjustments
$(1,023)
$(1,023) $
(19)
a
Fair Value Basis $ 2,462 32,645 129,447 144,711 3,923 $313,188
(19)
$135,223 130,429 8,857 274,509
(1,004) (1,004) $(1,023)
11,720 26,959 38,679 $313,188
a. Amount represents amortization of transition adjustment relating to the adoption of FASB’s guidance on derivatives and hedging on July 1, 2000.
30
THE WORLD BANK ANNUAL REPORT 2012