Morocco - Banque Nationale Pour Le Developpement Economique (BNDE) Project

RESTRICTED Repbrt No. DB-3b This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE OF MOROCCO December 10, 1962 FILE COPY Department of Development Bank Services EQUIVALENTS Currency Unit - dirham (DH) DH 1 = U.S. $0. 1974 DH 5.06 = U.S. $1. 00 DH 1 million = U.S. $197.400 DH 100 million = U.S. $19, 740, 000 APPRAISAL OF BANQUE NATIONALE POUR LE DEVELOPPLKEMN ECONOMIQUE OF MOROCCO Table of Contents * Paragrphs SUIARY i vi I. INTRODUCTION 1 3 II. PURPOSE, POLICIES, OWNERSHIP AND CONTROL 4 . 20 III. ORGANIZATION, MANAGEMENT AND STAFF 21 28 IV. INVESTMENT AND CREDIT OPERATIONS TO DATE 29 - 50 V, FINANCIAL RECORD TO DATE 51 - 85 VI. OPERATIONAL AND FINANCIAL PROSPECTS 86 - 101 VII. CONCLUSIONS 102 - 108 ANNEXES 1. Managing Directorts Statement of BNDE Policy to be Confirmed by a Board Resolution 2, Ownership Structure 3. Board of Directors on October 30, 1962 4. Organization Chart 5. Summary of Lending Operations at June 30, 1962 6, Analysis of Direct Lending Operations at June 30, 1962 7. List of Equity Participations as at June 30, 1962 8. Balance Sheets, December 31, 1959 - June 30, 1962 9. Income Statements, 1959 (last 5 months) to 1962 (first 6 months) 10, Projects Expected to be Committed in the Second Half of 1962 11. List of Projects under Preliminary Consideration 12. Operational Projections, June 1962 to December 1964 13. Balance Sheets, Preliminary June 30, 1962 and Forecast 1962-1964 14. Cash Flow Forecast for Second Half of 1962 and 1963-1964 SUMMARY i. For some time, the Moroccan authorities have expressed interest in a Bank loan to the Banque Nationale pour le Developpement Economique (BNDE). Detailed discussions began in the spring of 1962 when the Moroccan Government and B\DE confirmed their agreement that BNDE should become a predominantly private institution and that Lts primary role should be to promote private investment. To implement this understanding, ENDE proposes an increase in share capital of DH 10 million, of which DH 7.5 million would be subscribed by IFC. As a result, the governmental holdings would fall from 56% to 4h%; an agreement between IFC and the Government to sell portions of their holdings to qualified private Moro-can investors would provide for further decreases in the Government's parti3ipation. ii. BNDE plays an important role in tae Moroccan economy. It is the only institutional source of long-term industrial capital in Morocco and it enjoys a monopoly for the discounting of medium-term credits for develop.- ment purposes issued by commercial banks and rediscountable at the Banque du Maroc. As at June 30, 1962, it had committed DH 63 million in 23 direct lending operations and had giv ± 78 discounting commitments to primary banks amounting to DH 146 million. In addition to its direct operations, BNDE acts as an agent of the State in conducting economic studies and handling certain lending operations for the Treasury, iii. BNDE's resources and its contribution to the private industrial sector have heretofore been limited. As at, June 30, 1962, a single private utility company accounted for about half of BNDE's direct commitments and for roughly one-fourth of its rediscounting business; 20% of BNDE's direct portfolio was composed of investments in public enterprises; and another fifth was made of projects sponsored by the Government industrial promotion agency. Consideration of BNDE's prospective loan commitments in the second half of 1962, however, suggests that BNDEIS investment pattern has already begun to concentrate on private industrial investment, as envisaged in the new policy statement which BNDE is adopting. iv. The understandings reached in respect of future rules of invest- ment eligibility indicate that BNDE's policy will conform to sound criteria of investment financing. BNDE's staff and appraisal procedures need re- inforcement. The Managing Director is aware of this and proposes to take the necessary steps. v. BNDEss financial record is too s'ort to be judged with assurance. It is, however, apparent that it has made a good start. Its income from rediscounting, its cautious approach to equity participations, its insis- tence on security and guarantees have allowed it to gain some momentum with a minimum of risk. It has, in addition, followed a conservative reserve and dividend policy and its profits have dBveloped satisfactorily. Under energetic management, BNDE has acquired considerable prestige in the Moroccan business community. Despite uncertainties respecting the future course of its business, BNDE's operations should expand, and its profits are expected to grow in a satisfactory manner. - ii w vi. In the light of the understandings reached with respect to its capitalization and business policies, BNDE is considered a suitable insti- tution for an IFC investment of DH 7.5 million and a Bank loan of $15 mil- lion under conditions now conventional fcr Bank loans to such institutions. I. ITTRODUCTION 1. For some time the Moroccan authorities have expressed interest in a Bank loan to the Banque Nationale pour le Developpement Economique (BNDE). Consideration of a loan was held up by the fact that a majority of BNDEts share capital was held by the Morcccan Government. However, in the course of 1961 and in early 1962, the Gcvernment sold a significant portion of its stock to foreign investors; and, during conversations in Washington in May 1962, between representatives of BNDE, the Bank and IFC, proposals emerged for a change in the capital structure of BNDE, whereby IFC would participate in an increase in BNDEr s share capital, the Governmen-s would no longer be in a majority, and the Bank would consider a line of credit. 2, The proposals postulated the desirability of increasing BNDE's share capital by DH 5 - 10 million, thus enabling it to support a larger volume of debt and permitting it to handle a greater volume of business. They indicated the willingness of the Bank ;o consider a line of credit to BNDE, to be used to meet the foreign exchange requirements of eligible projects, in an amount to be determined in the light of the findings of a mission to be sent to Morocco. They stated IFC's willingness to consider a stock participation by buying new shares, amounting to 20-25% of the total share capital, and provided for an increase in the Board to accom- modate an IFC representative. 3. These proposals were subsequently approved by the Moroccan Finance Minister and the Board of BNDE and a Bank/IFC mission visited BNDE in July and August 1962. The appraisal is based on information obtained then, and additional data derived from discussions with BNDE in September and during negotiations in November. - 2 - II. PURPOSE, POLICIES, OWNERSHIP AND CONTROL Purpose 4.6, BNDE was incorporated under the Commercial Code as a societe anonyme on July 25, 1959, and commenced business in September. The Government, its main sponsor, intended to create a financial agency for development which would be closely linked both to the Finance Ministry and to the Banque du Maroc, the central bank, while enjoying a substantial degree of autonomy. The original conception of the BNDE assumed that the Government would hold 90% of the capital stock, Moroccan private investors 25%, and foreign investors 25%. In fact, Moroccan private capital was not forthcoming on the scale that was hoped for, and the Government took up a majority position. 5. BNDETs objective and operational Ecope are broadly defined by the Statutes, Its purpose is to assist the economic development of Morocco, In carrying out its purpose, BNDE is restricted neither to private enter- prise nor to the industrial sector, It is zuthorized to grant direct long, term and medium-term loans and to discount medium-term credits made by commercial banks - credits which are in turn rediscountable at the central bank. It may establish enterprises and take participations in companies, It may offer guarantees to banks, enterprises and suppliers. BNDE is not allowed to accept deposits from the public; however, some special deposits from the Government and from BNDE?s subsidiaries are taken, 6. BNDE also acts as an agent for the Government. But it has in fact limited its "public agency" role to administering a small Development Fund for economic studies, making two loans on behalf of the Treasury, and disbursing subsidies as agent for the Government, Policies 7, During discussions with the Bank and IFC, the Managing Director of BNDE presented a statement of BNDEts major operational policies. To some extent these represent policies pursued by BNDE for several years; in other respects, they reflect new departures. The Managing Director pro- poses to have this statement (which appears in Annex 1) confirmed by the Board at its next meeting. 8. This new policy statement reflects the greater emphasis to be given to the promotion of private industrial investment; it also reflects BNDE?s belief in the importance of making its investment decisions on the basis of sound economic and financial criteria. The policies are summed up below: (a) to encourage productive investment in Morocco, chiefly in the industrial field; (b) to assist particularly in the financing of private industrial enterprises, and to devote the major portion - 3 - of its resources to that purpose (excluding from this category all enterprises in which the Government or its agencies directly or indirectly hold 5055 or more of the outstanding votirg stock); (c) to assist non-private enterprises only in exceptional circumstances, and non-industrial enterprises only when capital on reasonable terms cannot be obtained elsewhere; (d) to use sound investment criteria, financing only enterprises which have a high economic priority and promise a satisfactory return on the investment; (e) to increase its activity in the promotion of the Moroccan capital market; (f) to limit investment in any one enterprise to 10% of BNDE's paid-up capital, reserves and outstanding long- term and subordinated government loans; (g) to limit any single equity participation to the smaller of (i) 10% of BNDE's equity; (ii) 25% of the share capital of the enterprise; (h) to build reserves consistent with sound financial practice. 9. BNDE discourages applications for assistance of less than DH 100,000, and will not lend less than DH 50,000. Nor will it finance more than one-half the total cost of a project. Ownership 10. BNDE's authorized and issued capital consists of 400,000 shares of DH 50 amounting to DH 20 million (US$ 4 million equivalent). As of November 1962, one-quarter of the original capital remained uncalled; it will be called in December 1962. All shares carry the same rights. On October 30, 1962, the Board decided, subject to approval by an extraordinary Shareholders' Meeting to be held in December, that all shares must become registered shares. 11. The Shareholders' Meeting will also be asked to approve a new share issue (to be made in January) of DH 10 million (US$ 2 million equivalent), of which one-quarter will be paid in on subscription and the remainder by the end of 1963. The new isste is to be subscribed as follows: DH 7,500,000 by IFC; DH 2,000,000 by the Mcroccan Government; and DH 500,000 by the Morgan Guaranty Trust Company. 12. The distribution of BNDE's shares, both now and after the proposed subscription, is shown in Annex 2. The principal effects of the icrease -4 are that the IFC would hold 25% of BNDEts total shares and the holdings of the Government and of semi-governmental institutions would fall from 56% to 45. The process of transfer of shares from the Government to the private sector, begun two years ago, would thus be carried forward; the Government, while still the principal shareholder, would h a minority position. Another measure would be taken in 1963, The Government is prepared to sell a portion of' its holdings to private, quali- fied Moroccan investors. As a "first step," the Government and the IFC would, in conjunction with the proposed subscription, work out in the coming year an arrangement whereby each would sell, in equal numbers, a total representing 12/ of BNDE's share capital. W1hen this first step has been achieved, the Government's holdings would drop to 38o and IFC's, to 190. The following table summarizes these changes in the distribution of BNDEss share capital: After New After Proposed Present Subscription "First Step" Moroccan Government and Public Agencies 55.7% 43.8% 37.8% Moroccan Private Institu- tions and Individuals 4.6% 15.0, Moroccan Subsidiaries of Foreign Institutions 11,0% 7.7.% Foreign Institutions 28.7% 20.8% 20.3% IFC - 25.0% 19.0% 100.0% 100.0% 100.0% 13, As may be seen in Annex 2, BNDE's foreign ownership is widely distributed. American, Belgian, French, German and Italian institutions hold shares; together they will hold more than a fifth of the total shares after the new issue. Moroccan subsidiaries of institutions in the same and other countries would hold another 7%. Control 14. The annual ordinary meeting of the shareholders elects the Directors of BNIDE, approves BNDEts annual financial statements and allo- cates the profits. Each share is entitled. to one vote, whether fully paid-in or not. At ordinary meetings, decisions are made upon the vote of the majority of shares represented. Extraordinary meetings, which are called to amend the Statutes, approve new share issues or ratify mergers, etc., require specific conditions of quorum and a two-thirds majority. 15. All powers not explicitly reser-ed to the shareholders are exer- cised by the Board. Among other powers, it is authorized to isque bon2s and obligations up to an aggregate amount of tin times the paid-In capital 16. BN1DE's statutes provide for a Board of 8 to 20 members, elected for a six-year term with renewal of membership by rotation. Retiring Directors are eligible for re-election. At present, the Board consists of 16 members: a Moroccan President, two Vice Presidents (one of whom is a representative of the French investors), the Managing Director, one repre- sentative each of the American, Belgian, Gernan and Italian investors, an additional representative of French shareholders, the Manager of the BNCI subsidiary in Morocco, two private Moroccan industrialists, the Acting Manager of the Caisse Marocaine des Marches and three officials of the Government or public agencies. The-President assumes the functions of Managing Director in the latter's absence. (See Annex 3.) Arrangements would be made to add an IFC appointee to the Board, if IFC so requests. 17. An official representative of the Government, the Commissaire du Gouvernment, is appointed by the Ministry of Finance. He is not entitled to vote, but he receives all communications sent to the Directors, attends all Board meetings and may.-require that decisions which he does not consider to be in the public interest be reconsidered at a second meeting at which the Directors, however, have a final power of determination.. 18. The Board of Directors has created a Credit Committee to advise the Managing Director on all matters involvLng a financial risk. This Committee nominally consists of the President of BMDE, a representative of the Banque du Maroc, the Adviser to the Min:Lstry of Finance, the Assistant Managing Director of the Caisse Marocaine des Marches, the General Manager of the Bureau d'Etudes et de Participations Industrielles (BEPI) 1/ and the Commissaire du Gouvernment /. In fact, the effective advisors of the Managing Director are three persons: the Advisor of the Finance Ministry, the General Manager of the Banque du Maroc and the Assistant Managing Director of the Caisse Marocaine des Marche$, all French. By virtue of the fact that they are resident in Rabat and meet almost weekly, while the far-flung board members have met only 10 times since BNDE's formation, and by virtue also of their close relations with the Managing Director of BNDE, these persons have considerable influence in the management of BNDErs affairs, Relationship with Government 19. BNDE enjoys close relations with the Government. The Goverhment still has a major (although diminishing) pcsition among BNDE's shareholders and in BNDE's Board of Directors. The Man&ging Director, a capable and imaginative person, is a former civil servant, was chosen by the Government and has close contact with senior officials. Aside from these facts, a series of conventions between the Government and BNDE provide for various privileges, subsidies and controls. These include: / The Government's industrial promotion agency. 2/ In addition a representative from the Ministry of Commerce and Industry, although not a member, may attend the Committee meetings. - 6 - a. a DH 20 million long-term loan which on liquidation would rank pari passu with share capital so that it can be considered as part of ENDE's equity.(see para. 59); b. a DH 30 million revolving advance from the Treasury on unusually favorable terms.(see para. 55); c. guarantees for loans incurred at home and abroad; d. important tax exemptions; e. a restriction on BNDEss lending rate to 7%; and f. linked with the foregoing, a subsidy to BNDE whenever its borrowing rate exceeds 5%, in order to assure it a spread of at least 2% (see para. 76). 20. On the whole these are financially advantageous to BNDE. How- ever, the limitation on BNDE's lending rate is an encroachment on normal management responsibilities, =-6tes- a.dangar.that BNDE imay make ' uneconomic investments, and leaves it exposed to annual review and hence possible intervention by the Government in connection with its annual subsidy. The provisions which create these dangers are the result, not of a policy specifically directed towards BNDE, but of general monetary and credit policy and need to be dealt with in that context. The Govern- ment intends, in due course, to review this policy in order to encourage domestic savings and to facilitate a rational use of investment resources. In the meantime, the Bank has expressed its concern (and will continue to do so) about the Governmentts restriction o:n interest rates in general, and about the possible effect of that policy on BNDEts autonomy and opera- tions in particular. -7 - III. ORGANIZATION, MANAGE=11T *AND STAFF 21. BNDE's affairs are conducted, under supervision of its Board, by a M4anaging Director (Mr. Bengeloun). He is assisted by a deputy, (Mr. Albert), who has the title of Conseiller Technique. (The President, who is not full time, assumes the functions of the Managing Director in the latter's absence.) The Managing Director is responsible for formulating BNDE's financial policy, subject to the decisions of the Board and the shareholders, for approving loans of under DE 500,000, for coordination of departmental activities, for personnel matters, for relations with Government departments, etc. The Managing Director is required to ask the advice of the Credit Committee on all investment operations. Those over DH 500,000 go to the Board of Directors, by mail. 22. Both the ianaging Director and his Deputy are intelligent and capable administrators, although neither has had private business and invest- ment experience. However, both know how to use advisory staff effectively. The Managing Director is anxious to develop the quality of his staff and to add such personnel as may be required to enable BNDE to do its job. 23. BNDE is organized into five departments: Credit Department, Follow- up and Legal Department, Development Department, Study and Documentation Department, and Administration Department. BNDEts organization chart appears in Annex 4. 24. The Credit Department is the core of BNDE; it is responsible for the appraisal of projects and their presentation to the Board or Credit Committee, for arrangements to obtain collateral security, for follow-up work in respect of medium-term indirect credits, and for representing BNDE on the loan committees of the Banque Centrale Populaire and the Caisse Marocaine des M4archies, in both of which BNDTh has equity participations. The professional staff of the Credit Department consists of the department head (French) and three others (one French and two Moroccans). The present staff of the Department appears to be competent, but it lacks industrial or commercial background and does not appear to be acquainted with modern techniques of financial analysis such as the use of financial forecasts and ratios. The Department has no engineer; it needs at least one, and the Managing Director is seeking one now. 25. The Follow-Up and Legal Department exercises three functions: disbursement arrangements for direct loans, legal work, and end-use super- vision. In spite of this potentially high workload, the Department con- sists of a single Belgian staff member. The functions of the Department need reviewing and its staff needs reinforcement. 26. The Study and Documentation Department is headed by a German expert made available by the U.N. The Department prepares general economic studies on industries which the Department head considers worthy of study as being suitable for development, and special market studies requested by the Credit Department. - 8 - 27. The Development Department has two separate functions: economic studies concerned either with particular reg:Lons or particular economic sectors and the creation and management of companies to promote various types of development, notably tourist facilities, such as SONADET (Societe Marocaine pour le D6veloppement Touristique) and SOTHERMA (Societe du Thermalisme Marocaine). The head of this De-artment is a former £dococcan official of the Ministry of Finance, and the other professional staff con- sists of a French adviser, -who works on a part-time basis shared with the Hinistry of Finance, and a recently appointed young Belgian. The salaries and overheads of the Department are covered by the Development Fund. 28. The head of the Administration Department is a Banque du Maroc Branch Manager, who works for :DE on a part-time basis and is not paid by BDE. Under him the Department is divided into four sections, including one on accounts, and has a staff of seven. The Department operates efficientiy. IV. INVESTMENT AND CREDIT OPIRATIONS TO DATE Summary of Operations 29. BNDE's over-all lending operations, as at June 30, 1962, are set forth in Annex 5. The direct loan portfolio is analyzed in Annex 6. The equity participations are listed separately in Annex 7. 30. At June 30, 1962, BNDE had committed 20 direct long-term loans with a value of DH 58.6 million and three direct medium-term loans totalling DH 4.4 million. In addition, BNDE had cormitted two loans, totalling DH 2.5 million, on behalf of the Government, which are convertible into cash at the Treasury whenever BNDE wishes. At the same date, BNDE had given commitments to rediscount DR 146 million of medium- term paper issued by commercial banks in 78 operations, all but DH 1 million of which was rediscountable at the 3anque du M.1aroc. Only DH 6.5 million of this paper was in fact held in BNDE's portfolio. Fifteen of the commitments to rediscount, representing 35% of the total value of such commitments, were opened in conjunction with direct loans by BNDE. 31. BN1DE's equity investments amounted to DH 1.4 million. Most of this sum consisted of investments in three banking institutions with which BNDE has close working relationships. Lending Practices 32. Interest Rates. BNDE charges 7% on its direct long-term loans, the maximi rate laid down in a 1960 Convention between BNDE and the Govern- ment. The rate for direct medium-term credits varies between 6.25% and 7%. In addition, ENDE's direct borrowers ray, once, a study fee varying between .5% and .75% depending on the size of the loan. No commitment fee is charged if the borrower draws down tIe whole loan during the three months following the signature of the loan agreement. If BNDE disburses the loan over more than three months accorcing to a pre-established schedule, a commitment fee of 0.5% is charged on the undisbursed amount, The commitment fee is 2% if no disbursement schedule exists. This penalizes the borrower who is slow to draw on committed funds and is intended as an inducement to financial plarning. The borrower pays a service tax to Government on all interest payments and other charges. 33. The interest rate paid on medium-term commercial bank loans which ENDE discounts, varies between 6.5 and 7.5%. The 6.5% minimum rate is set by the central bank and is broken down as follows (any addi- tional charge accrues to the primary bank) 10 - Paper held Paper held Paper held by the by the by the primary bank BNDE central tprk Received by the primary bank 5.650% 1.650% 1.650% Received by BNDE .750% 4.750% 1.125% Received by the central bank .100% .10% 3.625% Total paid by borrower 6.5o0 6,500% 6.5co 34. Duration of loans. BNDE rarely grants direct credits for less than five years. Most industrial loans are in the 7-12 year bracket, al- though a 15-year term has been granted for public utility projects. All indirect rediscountable credits are medium-term, i.e., five years or less. 35. Disbursement. Loan agreements with its borrowers reserve to BNDE the right to require evidence as to the proper utilization of funds by the borrower. In practice, however, disbur3ement is done with a minimum of formality. If a disbursement program exists3, the funds are made available automatically and according to schedule. If no such program exists, BNDE requires an 8-day notice for drawings below DH 100,000 and a 15-day notice for drawings above DH 100,000. 36. Security. BNDE takes security on all its loans, and covers its loans adequately. The valuation is normally done by the rough-and-ready method of a visit by a member of the Credit Department. For large factories. BNDE employs experts and, in the case of its few agricultural loans, relies on a report from a public agency. In cases where public policy may affect directly the profitability of the project, BNDE asks for a State guarantee. When a direct long-term loan to an enterprise is coupled with a medium-term rediscountable loan made by a commercial bank, the BNDE loan is normally secured by mortgages on land, buildings, etc., while the commercial bank loan is secured by liens on machinery and equipment. 37. Foreign Exchange Risk. BNDE makes loans only in dirhams. Foreign exchange required for imports is readily sc1d by the Banque du Maroc upon prior approval by the Foreign Exchange Office. Since BIDE has so far borrowed only in dirhams, it has borne no foreign exchange risk; nor have BItE' - 11 - borrowers. Such a risk will be incurred as a result of the proposed Bank loan. The Government will make appropriate arrangements with both the Banque du Maroc and BNDE to assume this risk. 38. The Medium-Term Rediscountable Loan Systm. A characteristic feature of the Moroccan credit system, inherited from France, is the commer- cial bank practice of makin; loans up to five years for equipment, if approved in advance by the BNDE and the Bancue du Maroc. Such loans may be discounted at the UDE at any time, and rediscounted by the DEDE at the Banque du Maroc. In fact, the commercial banks hold the majority of such loans in their portfolio. If a medium-term credit discounted by ENDE is in default, the risk is borne by the primary bank (or consortium of banks). To encourage the banks to invest their funds in projects which are considered risky but of high developmental priority, BUDE occasionally guarantees the corresponding medium-term credits, but in that case it generally obtains governmental counter-guarantees which remove all risk from BNDE. As noted in paragraph 30, BNDE on June 30, 1962, had made discounting commitments of DH 146 million, all but DH 1 million were rediscountable at the Banque du Marce; the commercial banks still held DH 128 million of the total; and BNUE had rediscounted only DH 10 million at the Bangue du Maroc. 39. The financing plan of a borrower :eceiving a medium-term redis- countable loan together with a direct BNDE long-term loan, is decided upon after consultation between the primary bank (or banks) sponsoring the opera- tion, the Banque du Maroc and the ENDE. There is some danger that the terms given an enterprise by commercial banks and the BNDE, when taken together, might not be suited to its needs. BNDE's management has undertaken to give particular attention to this matter, in order to help assure that its clients will have a sound financial plan. BNDE's Portfolio 4O. A single private utility company holds a predominant place in ENDE's operations: three loans to Energie Electrique du Maroc, a French concession- aire, account for DH 31.4 million or about one-half of BNDE's direct loan commitments. All three loans are guaranteed by the Government. In conjunction with these direct loans, BNDE gave discounting comitments for DR 38 million of rediscountable medium-term loans, or one-fourth of BNDE's total dis- counting business. 41. Governmental or government-sponsored enterprises also loom large in BNDE's portfolio. CO1MANAV, the national shipping line, was granted a direct medium-term loan of DH 3 million and a direct long-term loan of DH 6 million. There has been a default on interest and principal payments but both loans are Government-guaranteed. The medium-term loan is to be consolidated with the long-term loan and steps will be taken to strengthen the company's capitalization and management. The Office National du The, a government monopoly for the mixture and treatment of imported teas, received a direct long-term loan of DH 3.5 million to build its new plant. This brings BNDE's direct loans to public enterprises to DH 12.5 millioz. a fifth of its portfolio. - 12 - 42. Another fifth of BNDE's direct lending is devoted to private enter- prises sponsored by BEPI, the Government industrial promotion agency. These comprise two autcmotive as.sembly plants and a paper* factory. Together, they ir used DH 8.6 million of medium-tem rbdiscounbLble credits. 43. Three-quarters of BNDE's direct loans have been guaranteed by the Government. 44. BNDE's equity investments, which total only DH 1.4 million, are designed primarily to keep BNDE in close contact with three governmental or semi-governmental banking institutions. Thus, BIDEts reoresentative is Chairman of the Board of the Caisse Harocaine des Marches and ENDE holds 42% of its equity; the Caisse represents BNDE in Casablanca, where most of the commercial banks are located. ENDE holds participations (8% and a,, respectively) in the Banque Marocaine du Commerce Exterieur, a leading commer- cial bank, and the Banque Centrale Populaire, the institutional source of long- and medium-term lending for small business and handicrafts. DH 175,000, corresponding to 35% of the equity, are invested in MvAREQ, a firm which con- ducts economic and technical surveys. LH 110,000 are invested in SOMADET anr SOTHERMA. SO1ADET prepares and implements programs in the field of tourism. SOTHERMA was set up to study the feasibility of a thermal water project in Miorocco. Both projects are the responsibiliby of BNITDE's Development Depart- ment, and are financed from the Government's Development Fund. 45. The average size of BNDE's direct loans is DH 2.8 million (equiv- alent to US'' 580,000). If, however, the loans to the power company, which loom so large, are eliminated, the average falls to about DH 1.6 million (US0 320,000). Purely private enterprises have taken up only very small aums. 46. 1Manufacturing and assembly enterprises are second only to power as recipients of BNDEs direct loans; they received almost a third of the total. Their share was much greater in 1961 than in the previous year. The volume of BNDE's business was too small to judge whether this trend was a meaning- ful one; it should, however, become a permanent tendency in view of the policy of concentrating on private industrial investment. 47. The expansion or modernization of existing enterprises represents a much larger part of ENDE's portfolio than do new enterprises. This is, again, partly the result of the weight of lcans to the single power company; but it reflects also the cautiousness of BNEE's management. 48. The delinquency rate of the portfc,lio does not throw much light on the performance of an institution as young as BNDE. At June 30, 1962, DH 3.25 million were overdue, out of a total of DH 4.10 million due on direct lending operations. The medium-term State guaranteed loan to COMATAV accounts for DH 3.0 million of this amount. DH 0.22 million constituted the first re- payment on a State guaranteed loan to the tea monopoly, which was paid in August. The balance consisted of repayments on two private loans, which were collected later. 49. The preponderance of the governmer.t-guaranteed loans to the Energie Electrique du Maroc is the most striking feature of ENDE' paso - 13 - operations. While these operations may have had economic value, BNDEs oin contribution is not very significant since the funds could, and probably would, have been made available by the Government in the absence of BNDE, 50. The cautious policy followed in taking equity participations; the emphasis on security and, more particularly, the insistence on obtaining State guarantees for large projects directlyT influenced by governmental actions; the relatively riskless income derived from indirect operations, have allfwed BNDE to pick up monentum during its two and one-half years of operations. This is reflected in BNDE's sabisfactory financial performance and in the respect it has gained in Moroccan financial circles. V. FINANCIAL RECORD TO DATE 51. BNDEts balance sheets and income statements summarized and re- classified up to June 30, 1962 are shown in Annexes 8 and 9. Present Position 52. Liabilities and Equity; Liabilities and equity at June 30, 1962 totalled DH 75,62 million, composed as follows (in millions of DH): Short-term deposits, sundry liabilities and transitories 7.19 Short-term borrowings 6.97 Total short-term funds 1.16 Medium-term borrowings 1.400 Long-term debt, outstanding 23,00 Undisbursed commitments (contra) 7.h2 Total liabilities and commitments 5B.5 Paid-in share capital 15.oo Reserves and appropriation account 1.14 Total equity 16,1 Gross profit for first half of 1962 (est.) 1.10 Total liabilities and equity 75.82 53. Deposits from BNDE's affiliates and from the State amounted to DH 5.4 million or about 75%7 of BNDEts total short-term deposits and liabilities other than borrowings, of DH 7.2 million. These deposits comprise funds earmarked for special purposes and a small undisbursed balance of the Develop- ment Fund. They represent a relatively volatile element of BNDEts short-tarm resources. Sb. Of short-term borrowings totalling about DH 7.0 million, DH 5.0 million were bonds sold to banks and insurance companies. The bonds have maturities of 3, 6 and 9 months and carry interest rates of 3A, 3.25% and 3*5% respectively. BNDEts short term bonds are guaranteed by the State up to a maximum of DH 15 million. The bonds are constantly renewed, and BNPD3, by agreement with the Ministry of Finance, avails itself of this cheap money up to a limit of DH 5 million, equivalent to the uncalled portion of BND2's equity, with which it could be replaced. The other short-term borrou-ngs are credits of the semi-public Caisse de Depots et de Gestione - 14 - 55. Medium-term borrowings consisted of a Treasury advance of DH 10.0 million and medium-term bonds of DH 4.0 million. The Treasury advance was part of a revolving credit of DH 30 million, agreed on December 15, 1959, at an interest rate of 4-%. The advance was granted for a 3'-year term ending June 30, 1963; however, it also was agreed that if the advance was not fully repaid by that date, the then outstanding balance would be con- verted into a 5% ten-year loan, repayable in nine equal installments. A special covenant governing the agreement with the Treasury was that the proceeds of BNDE's later borrowings would first have to be used to repay the advance, notwithstanding the fact that ENDE upon such repayment still would be entitled to draw again under this line of credit, up to the full amount of DH 30 million. This agreement was changed on August 31, 1962: (1) the term of the original advance was extended by three more years until June 30, 1966; and (2) the covenant concerning BNDE's obligation to repay the advance from the proceeds of new borrowings was waived in respect to the prospective Bank loan. By August 31, 1962 BNDE had withdrawn DH 16 million of the advance. However, the whole amount was repaid in September 1962 from a new Government long-term loan (see paragraphs 59 and 60). 56. The DH 4 million of medium-term bonds were issued in February 1961, with a term of four years. They are covered by a State guarantee. The interest rate is 430o. The buyers of the bonds were mainly banks and insurance companies. 57. BNDE's long-term debt amounted to DH 23 million, composed of two series of bonds, both guaranteed by the Sta-:e. Both issues have been taken up by the capital market. The first series is a DH 8 million issue, carrying interest of 6-1/5%, with a term of 16 years. The second is a bond issue of DH 15 million, bearing interest at 6%, with a term of 10 years. 58. BNDEs equity at book value amounted to DH 16.1 million on June 30, 1962. To this must be added the net profit for the first six months of 1962 which may be estimated at about DH 0,8 million out of a gross profit of DH 1.1 million. At mid-1962 BNDE's equity ,ras thus about DH 16.9 million. Of this, DH 15 million represented paid-in share capital and DH 1.9 millicn, reserves and undistributed profits. 59. In September 1962, BNDE's capital structure was significantly changed by a DH 20 million Government loan provided under the agreement of August 31, 1962. The loan is subordinated to all other debts and ranks, on liquidation, Pari passu with BNDE's share capital. It bears interest at 4% and its term is 30 years, with repayments to start after a 15-year period of grace. The terms of this loan justify its being considered as quasi-equity for purposes of determining the limits on other borrowing. 60. The Government loan was fully drawn down by BNDE by the end of October 1962. BNDE used DH 16 million to repay its drawings under the Treasuryts line of credit; the balance of DH1 4 million was disbursed on loans to BNDE's clients. 61. Contingent Liabilities. BNDEts contingent liabilities comprise its discounting commitments (with the rediscounting commitment of the central bank), to the extent that the paper is not already in its portfolio. These commitments amounted to DH 140.9 million (including DH 2.5 million promises to enter into commitments to discount in the future) at June 30, 1962. However, in practice these commitments raise no question of liquidity since BNDE could immediately rediscount with the Banque du Maroc any credits which it might have discounted from the commercial banks. The risk of these commitments is slight as BNDEts liability ranks after that of the primary commercial banks. 62. BNDE had guaranteed DH 51.1 million of these credits as at June 30, 1962, thus sharing the risk on them with the commercial banks. Nonetheless, BNDE's actual risk in these operations amounted only to about 18.8% of this amount, or DH 9.6 million, since the remaining DH 4l.5 million were covered by counter-guarantees of the State. 63. Debt/Equity Ratio. BNDEts debt outstanding and committed, maturing in more than one year after its incurrence, plus BNDE's guarantees which were not covered by counter-guarantees of the State, amounted to about DH 54 million as at June 30, 1962. Its equity amounted to about DH 17 million. BNDE's debt/equity ratio, calculated on the basis of debt committed, con- sequently amounted to 3.2:1 in mid-1962. 64. The new subordinated government loan of DH 20 million in effect increased the equity by this amount and the full repayment, out of the proceeds of this loan, of the previous drawings under the Treasury's line of credit increased the aggregate of BIDE?s equity and quasi-equity to about DH 37 million, while reducing BNDE's medium and long-term debt out- standing and committed to some DH 37 million. Assuming BNDE's guarantees uncovered by State guarantees to have remained unchanged at the level of DH 10 million, the net result of these operations has been to reduce the debt/equity ratio to roughly 1.3:1 at the end of October 1962Q 65. Assets. A summary of the assets at June 30, 1962 is given below (in millions of DH): Current assets other than loans 2.14 Portfolio Current assets in the form of loans 8.76 Loans and investments 64.07 Total portfolio 72.83 Fixed assets (net) 0.85 Total assets 75.82 - 16 - 66. The item "current assets in the form of loans" may be considered as liquid as cash. It comprises the medium-term credits held by BNDE and rediscountable at the central bank (DH 6.5 nillion) and the loans made on behalf of the Government and refinanceable at the Treasury (DH 2.3 million)a The total amount (DH 8.8 million) amply covers the relatively volatile deposits referred to in paragraph 53. 67, BNDEss portfolio of loans and investments, including undisbursed commitments,which could not be refinanced, went up from DH 29,1 million at the end of 1960 to DH 53.0 million one year later and to DH 64.1 million by June 30, 1962. 90.5% of the total, or DH 58 million, represented direct long-term credits. This figure includes DH 7,4 million of undisbursed com- mitments, DH 4.7 million or 7.3% were on medium-term credits. Virtually all of this represented direct medium-term credits of BNDE, and only a nomi nal DH 0.3 million of the total were discounted in direct medium-term credits which could not be refinanced. BNDE's equity participations, all paid up, amounted to DH 1.3 million, or 2,2% of total loans and investments out- standing and committed but not yet disbursed. 68. BNDE carried a commercial risk on only DH 16.5 million or 22.7% of its total portfolio (DH 72.8 million, as at June 30, 1962). The risk on the remaining DH 56.3 million was coverEd by the State (DH 49.3 million) or by commercial banks (DH 6.8 million). lo this must be added BNDE's contingent liabilities, which amounted to 1H 9.6 million. Resources and Applications 69. As at June 30, 1962, BNDE's totaL medium and long-term resources amounted to DH 78.9 million, composed as follows (in millions of DH): Paid-in share capital 15.0 Reserves and undistributed profits 1.9 Equity 16.9 Long-term borrowings, drawn down 23.0 Medium-term borrowings, drawn down 140 Total resources paid in or drawn down 53.9 Uncalled portion of share capital 5.0 Undrawn balance of Treasury advance 20,0 Total funds on call 25.0 Total resources available 77.9 After the new DH 20 million Government loan had been paid over in September 1962, BNDE's overall resources were increased to almost DH 100 million. - 17 - 70. By comparison, BNDE's medium-term and long-term loans and invest- ments which could not be refinanced, were as follows as at June 30, 1962 (in millions of DH): Medium and long-term loans and investments outstanding -7.0 Medium and long-tern loans and investments contracted, but not disbursed 7.o Total commitments 64.0 Medium and long-term loans and investments approved but not contracted 5.0 69.0 71. By the end of September the above figures may have slightly in- creased. If this increase is ignored, BNDEs balance available for direct credit as at the end of September 1962 may be estimated as follows: for disbursements DH 42 million for commitments DH 35 million for approvals DH 30 million Income, Subsidies, Expenditures and Profits 72. Income. BNDE's earnings show a steady increase. They went up from DH 1.lT-nflion in 1960, the first year of full operations, to DH 3.77 million in 1961, and are expected to increase to DH 6 million in 1962. (The latter estimate is based on the actual results of the first half of 1962)., A summary of BNDE's earnings from 1960 to mid-1962 is given below (in millilons of DH): 1960 1961 1962 (estimate) Income from direct credit and investment operations 0,51 2.26 4.05 Income from indirect credits 053 1.20 1.66 Other income from operations 0,05 0.28 0.28 Total income from operations 1,09 3.74 5.99 Miscellaneous income 0.09 0.03 0.01 Total income 1.18 3.77 6.00 - 18 - 73. In 1961 income from direct operations amounted to DH 2.26 million, or 60% of total income from operations. In 1962 it is estimated that income from direct operations will be increased substantially, to DH 4.05 million, which represents 68% of BNDE's operational income. By far the major portion of these earnings stems from interest on direct long-term credits; it is estimated that only DH 0.21 million will be earned on direct medium-term credits and only DH 0.06 million from BNDE's equity participations. The study fee and commitment charges yield only a nominal amount, 74. Earnings from indirect credits play a significant role in BNDE's income structure. In 1961 DH 1,2 million were realized from such operations, as follows: (i) The commitment fee for BNDEss discounting promise. This commitment fee yielded DH 0.90 million in 1961; the estimate for 1962 is DH 1.1 million. (ii) The interest on discounted credits. BNDE's income from this source amounted to DH1 0.30 million in 1961; the estimate for 1962 amounts to DH 0.56 million. 75. Income from "other operations" totaled DH 0.28 million in 1961 and is expected to remain unchanged in 1962. This sum is composed of DH 0,16 million for BNDEls operations as agent for the State and DH 0.12 million originating from its various guarantees. BNDESs non-operational income, including interest on bank deposits, is negligible. 76. Subsidies. BNDE benefits from various direct and indirect subsidies. Relatively important ic -direct subsidy that BNDE receives on its interest spread. In January 1960, BNDE agreed to limit its lending rate for direct long-term credits to 7%. On the other hand, the State agreed to reimburse BNDE for interest cost on long-term borrowings in excess of 5%, thus guar-. anteeing BNDE an interest spread of 2% on its long-term borrowed funds. BNDE has issued two long-term bonds which are subsidized under the foregcing agreement. (In 1962, the subsidy will amount to DH 0.27 million, or 121a of the DH 2.19 million to be paid as interEst.) Interest on the proposea Bank loan would be subsidized in a similar manner. 77. More important than its direct subsidies are BNDE's indirect subsidies. BNDE estimates that it would have to pay at least 7% on a DH 20 million Government loan with a term of 30 years if it had to raise it on the money market instead of the 4% for which it got this loan now from the Government. BNDEss savings on interest on basis of this assumption amount to DH 0,60 million annually. 78. Furthermore, BIDE has, among others, an indirect subsidy in the form of its [4-2% medium-term Treasury advance, which for practical purposes may be considered as long-term money. In comparison to this, BNDE pays 6% and 61% on its State guaranteed long-term bonds. BNDE's indirect sub- sidy in respect to the Treasury advance thus amounts to 11% to 2% on its drawings outstanding under this advance. - 19 - 79. Another substantial indirect subsidy is the tax exemption BNDE obtains for some of the reserves it sets aside. Taxes saved due to this exemption may be estimated at DH 0.15 million for 1961. 80. Expenditures: Total expenditures, before taxes, show a relatively favorable evelopment in comparison to the corresponding income figures. They went up from DH 0.88 million in 1960 to DH 2.25 million in 1961 and are expected to increase to DH 3.79 million in 1962. A sumnary of the development of BNDEts expenditures is given below (in millions of DH): :960 1961 1962 - (Estimate) Financial Expenses Interest on borrowed funds 0.0 1.19 2.19 Interest on credits rediscounted at the central bank ).06 0.16 0.37 Other financial expenses 0.08 0112 Total financial expenses 010 1.43 2.68 Less Treasury subsidy for guaranteed long-term interest spread - (0.16) (0.27) Total financial cost (net) 0.10 1.27 2.41 Administration Expenses 0.78 0.98 1.38 Total experditures 0.88 2.25 3.79 81. Although increasing in total, BNDE's cost of administration shows a decreasing percentage of total expenditures. The cost of administration amounted to 88% in 1960, went down to 44% in 1961, and is expected to amount to 36% in 1962. 82. BNDE has been relatively successful in keeping its financial cost low; it has financed not only its short-term portfolio with low-cost short- term money, but also a portion of its mediam and long-term portfolio (in an amount equal to its DH 5 million uncalled share capital). In applying this policy, BNDE limited its drawings on the k% Treasury advance to DH 10 millicn as at June 30, 1962, and resorted to the money market to the extent of DH 7 million for short-term money at between 3% and h. 83. Profits. Profits show a satisfactory development, After an initial loss of DH .l million in its first five months of operation, gross profis rose to DH 0.3 million in 1960, the first full year of operation, and to DH 1.52 million in 1961. In 1962, it is estimated that a gross profit of DH 2.22 million will be realized. BNDEss gross profit on DH 15 million paid- in capital will thus increase from 10.9% in 1961, to an estimated 14.8% in 13152 - 20 - 84. BNDE's profit is subject to taxation, with special exemptions for the accumulation of reserves. After these exemptions BNDE's income taxes amount to about one-third of gross profits. Net profit thus amounted to DH 1.03 million in 1961, and may be estimated at DH 1.5 million for 1962. Net return on its paid-in share capital consequently was 6.7 in 1961, and may be 10% in 1962. This appears to be a modest but satisfactory return for an institution still at the beginning of its career. Reserves and Dividends 85. Like other Moroccan limited companies, BTJDE is required to set aside at least 5%o of its annual profit to a legal reserve until this equals 10% of the value of the share capital. Two additional reserve funds were established by Board Resolution: the reserve for risk on outstanding debt, to which one-seventh of the interest received on direct loans is allocated; and the reserve for risk on discountable credits, for which 0.15/, of the total amount of discounting agreements entered into during the fiscal year is set aside. Both reserves are tax free. The Statutes provi e for a 5% non-cumulative dividend after these reserves are constituted /. The remainder may either be distributed to the shareholders or used to constitute additional reserves. Up to now, BNDE has paid no dividends. 0 The Statutes were amended in April 1962 to permit the constitu- tion of these reserves prior to the payment of a 5% dividend. The same amendments abolished a 5% bonus to the Board. 21 - VI. OPERATIONAL AND FINANIAL PROSPECTS 86. The problem of assessing BNDE?s financial requirements in the next few years resembles more tha of determining the resources required for a new institution, which BNDE virtually is, than that of estimating the need for funds for an established bank. BNDEls operational and financial prospects depend fundamentally on Morocco's industrial growth prospects. They will be further affected by the role that BNDE can play in providing development finance and hence by the investment policies that BNDE will follow. In addition, BNDE may in the future have new opportunities for par- ticipating, in amounts yet unknown, in larger projects jointly with IFC, 87. Overall Gro-wth Prospects. Morocco is relatively well-endowed with natural resources and is equipped with modern transport, power and other basic facilities. Yet its economy hELs grown very little since 1957. The main developmental problems of Morocco relate to the capacity of its administration, the investment initiative of the private sector and the role of foreign capital and enterprise. All these factors still depend on a variety of political and psychological unknowns. 88. Role of BNDE in Investment Financing. The structure of industrial finance in Morocco is changing. Past governmental efforts towards indus- trialization laid considerable emphasis on government financing, principally through BEPI. The Government is re-organizing the agency, has appointed a new Manager and is reappraising its role. While the result may be to direct more business to the BNDE, the extent cannot yet be foreseen. 89. Hitherto medium-term rediscountable credits by commercial banks have provided a substantial proportion of investment financing and many of BNDE's investments have consisted of joint operations with commercial banks, BNDE taking the later maturities. The pro-osed provision of substantial new resources to BNDE would enable BNDE, when its borrowers desired, to provide the entire amount of loan financing required. It is nevertheless assumed that the commercial banks will continue to play an active part in financing enterprises for which medium-term credits would be appropriate. 90. Past and Future Investment Policies of BNDE. BNDE is still st new and its brief experience so dominated by a few large loans that its future business may not resemble that of the past. For instance, the average size of BNDE's direct loan commitments till June 30, 1962 was DH 2.8 million (without loans to Energie Electrique, DH 1.6 million); but commitments to be made in the second half of 1962 will probably average only DH 0.8 million. Until June 30, 1962, commitments for manufacturing industries were 31.8% of all commitments. The corresponding percentage for the second half of 1962 is expected to be 59%. How far these figures reflect a reorientation is not clear, but clearly BNDE's investment policy is still fluid. Forecast of Requirement for Bank Loan: 91. BNDE's yearly rate of commitment was fairly stable from 1960 to . 22 - 1962. If this rate were to continue, BNDEss total commitments from June 1962 to December 1964 would be DH 65.5 million. Without proposed new loans to Energie Electrique, commitments would total DH 44.5 million. 92-t Neither of these methods of projection seems appropriate in view of the fact that BNDE has submitted a list of projects (already approved or under study) whose composition differs greatly from that of BNDE's past record. This list is considered in two parts. Anne: 10 analyzes the projects to which BNDE expects to have made commitments between May 1962 and the end of 1962; and Annex 11 concerns the projects under preliminary consideration as of June 30, 1962. The information available on most of these projects is scanty and their use in the projections does not imply that they have yet been approved by the Bank'and IFC. 93. It has been assumed in the projections that the foreign exchange component is about 50% of the total fixed investment of each project, and that BNDE's loan will amount to about this sum. The effect of these assumptifts is that BNDEis total lending, for the projec-ts in the list it has submitted to the Bank, would be equivalent to foreign exchange lending from the proceeds of a Bank loan. Five projects on BNDE's list have not been included in the forecast because they would be too large for BNDE to handle alone. However, some of them might later be eligible for joint BNDE financing with IFC. 94. It has been assumed that applications for BNDE finance (beyond those included in Annexes 10 and 11) will increase 10% yearly, well above the rate of increase of industrial production in the past few years. Time lags as well as application withdrawal and rejection rates were suggested by BNDE's past and expected operations. .95. All these assumptions are summed up in Annex 12. The forecast therein suggests t4hyt DH 62.1 million will be approved from June 30, 1962 to December 31, 1964;4hat DH1 54.4 million will be committed; and that DH 42 ,9 million will be disbursed. A Bank loan amount should be related to the rate of approvals so as to give BNDE leeway for negotiation of a new foreign exchange loan to cover activities in 1965 and 1966. In view of the uncertain- ties previously noted, and in order to leave BNDE room to participate in possible joint financing of certain large projects, a $15 million loan appears appropriate, in order to cover, on an approval basis, foreign exchange require- ments of BNDE's projects from May 1962 to the end of 1964. BNDE's New Capitalization: 9.6. As the result of various measures recently implemented or in process, and on the further assumption that the new increase in share capital has been fully paid up and that the Bank loan has been fully committed, BNDE's new capital structure may be summarized as follows: 1/ Including approvals of DH 5.0 million made after May 15, 1962, for which contracts had not been signed on June 30, 1962. - 23 - DH million $ eqciivalent L..million Existing paid-up share capital 15 3.0 Reserves 2 0.4 Add: remaining issued capital to be called in before December 31, 1962 5 1.0 Total issued share capital 22 4.4 New share capital to be authorized, issued and fully paid-up before December 31, 1963 10 2.0 ( 32 6.4 Quasi-equity Government loan 20 60 Total funds subordinated. to debt 52 10,4 Long-term debt: Other than IBRD loan at end of 1962 (estimate) 28 5.6 IBRD Loan 75 150 103 20,6 Total Capitalization 15 51.0 Undrawn amount of Treasury advance 6,O Total Resources 185 37.0 Prospective Financial Positiont : 97,. Projections of BNDE's balance sheets and cash flow charts are contained in Annexes 13 and 1. Because of the uncertainties previously referred to it would be impracticable to -oroject BNDE business in addition to that already projected in connection with the use of a Bank loan. Accordingly, merely for the purpose of th: calculation to follow, the following assumptions are made: (a) BNDE will be able to commit about $11 million from the prospective $15 million loan until the end of 196h (b) There iwill be no other long-term loan and investment activity for BNDE other than that under the Bank loan; (c) There will be no change in the volume of BNDE's rediscounting commitment - 24 - (d) BNDE's holdings of rediscounted credits will be kept at the DH 5 million level from 1963 onwards; (e) BNDE will repay its short-term borrowings from surplus cash. 98. On the basis of these assumptions, and of changes in BNDE's capital structure as shown in paragraph 95, BNIDE's liabilities and capital are expected to develop as follows (in millions of DH): June 30 Dec. 31 Dec. 31 Dec. 31 1962 1962 1963 1964 Current Liabilities 7.2 7.1 7.3 7.3 Short-term borrowings 7.0 - - - Medium-term and long-term debt 37.0 27.0 47.3 68.4 Undisbursed commitments (contra) 7.4 6.7 7.8 11.5 58.6 41.0 62.4 87.2 Quasi-equity loan - 20.0 20.0 20.0 Equity 16.1 22.6 34.6 37.1 Accrued gross profit (estimated) 1.1 - - - 75.8 83.6 117.0 144.3 99. Long-term debt (including debt cDmmitted) is expected to increase from DH 44.4 million in mid-1962 to about DH 80 million at the end of 1964, while BIDE's equity and quasi-equity is anticipated to increase from about DH 17 million to about DH 57 million over the same period. If it is assumed, arbitrarily, that BND7's guarantees which are not covered by State guarantees increase from DH 9.6 million to about DH 20 million till the end of 1964, BNDE's debt/equity ratio consequently would change from 3.2:1 to 1.8:1 from mid-1962 to the end of 1964. BNDE's proposed capital structure would leave room, therefore, both for a substantially larger business activity than projected under the above assumptions, and provide an adequate basis for increased borrowings in the future. 100. BNDE's assets would develop as sumnarized below (in millions of DH): June 30 Dec. 31 Dec. 31 Dec. 31 1962 1962 1963 1964 Cash and near cash 1.4 6.h 30.8 37.8 Portfolio Refinanceable credits 8.8 7.3 7.3 7.3 Loans and investments - Outstanding 56.6 61.6 69.5 86.1 - Committed 7.4 6.7 7.8 11.5 All other assets 1.6 1.6 1.6 1.6 75.8 83.6 117.0 144*3 - 25 - It will be noted that, as a consequence of the assumptions made. BNDE*s cash and bank holdings rise from a nominal DH 1.4 million to DH 37.8 million This leaves ample room for either much larger direct operations, including the taking of medium as well as long maturities to an increasing extent, and for an increase of BNDE's holdings of rediscountable paper. It may be assumed that BNDE will use these possibilities to utilize profitably its surplus funds. 101. With respect to profits it would appear conservative to estimate that BNDE's net profit after taxes will increase from an expected DH 1.6 million in 1962, to DH 2.0 million in 1963, and to DH 2.5 million in 1964. Net return on paid-in share capital at the beginning of the year thus would drop from a rate of 10% in 1962 to around 8% in 1964. Although profits would increase in amount, there ill be a temporary decline of the profit rate in 1963, reflecting the fact that BNDE's paid-in share capital will be doubled. However, thereafter, BNDE's profit rate is expected to increase in line with the growth of BNDE's overall operations. - 26 - VII. CONCLUSIONS 102, BNDE was established in July 1959, under Government sponsor- ship and is a major actor on the Moroccan economic scene. It is the only institutional source of long-term industrial lending in Morocco and it is the principal channel for the discounting of medium-term development credits issued by commercial banks and rediscountable at the Banque du Maroc. 103. From a multipurpose semi-public bank, BNDE is gradually becoming a private development corporation specializing in industrial lending and investment. This transition is reflected in the past and proposed changes of BNDE's ownership structure. Since BNDEts inception, the Government has sold an increasing number of BNDEts shares to leading banks abroad and has maintained its representation on BNDE's Board well below the proportion of share capital that it holds, The recapitaliza- tion of BNDE and the proposed IFC investment will reduce governmental participation to a minority and the proposed joint undertaking of the Government and IFC to sell their shares to p:rivate Moroccan investors will further reduce Goverment holdings. 1(. The management of BINDE is anxious to complete the reorienta- tion from an institution stressing security in its lending policies to an institution ready to assume investment risks on the basis of sound analysis and experienced judgment, It is proposed to strengthen the staff and to adopt policies and procedures consistent with the new orientation of BNDE. BNDEfs Board Resolution on Operations and Admin- istration will be amended to incorporate policies which were discussed in detail and agreed to in the course of the negotiations. 105. BNDE is still too young to be judged on its past financial performance. Nonetheless, it has established itself, under aggressive management, as a respected institution in the Moroccan financial community, 1hile some of BNDE's investments have not so far turned out as expected, its financial position has been protected by its riskless rediscounting arrangements, by its reliance on security and Government guarantees, and by its caution in taking equity positions. BNDE's profits have been adequate and are expected to develop satisfactorily. fC6. The projections in Chapter VI i3uggest that BNDE will approve roughly '12.5 million of loans eligible for financing from the proceeds of a Bank loan from May 1962 until the end of 1964. Allowing for the various uncertainties which affect these forecasts, a $15 million Bank loan appears appropriate. - 27 - 107. As the relationship between the Dank and BNDE becomes closer and BNDE gains greater experience in project appraisal, the responsibility for approval of projects to be financed from the proposed Bank loan should progressively be delegated to the BNDE. At present, all projects to be financed from the proceeds of the proposed Bank loan should require prior approval. 108. In the light of the understandings readied with respect to its capitalization and business policies, BND appears a suitable institu- tion for an IFC investment of DH 7.5 million and a Bank loan of $15 million, under conditions now conventional for Bank lains to such institutions. The IFC participation will help strengthen the capital base of BNDE and contri- bute to the autonomy of its management. The Bank loan will provide the capital which BNDE needs to promote a more rapid expansion in private industrial sector in Morocco. ANNEX I BANQUE NATIONAIE POUR LE DEVELOPFEMENT ECONOMIQUE Managing Director's Statement of BNDE Policy to be Confirmed by a Board Resolution 1. BNDE's general investment policy should be stated along the following lines: (a) BNDE's objective will be the encouragement of productive investment in Morocco, chiefly in the industrial field. To that end it will assist particularly in the financing of private industrial enterprises to which the major portion of its resources will be devoted. (b) BNDE will assist a non-private enterprise only in special circumstances, and when private capital cannot be found on reasonable terms to carry out the project. (c) BNDE will assist a non-industrial enterprise only when capital cannot be found elsewhere on reasonable terms. An enterprise will not be considered "privase" if the Government A any of its agencies directly or indirectly hold 50% or more of its outstanding voting stock. 2. BNDE will consider enterprises only on the basis of their economic and financial merits. To this end, projects will be analyzed as to their economic desirability, technical feasibility, financial soundness, manage- ment competence, etc., to insure that only sound productive ventures are financed BNDE will finance only projects which: (a) have a high economic priority, and (b) promise to provide a satisfactory rate of return on the investment. 3. BNDE will perform adequate supervision of the operations it financa. 4. BNDE should, as appropriate, make use of a variety of forms of investment, including, within the limits of sound financial practice, equity participations, and the underwriting or participation in the underwriting of securities sold by investment enterprises. 5. In order to assist the development of the Moroccan capital market BNDE should stand ready to sell portions of its investments to other private investors, with due respect to its Dwn interests and to those of the other participants in the investments sld. 6. When one or more commercial banks participate with BNDE in lending to an enterprise, BNDE should exert every effort to ensure that the terms of all the loans, taken together, are well suited to the needs of the enterprise. ANNEX 1 7. BNDE should., whenever appropriate, extead technical assistance to its clients in respect of the formulation, execution and operation of projects. 8. BNEE should not make direct credits (other than those covered by a public guaranty) or other investments for anTy single investment enterprise aggregating more than 10% of BNDE's paid-up capital, reserves and out- standing long-term Government loans. In entering into discounting arrangements with a conmercial bank, involving contingent liabilities, BNDE will limit the amount of its individual commitments on the basis of its assessment of the financial position of the bank concerned and in the light of BNEE's share capital and reserves. 9. In general, BNE should not take any single equity participation larger than the smaller of (a) 10% of BNDEts paid-up capital and reserves and (b) 25% of the share capital of the investment enterprise concerned. In the case of underwritings, BNDE might take a larger commitment in the faith that it will not in fact have to take up more than the proportion of shares here indicated. 10. BNDE will build reserves consistent with sound financial practice. These will include reserves which, according to such practice, may be necessary to cover specific risks and to strengthen the equity of the BNDE. To this end, the BNDE now sets aside each year 5% of its net profit after tax as a "legal reserve"; 0.1510 of new medium-term rediscountable credit for which commitments are given, and 1/7th cf all interest received, It proposee to continue in this same spirit. December 9, 1962. ANNEX 2 BANQUE NATIONALE POUR LE DVELOPPEMNT ECONOMIQUE Ownership Structure Before the Capital Increase After the Capital Inrease Amount Sub- Percentage Aount Sub- Percentage scribed in of scribed in of DH 000 Total DR '000 Total 1. Moroccan Government Public and Semi-Public Agencies Government Holdings 10,880 12,880 Caizs re Pr6te Immobiliers 250 250 11,130 55.65 ~ 13,130 43.77 2. Moroccan Private Banks and Insurance Companies Caisse Marocaine des Marches 100 100 Banque Foncitre du Maroo 10 10 Banque Franw Suissa pour lc Marco <0 50 Banque Marooaine pour 1'Expansion Economique 50 50 Banco Immobiliaro y Mereantil 50 50 Uniban 250 250 Cie Africaine de Banque 50 50 Omium Marocain d' Investissement 100 100 La Providence Marocaine 20 20 Cie de Reassurances Atlanta 5 Sti Marocaine d'Assurances 7.5 7.5 La Paix Africaine Caisse Interprofessionnelle des Retraites 200 200 12,027.5 60.1-4 14,027.5 46.76 ANNEX 2 Page 2 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Ownership Structure Before the Capital Increase After the Capital Increase Amount Sub- Percentage Amount Sub- Percentage scribed in of scribed in of DH '000 Total DH '000 Total 3. Moroccan Subsidiaries of Foreign Banks and Insurance Companies Sociiti Ginerale 250 250 Cr6dit Lyonnais 250 250 BNCIA 250 250 Banque Commerciale du Maroc 200 200 Banco Espafiol en Marruecos 50 5o BIAN 50 5o British Bank of the Middle East 50 50 Banque Ottomane 50 50 Banque de Paris et des Pays Bas 250 25o Banque de l'Union Parisienne 50 50 Compagnie Alg6rienne 250 250 Socit6 Marseillaise do Credit 50 50 CFAT 250 250 Le Soleil Accidents 100 100 L'Aigle 50 50 L'Union Vie 25 25 L'Urbaine et la Seine 20 20 Matuelle Autonome 10 10 - 2 2205 1.03 2,205 7.35 Total Moroccan 16,232.5 71.17 16s232.5 Sh.11 ANNEX 2 Page3 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Ownership Structure Before the Capital Increase After the Capital Increase Amount Sub- Percentage Amount Sub- Percentage scribed in of scribed in of DH '000 Total DH '000 Total 4. Foreign Financial Institutions 4.1 American Morgan Guaranty Trust 499 499 2.50 999 999 3.33 4.2 Belgian Banque Lanbert 599 599 2.99 599 599 2.00 4.3 French BNCI Paris 200 200 CNEP Paris 100 100 Credit National 250 25 Caisse de Dep8ts et Consignations 900 900 Caisse Centrale de Coopgration Economique 700 700 Caisse Nationale des Marche's 250 2s400 12.00 250 2,00 8.00 4.4 German Deutsche Bank 299 299 Dresdner Bank 300 300 Comerzbank 300 300 Westfalenbank 100 999 4.99 100 999 3.33 ANNEX 2 Page67 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Ownership Structure Before the Capital Increase After the Capital Increase Amount Sub- Percentage Amount Sub- Percentage scribed in of scribed in of DH 1000 Total DH '000 Total 4. Foreign Financial Institutions Cont'd 4.5 Italian Banca Nazionale del Lavoro 333 333 Istituto Mobiliare Italiano 333 333 Banca Commercials Italiana 583 1 249 6.24 583 1 249 4.16 r'om 5. International Finance Corporation - - - 7,99 7,499 25.00 6. Directors and Individuals Directors (DH 1,000 each) 16 17 Individuals 5.5 21.5 .10 5.5 22.5 .07 TOTAL 20,000 100.00 30,000 100,00 1/ DH 250,000 o? the shares presently held by Banca Commerciale originate from the holdings of its subsidiary in Morocco which has been absorbed by the Banque Marocaine du Commerce Ext4rieur. This amount is to be divided between the three Italian participants. ecembr 9, 1962 ANNEX 3 December 9, 1962. BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Board of Directors on October 30, 1962 President (Chairman of the Board) M. Ahmed Lyazidi, former Government Minister Vice-Presidents M. E'Hamed Zegharij Governor of the Banque du Maroc M. Jean Saltes, General Ma-npger of the Credit National (France) Administrateur - Directeur Gene'ral (Managing Director) M. Mohammed Amine Bengeloun Directors M. Mohammed Bennani, General Manager of BEPIl/ M'Hamed ben Jilali Bennani, Industrialist Robert H. Blake, Vice-President of Morgan Guaranty Trust Company of New York Auguste Brusset, General Manager of BNCIA2 (Morocco) - Francois Bloch-Laine, General Manager of Caisse des Depots et Consignations (France) Abbes Kabbaj, Industrialist Abdelhafid Kadiri, General Manager of DRPMa/ Henri Lhebrard, Acting Manager of Caisse Marocaine des Yarche's Gilbert Pierre, Adviser to the inistiy of Finance Aurelio Peccei, Acting Manager of Italconsult (Italy) Otto Pirkham, Manager of Deutsche Bank (Germany) Jacques Thierry, Manager of Cie. d'Outremer pour 1 l'Industrie et la Finance (Belgium) Government Representative M. Abdelhamid Khales, Director of the Treasury, Ministry of Finance. 1/ Bureau d'Etudes et de Participations Industrielles. 2/ Banque Nationale pour le Commerce et 'L'Industrie (Afrique). 3/ Bureau de Recherches et de Participations hinieres. A'NEX h BANQUE NATIONALE POUR LE DEVELCFEEINT ECONOMIQUE Organization Chart Mr. Ahmed Lyazidi Chairman MANAGEMENT Mr. Mohamed-Amine Bengeloun Mr. Albert Managing Director Adviser 2 Secretaries 3 Others CREDIT FOLLOW-UP AND LEGAL DEVELOPMENT STUDY & DOCUMENTATION ADMINISTRATION DE fiWNT DEPARTMENT M TM DEPARTMENT (1) Appraisal of (1) Legal Work (1) Economic Studies (1) Economic Studies (1) Accounts Projects (2) Follow-up of Long (2) Management of (2) Economic (2) Disbursement (2) Follow-up of Term Loans Subsidiary Document (3) Personnel Medium Term (3) Disbursement Companies Administration Investments Authorization (4) Procurement, etc. Mr. Choquier Mr. Alloo Mr. Tazi Dr. Burchardi Mr. Lardot 3 Assistant 1 Secretary 1 Technical Adviser 1 Economic Assistant 1 Head Bookkeeper professional 2 Secretaries 1 Documentation Clerk 1 Internal Auditor staff 1 Other 1 Secretary 1 Secretary-Bookkeeper 3 Secretaries 2 Bookkeepers 1 Other 1 Administrative Assistant 1 Secretary 5 Others December 9p 1962 AN 5 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE u mm f Lending Operations athJune 30, 1962 As on Dec. 31 As on Dec. 31 As on Dec. 31 As on June 30 1959 1960 1961 1962 No. DHI000 No. DHOOO No hH No. DH'000 A. Direct Long-Term Loans 1. Approved 1 3,500 20 27,770 38 48,330 24 63,049 2. Committed - - 8 25,470 1? 47,880 20 58,624 3. Disbursed - - 7 17,140 17 145,330 20 51,203 4. Repaid - - - - 2 510 5 590 5. Outstanding - - 7 17,140 17 14,820 20 50,613 B. Direct Medium-Term Loans 1. Approved - - 2 3,100 3 4,350 6 4,955 2. Committed - - 2 3,100 3 4,350 3 4,450* 3. Disbursed - - 1 75 3 4,350 3 4,450* 4. Repaid - - - - 1 50 2 75 5. Outstanding - - 1 75 3 4,300 3 4,375 C. Indirect Medium-Term Loano Not Rediscountable at the Banque du Maroc 1. Credit lines committed - - - - 4 630 5 1,030 2. Of which held by Drimary banks - - - - 4 390 5 710 3. Of which held by BNDE - - - - 4 21!0 5 32 D. Indirect Medium-Term Loans Rediscountable at the Banque du Maroc 1. Credit lines approved 13 34,590 50 105,600 80 156,390 99 163,620 2. Credit lines committed 10 26,590 n.a. 81,965 73 145,252 73 166,933 3. Of which held by primary banks 10 25,319 n.a. 69,183 n.a. 129,353 n.a. 128,380 4. Of which held by BNDE n.a. 1,271 n.a. 2,672 n.. 4,061 n.a. 6,507 5. Of which held by the Banque du Maroc - - n.a. 10,110 n.a. 11,838 n.a. 10,046 6. Promises of commitments - - n.s. 38,400 n.-e. 2,500 n.a. 2,500 . Outstanding on Operations Performed for the Government 2 2,500 2 2,500 2 2,250 2 2,250 This includes Dh 100,000 of interest overdue, added to dobt. .December 9, 1962 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE ANNEX 6 Page 1 Analysis of Direct Lending Operations as at June 30, 1962 Type of Acsociated Economic Direct Rediscountable Name Activity Loan Direct Loans Loans Location Sponsorship Status Committed in 1960 of total No. DH 000 financing No. DH 000 .Jadida Food MT 100 12% - Casablanca Private Expansion Le Plastique Chemicals LT 250 20% 500 i Private New Ben Salah Agriculture LT 200 33% 200 Berkane Private New Comanav Transport LT 6,000)* 67% - Casablanca Public Expansion) Comanav Transport MT 3,000)* 33% - " Public Expansion) Energie Electrique du Maroc Power LT 12,800 * 55% 31,000 " Private Expansion Chaussures Esterel / Leather LT 70 28% 180 " Private New Office National du The Beverages LT 3,500 * 29% - Public New Tissages Safadi Textiles LT 400 28% 800 Private Expansion Berliet Truck Assembly LT 2,250 18% 1,050 It Private New iotal 10 28.70 6 33,730 * Covered by a State guarantee. ** Public means that the Government or its agencies hold, directly or indirectly, 50% or more of the voting stock. December 9, 1962 BANQUE NATIONALE POUR LE DEVEIDPPEMENT ECONOMIQUE ANNEX 6 Page 2 Analysis of Direct Lending Operations as at June 30, 1962 (Cont'd) Type of Associated Direct Rediscountable Name Activity Loan Direct Loans Loans Location Sponsorship Status of total Committed in 1961 No. DH 000 financing No. DH 000 Ressorts Guillotte Metallurgical LT 300 28% 200 Casablanca Private New Energie Electrique du Maroc Power LT 8,45o * 55% 7,000 " Private Expansion Cellulose du Maroc Paper LT 5,500 32% 2,500 Kenitra Private Expansion Port Mohammedia Petroleum LT 2,250 * 59% 1,250 Mohammedia Private Expansion Somaca Car Assembly T 5,000 22% 5,000 Casablanca Private New Toboado Agriculture LT 60 55% - Larache Private Expansion Mamora Beverages LT 0 16% 600 Casablanca Private Expansion Sapemas Agriculture LT 200 32% - Imir Haoura Private Expansion Smaprec Refractory materials LT 250 26% 200 Casablanca Private Expansion SGES Leather MT 1,250 + " Private Reorganiza- tion Total 23,660 7 16,750 Committed in 1962 Energie Electrique du Maroc Power LT 10,14 4 100% - " Private Expansion Moulins Oued Zem Grain Mill LT 150 20% 250 Cued Zem Private New BLITA Textiles LT 450 12% 1,050 Casablanca Private Expansion Total 3 10,744 2 1,300 GRAND TOTAL 23 62 974 15 51,780 * Covered by a State guarantee. e* Public means that the Government or its agencies hold, directly or indirectly, 50% or more of the voting stock. December 9, 1962 ANNEX 7 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE List of Equity Participations as at June 30, 1962 No. of Shares Amount % Total Name of Concern Owned Per Share Owned Owned Paid-In (DH) (DH 000) Banque Marocaine pour le Commerce Exterieur 1/ 5,O0O 100 8.3 500-00 500.00 Eanque Centrale Popul7ire 2/ 2,500 100 3.7 250,00 250.00 Caisee Marocaine des Marce 6 3/ 3,500 100 28.0 350,00 350.00 ?4APEQ V/ 175 1,000 35,o 175.0o 175.00 Somadet 5/ 600 100 25,0 60o0o 60.00 Sotherma76/ 498 100 10000 49.80 12,45 Soc. Nationale des Conduites d'Eau 7/ 1 100 .0 10 .10 Total 1,384.80 1,347.55 1/ Banque Marocaine pour le Commerce Exterieur (BCE): Commercial bank which specializes in foreign trade financing. It may rediscount at the Banque du Maroc medium-term paper representing the financing of certain imports and expots, The ABCE is one of the main prima-.y banks with which the BNDE does business. 2j Banque Centrale Populaire: Newly reorganized public agency which co-ordinates the mana-ement of regional credit institutions specialized in the long and medium-term financing of small business and handicrafts. 3/ Caisse Marocaine des Marches: An institution which covers the risks on the execution of government contracts. The CMM1 represents the BNDE in Casablanca. (In August 1962, the BNDE acquired an additional 1h% of the Caisse's shares from the French participants.) h/ MAREQ (Maroc Equipement): A semi-public agency for economic and technical research. / Somadet: In this venture, BNDE is associated with the Caisse de Depots et de Gestion, Royal Air Maroc, the BMEE and the Office du Tourisme. Somadet prepares economic studies and creates subsidiaries in the field of tourism. 6/ Sotherma: A wholly-owned subsidiary of the BNDE which has been studying a project for the exploitation of thermal water in Morocco, Financed by the Development Fund. 7/ Societe Nationale des Conduites d'Eau: BNDE is on the Board of this public corporation founded by the National Office of Irrigations. Decerei 9, 1962 Page 1 BANQUE NATIONALE POUR LE DEVELOFFEMENr ECOMMI,"E Balance Sheets Eecember 31, 12f9-June 30, 1962 (revised and recTasfied, i Cu_ of rhams) ASSETS 1959 1960 1961 1962 Current assets other than loans (June 30) Cash and banks 2,191 1,008 355 1,431 Interest and charges accrued - 123 1,431 557 Sundry receivables and miscellaneous 14 71 261 155 Total current assets other than loans 2,205 1, 2;02 2,047 2,143 Portfolio Loans of current asset nature (refinanceable) Medium-term loans, rediscountable 1,271 2,672 4,261 6,507 Loans made as agent for the State, refinanceable 1,10--7 2,500 2,250 2,250 Total refinanzeable loans 27l8 5,172 6,311 8,757 Loans and investments not refinanceable Indirect medium-term loans, not rediscountable - - 240 320 Direct medium-term loans: -outstanding 75 4,30'0 4,375 Subtotal direct medium-term credits 3,1C0 4,300 4,375 Direct long-term loans: -outstanding 17,140 4L,820 50,613 -committed but not disbursed (contra) - - 8,330 _24b2 Subtotal direct long-term loans 25,470 47,370 58,034 Equity participations, paid-up 125 527 1 128 1 348 Total loans and investments P2T97 53:035 64:07 TOTAL PORTFOLIO 2,843 34,269 59,349 72,834 Net Fixed Assets 78 484 656 847 TOTAL ASSETS 5,126 35,955 62,052 75,824 May be cashed at the Treasury on short notice. Decemboer Y,, 1962 ANNEX 8 Page 2 1962 LIABILITIES 1959 1960 1961 (June 30) Current liabilities other than borrowings Interest and charges accrued 169 424 1,588 410 Sundry current liabilities and provisions 88 161 690 153 Sundry depositaWand transitories Subtotal 267 3,700 3,273 4,310 Governmental deposit Provision for taxes.l 2-1 2 Sabtotal - 79Z8 Total current liabilities other than borrowings 267 4,489 5,364 7,195 Short-term borrowings Bonds 5,000 4,970 Other borrowings Total short-term borrowing 1,000 7,000 6,970 Nediu-term borrowings Treasury advance drawn 4,000 4,000 10,000 BondsTotal mediva-term borrowings 4,000 8,000 14,000 .ong-tern debt (bonds) Total medium and long-term debt 4,000 31,000 37,000 ftdipburoed commitmentp (contra) 11,355 2,550 7,421 Copitgl: Issued share capital 20,000 20,000 20,000 20,000 Less uncalled portion (U,0) 1W-) ( (5.000) Paid-in share capital 5,000 15,000 15,000 15,000 Reserves: Legal 6 54 54 Reserve for rediscountable loans - 112 112 Reserve for loans outstanding 333 333 Special bad debt reserve & 9 Total reserves 6 594 594 Revenue appropriation account Total equity 4,859 15,111 16,138 16,138 Unallocated gross profit (only for first half of 1962) 4 1,100 TOTAL LIILITIES AND CAPITAL 602 Nost of these are deposits of institutions in which BNDE has participations, and may be withdrawn at short motiee. Includes (a) deposits earmarked for disbursement of investment premiums by the government, and (b) the undisbursed balance of the Fends de Developpement. DH 142,000 of the 1961 and 1962 amounts Ie a contribution to the Fonda National d'Investissements. which will eventually- b recovered. This reserve was held by BNDE to hedge against a possible defeat in a court action against a real estate company. The case was ruled to BNDE's advantage. Estimated December 9x 1962 AuNE 8 Page 3 Mearanda and eentiaU1eies 1962 1959 1960 1961 (June 30) Indireet Credit. Re4isoountable at the Banque do Marge Promises of commitments - 38,400 2,500 2,500 Creditscommitted 26,590 81,965 1A5,252 144,933 Amounts discounted by BNDE 1,271 12,782 15,899 16,553 Amounts held by primary banks 25,329 69,183 129,353 128,380 Amounts rediscounted at the Banque da Maree - 10,110 11,838 16,046 Austs held by BNDE 1,271 2,672 4,061 6,507 IadireMt Croatds Net RediscountabLe at the Bangue dy Maree Amount committed by BNDE - - 630 1,030 Amounts held by BNDE 240 320 Ambunts held by primary banks 390 710 Guarantees lith State counter guarantees n.a. n.a. 41,500 41,500 Without 2tate counter guarantees n.a. n.a. 6,565 9,640 Total guarantees 12,200 35,741 43,065 51,140 December 9, 1962 All_i'X 9 P'age I. BANQUE NATIONALE FOUR LE DEVELOPPE%KT ECONOMI UE Income Statements 1959 (last 5 months) to 1962 (first 6 months) (r.evised and reclhsified in thousands of Dirham) INCOMIE 1959 (5 months) 1960 1961 1962 (astimate ) Income from Direct Operations (exclusive of operations as Agent of the State) Income from direct loans Study and commitment charges - 6 13 Interest on long-term loans - 455 2,oo6 )3,780 Interest on medium-term loan.! 20 55 224 211 Subtotal 20 2,273 3,9-1 Income from equity participations - 23 61 Total income from direct operations - 20 516 2,266 4,052 Income from Indirect Credits Commitment charges tor rediscountable credits 20 357 897 1,103 Interests on credits rediscounted by BNDE and re- discountable at the Central Bank 6 177 298 ) 560 at the Central Bank - 4 Total income on indirect credits 26 534 1,199 1,663 Income from Operations as Agent for the State - - 154 156 Income from Guarantees (commissions) 1 37 123 121 Total operational income 47 1,087 3,742 5,992 Miscellaneous Income Income from bank deposits 46 88 26 4 Sundry incomes 7 3 7 Total miscellaneous income 46 95 11 TOTAL INCOME 93 1,182 7713 This includes, for 1961, an interest charge of DH 51,000 on a direct credit pledgeable at the Caisse de Depots et de Gestion. Based on actual results of first six months of 1962. December 9, 1962 Page 2 EXPENDITURES Financial k enses 1959 (5 months) 1960 1961 1962 (estimatel/) Interest on sandry depsits and short-tern borroins -Sundry deposits - n.a. 57 21 -Bonds n.a. 24 38 -Other short-term borrowings n.a. Subtotal n.a. 176 199 Interest on medium-term borrowinge -Bonds - 127 157 -Treasury advance 70 418 Subtotal n.a. 197 575 Interest on lone-term debt Total interest cost, exclusive of interest and fees paid to the Central Bank 42 1,187 2,194 Other financial costs Interest and fees for credits radiscounted at the Central Bank 5 53 162 363 Miscellaneous Subtotal other financial cost Total financial expenditures, gross 5 96 1,432 2,680 Less Treasury subsidy on borrowings ) 1a70) Total financial expenditures, not 5 96 1,269 2,Al Administrative E=senses Depreciation and organization 57 39 60 Personnel and management 133 592 718 Other administrative expenses 200 Total administration expenses Total Expenses 234 881 2,2 7 3,785 Provision for taxes 49 497 718 Net profit after taxes 4M 497 Gross Profit 132. 2&A1A TOTAL EXPENDITURES AND PROFITS x=. / Based on actual results of first six months of 1962. Detember 9, 1962 Page 3 APPROPRIkTIOE ACCOUNTI 1959 1960 1961 (1962 (o~tinate GNERTION Roeeu Appropriation brought ferard - (141) 105 544 get profit for the period 252 1,027 1,500 Total to be aleeated (241) 2l~ __2_ ALCATION Legal Reserve 6 48 Cantingenmy en rediscemtabl* 10896 112 Contingency en etstanding debt 333 Reserve for bad debt abttal 6 5 Reveue Appropriation Akoeont 10 -. 2. Total allocations ulI2 / Baed en actual revlts of firet six nonths of 1962. December 9, 1962 BANQUE MATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE ANNEX 10 Projects Expected to be Committed in the Second Half of 1962 (in DH 000) Proposed Total Type of Duration of Project Loan Type of Loan Name of Project Enterprise Economic Activity Status Loan Cost No. Amount. Projects approved as on June 30, 1962 Long-term Texnord Private Textiles New 8 years 9,224 2,600 Long-term Fes Private Textiles Expansion 7 years 2,000 400 Medium-term C.M.M. Private Mining Modernization 5 years 2,000 400 Long-term Et Taj Private Copperware New 8 years 2,450 550 Medium-term Sobeco Private Wood Boxes Expansion 5 years 260 130 Medium-term Eurafrice Private Textiles Expansion 5 years 500 75 Long-term SGES Private Tannery Re-organization 10 years OO 875 SUBTOTAL: 21,934 7 5,030 Projects approved in July 1962 Long-term Cofitex Private Textiles New 7 years 18,000 2,000 Long-term Smaprec Private Refactory Materials Expansion 8 years 517 125 Medium-term SOP Private Petroleum New 4 years 30,000 2.000 SUBTOTALs 48,517 3 4,125 Projects under study as at the end of July 1962 Medium-term Comapra Public Cotton ginning New 5 years 1,500 700 Long-term Cavero Blequa Private Plantation Expansion 12 years 468 250 Long-term Hadj Amor Private Citrus Fruit Expansion 10 years 629 125 Long-term Orbonor Private Textiles Expansion 8 years 1,000 150 Long-term Matextif Private Textiles New 8 years 2,400 400 Long-term Inimex Private Ceramics Expansion 8 years 1,400 700 Long-term Nadigas Private Butane Gas New 8 years 2,000 300 Medium-term CSW Private Fruit Packing New 5 years 765 350 Medium-term CFN Private Transport Modernization 5 years 3,500 2,000 SUBTOTAL: 13,662 9 h,975 TOTAL: 84,113 19 114,130 December 9, 1962 ANNEX 11 BA";QUE NATIONALE FOS *iE MSLOPFL.IW ECONOMIQLE List of Projects under Preliminary '!onsideration (in D 000, as at June 30, 1962) New vs. Tctal Tyne of Loan Name or Location Economic Activity Expansicn Investrent No. Amo.nt * Projects included in the projectiors - (Agr. implements) Tools Newa 600 300 - Filatis 2 SInling ew 6,000 3,000 - (Beni Yellal) ooNew 600 - (Azzou) Chickens New 350 175 - (Casa) Hos*ery New 800 too - (Tangiers) Textiles New 7,000 Long-term (Tangiers) Textiles New 40,000 15,000 - Elec. equipment 7ow 4,000 2,000 - Blankets New 2,000 1,000 Yedium-term Xannin! Expansion 5, 0cc 1,00 - (F"e) Textiles Nov 15,000 7,500 Long-term - Metallurgical New ,0 3,5000 S: Ilurgical Nwu - (Tangiers) Textiles New 5,000 2,500 Total included 10h,918 l 4 5S,725 Projects not included in the projections Long-term (Sidi Slimane) Sugar Mill New13,000 Long-term Air earc Transport Exansion 000 16,00 Long-tem - hinilc New 000 1C,O0 - Paper Mills New 6o,coo 2,00 - Chemi3als New l" 1 Total excluded 2, 5 GRAND TOTAL: ',9 19 124,725 * To the extent that any loan in this list exceeds the limit laid down by NDEF's policy resolution, it is assumed that 3overnmait guarantees will be available. December 9, 1962 ANNEX 12 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQJE Page 1 Operational Projections, June 1962 to December 196h (DH million) 1962 1963 3964 Cumulative June-Dec. Jan-June June-Dec. jar.June June-Dec. June 1962 - Dec. 196b *MiL Equiv. Project.s under Preliminary Considerpti on As at beginning of period 5.7A h3.9 39.5 32.5 22.9 45.7i! 9.1 Received during period 9.0 9.5 10.0 10.5 11.0 50.0 10.0 Less rejected or withdrawn during period (1.8) (1.9) (2.0) (2.1) (2.2) Less filed as regular application (9.0) (12.0) (15.0) (18.0) (21.0) As at end of period 43.9 39.5 32.5 22.9 10.7 Applications Under Study As at beginning of period 9.1 9.0 10.5 12.0 13.5 Filed during period 9.0 12.0 I5.0 18.0 21.0 75.0 15.0 Less approved or rejected during period (9.3) (10.5) (13.5) (16.5) (19.5) As at end of period 9.0 10.5 12.0 13.5 15.0 Projects Approved Approved and not committed at beginning of period 5.0 - 1.2 5.3 6.5 Approved during period 9*2/3 8.5 10.8 13.2 15.5 57.3 l1.h Less projects committed during period (1.)( ) (9.7) ( 0 (1 As at end of period -1.2 5.3 6.5 7.7 Loans Contracted and Not Disbursed Committed and not disbursed at beginning of period - 6.7 3*Ji 7.8 9.6 Committed during period 16.1 L -.3 9.7 12.0 1h.3 54.h 10.9 Less projects disbursed during period 7.14)- (7.6) (5.3) .2 .) As at end of period 6.7 3.1! 7.8 9.6 1i.5 Disbursements on Loans During Period 7*1 7.6 5.- 10.2 12.L, l1.6 See Annex 11. 2 Non-cumulative; figure as at June 30, 1962. See Annex 10. Disbursements assumed to be covered from the bank Loan. December 9, 1962. AINNX 12 Page 2 SANUEJJL ,ATION1,L iOU. L_ Dl? LOP.CNT CONG.;I(Uh List of Assumptions Used for the Opcrational Projections/ 1. Inouiries for NDL assistance are assumed to increase at a 10/ ycarly rate. 2. 80% of incuiries are assumed to result in applications. 3. An 80% ap-roval rate is assumed after December 1962. 4. A three-month lay is assumed for project appraisal. 5. A three-month lag is assumcd between approval and commitment. 6. 20% of amounts committed are assumcd to bc 6isbursed in the same six month period, the remaindor bing disbursed in the next pariod. 1/ Estimates for second half of 1962 are based on preliminary figures as Kiven in Annexes 10 and 11. ANNEX 13 Page 1 BANQUE NATIONALE POUR LE DEVELOPPaENT ECONDMIQUE Balance Sheets, Preliminary June 30, 1962 aad Forecast 1962 - 196 (revised and reclassified in thousands of Dirham) June 30. 1962 Dec. 31, 1962 Dec. 31, 1963 Dec. 31, 1964 ASSETS Current Assets Cash and bank balances 1.4 6o4 308 37.8 Other 0.6. . . Total current assets 0 i2 08 2 - 31.6 o 38.6 Portfolio Loans of current asset nature (refinanceable) 8.8 7.3 7.3 7.3 oans and investments not financeable Indirect medium-term loans not rediscountable 0.3 2.3 0.3 0.3 Direct medium and long-term loans - outstandin 5.0 6* 6._4 - committed fcontr, 7.4 67 6. . -. - btotam direct loans 62.- 66.7 7 75.7 IT. 96.0 Equity participations, paid-up 1.3 1.3 1.3 1.3 Total portfolios - 72.8 .496 10, Net Fixed Assets 0.8 0.8 0.8 0.8 TOTAL ASSETS 75.8 83.6 117.0 144.3 December 9, 2962. Page 2 June 30, 1962 Dec.31, 1962 Dec.31, 1963 Dec.31, 1964 LIABILITIES AND CAPITAL Current liabilities other than borrowings ?.2 7.3 7.3 7.3 Short-term borrowir.gn 7.0 - - Medium and long-term debt odium-term borrowing 14.0 4.0 4.0 2.5 Long-term borrowing - outstanding 23.0 23.0 43,3 65.9 - committed (contra) 7.4 6.7 7.8 15 Total long-term borrowing 30.-4 07 51. 55.1 77.14 79.9 Total 44.4. $. 7. Undisbursed commitments, other than debt comitted - and quasi-equit Q i y Glovernment advance 20.0 20.0 20.0 Equity - share capital paid-in 15.0 20.0 30.0 30.0 - reserves and appropriation account 1.1 2.6 4.6 7.1 Total eauity 16.1 22.6 314.6 37.1 Total equity and quasi-eqpity 10.1 2 - 26 67.1 Unallocated gross profit (only for June 30, 1962) 1.1 TOTAL LIABILITIES AND CAPITAL 75.8 83.6 117.0 144.3 December 9, 1962. . 5 BANQUE NATIONALE PCUR LE DEVELOPPEMENT ECONONIQUE Cash Flow Forecast for second half of 1962 and 1963-1964 in millions of DH) Second Half Second Half 1962 1963 1964 1962 1963 1964 RESOURCES APPLICATIONS Calling in of uncalled portion of share Disbursements on direct medium- and long- capital 5.0 - - term loans - from 13NLE funds 7.4 (7.4) - IsMeof additional share cadital - 10.0 - - from IBRD Loan - 20.3 22.6 Drawing on quasi-equity advance 20.0 - - Total disbursements: 7.4 12.9 22.6 Total increase of capital and quasi-equity: 25.0 10.0 - Repayment of short-term borrowings 7.0 - - Net income after taxes (for second half Repayment of medium-term borrowings 10.0 - 1.5 n~f 92cnl bainc cf C. frc c: total of 1.5) 0.5 2.0 2.5 Increase in long-term debt. for disburse- ments from IBRD Loan - 20.3 22.6 Decrease of holdings in rediscounted credits 1.5 - - Repayments collected - on medium-term loans 1.h 1.0 1.0 - on long-term loans 1.0 h.C S.C Total repayments collected: 2.4 5.C 6.0 TOTAL RESOURCES: 29.4 37.3 31.1 TOTAL APPLICATIONS: 24.4 12.9 24.1 TOTAL CASH ACCRUALS 5.0 24.4 7.0 TOTALS: 29*4 37-3 318 1 TOTALS: 29.4 37.3 31.1 December 9 1962.