Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 2456a-MAG MADAGASCAR STAFF APPRAISAL REPORT OF A FIRST IDA CREDIT BANKIN'NY INDOSTRIA (BNI) January 10, 1980 Eastern Africa Projects Department Industrial Development and Finance Division This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1 = FMG210 FMG100 = US$0.48 ABBREVIATIONS BCIM - Banque pour le Commerce et l'Industrie de Madagascar BDPI - Bureau de Developpement et de Promotion Industriels BFV - Banque Nationale pour le Commerce BNI - Banque Nationale pour le Developpement Industriel BNM - Banque Nationale Malagasy de Developpement BTM - Banque Nationale pour le Developpement Rural CCP - Centre de Cheques Postaux CCCE - Caisse Centrale de Cooperation Economique CNAPS - Caisse Nationale d'Assurances et de Prevoyance Sociale KfW - Kreditanstalt fur Wiederaufbau IDA - International Development Association SNI - Societe Nationale d'Investissement FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY MADAGASCAR BANKIN'NY INDOSTRIA (BNI) STAFF APPRAISAL REPORT Table of Contents Page No. BASIC DATA ............................................. i - ii I. THE ENVIRONMENT L A*. The Industrial Sector . ............................. Background ......................................... 1 Changes in Economic Policy ......................... 1 Recent Performance ...* ............. ........... ...... 4 Policies ................... --o .... . o ........... 5 Promotion ...... o ................................. 5 Prospects ., ............................ ........ 5 Artisans ........... ....................... ....... 6 Small-Scale Industries (SSI's) ........... 0.... ....... 6 B. The Financial Sector .... ........ ................ . 7 The Banking System ................................ 7 Credit Policy ................... .. ............. 7 Inflation ................ . . . .... 8 Int'erest Rates .... *......8 II. THE INSTITUTION A. Institutional Aspects........ 9 Background and Objectives ................ ....a ...... 9 Ownership, Board ....................... . ...... ..... . 9 Management, Organization and Staffing ... o ......... 10 Operating Policies ................................. 10 Procedures ............................. . ........ 10 (a) Appraisal . .............. . .... .. .............. 10 (b) Follow-up ........... ........................ 11 (c) Procurement .......................... - . 11 (d) Disbursements ...................... ........... 11 (e) Project Promotion ..... ........................ 11 Strategy ....................................... 11 Interest Rates .... .................................. 11 < ~~~~~~~Audit ,...*.......... -......... ...... 0........... 12- This report was prepared by Messrs. Philippe Beuzelin, Jose-Luis Mombru and Ben Lehbert on the basis of their visits to Madagascar in June and November 1978. This docunwnt ha a restricted distribution and may be used by recipients only in the performance of their oAciaW duties. Its contents may not otherwise be discioSd without World Bank authorinztion. Table of Contents (Continued) Page No. B. Operations ........................................ 13 Main Features of Past Operations ..........*......... 13 BNI's Operations ............. .. .. ......... ....... ..... . 13 Economic Impact . ..................... .. . ........... . 14 C. Financial Condition ................. . ..... . 14 Loan Portfolio ,.................................... ..... 14 Equity Portfolio .... . ...... ............. . 15 Provisions . ..... ......... .... . 15 Resources ................................. . ...... . 15 Financial Position ................... o ................. ....... 16 Profitability ...o ..................................... 16 D. Prospects ...... ............................... 17 Forecast Operations ................................ ... 17 Resource Requirements . . . ..... . o..o. .o... . . ..o. . . . . . . . . . 17 Projected Financial Condition and Performance .o..... 18 III. THE PROJECT A. Objectives of Proposed First IDA Credit ... o...... 19 B. Description of the Project ........ oo ..... ........... 19 C. Proposed Credit to BNI ...... oo... -...-............ 20 Terms and Conditions ..................- . ... 20 Project Cost Financing ............................. 21 D. Project Implementation ... -oo ......-... ... 22 Reporting Requirements ...............o. ...-o..... 22 Procurement ........o............. -- . ....... . . 22 Disbursement. .... . . . -. .......... ... 22 E. Benefits and Risks ...... o..... .... ......... 23 IV. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ...... o..... 23 Table of Contents (Continued) Page No. ANNEX NO. 1 Madagascar - Interest Rate Structure .......... ...... 25 2 BNI - Draft Statement of Rules of Operations**-...-. 26 3 BNI - Summarized Balance Sheet 1977-1979 ............ 29 4 BNI - Summarized Income Statement at 1977-79 ........ 30 5 BNI - Project Pipeline at End 1978 . ................ 31 6 BNI - Projections of Operations 1979-82 ............ 32 7 BNI - Projected Balance Sheets 1979-82 .... ......... 33 8 BNI - Projected Income Statements 1979-82 ........... 34 9 BNI - Projected Sources and Uses of Funds 1979-82 35 10 BNI - Schedule of Disbursements .................... 36 11 BNI - Selected Documents and Data Available in the Project File . .37 MADAGASCAR BANKTN' NY INDOSTRIA (BNI) BASIC DATA Date Established: 1977 Ownership (as of December 1, 1979) FMG (billion) % Government 2.7 85 Central Bank 0.2 10 Social Security Fund 0.1 5 TOTAL 2.0 100 Resource Position (as of September 30, 1979) (FMG million) Sources Equity Funds Local Foreign Total Share Capital (net of fixed assets) 694 - 694 Reserves and Provisions 6,572 - 6,572 Forecast Reserve from 1979 Profit 750 - 750 Total Equity Funds 8,016 - 8,016 Borrowings Post Administration 1,000 - 1,000 Treasury 1,233 - 15233 Social Security Fund 450 - 450 KfW - 260 260 CCCE - 524 524 Total Borrowings 2,683 784 3,467 Other Resources Term Deposits (more than 18 months) 332 _ 332 Rediscounting Potential for Term-Credits ____0li - 2,031 Total 2,343 - 2,343 TOTAL RESOURCES 13,042 784 13,826 Uses Term Loan Portfolio (net of rediscounting) 6,130 - 6,130 Equity Investment 3,777 3,777 9,907 - 9,907 Resources Available for Disbursements 3,135 784 3,919 Undisbursed Commitments 1,160 - 1,160 Resources Available for Commitments 1975 - 2759 Uncommitted Approvals 748 - 748 Resources Available for Approvals 1,227 784 2,011 Approvals (FMG million) 197 1978 1979 (At 9/30) Term Loans 400 2,909 1,832 Equity Investments 200 469 512 Total 600 3,378 2,344 Operating Results (FMG million) Net Profit (after provisions) 738.4 839.3 800.3 Net Profit as % of Average Net Worth 12.2 13.5 11.7 Net Profit as % of Year-End Share Capital 36.9 41.9 n.a. Financial Position Net Worth 5,952 6,478 7,221 Total Assets 54,280 60,990 75,453 Term Debt/Equity 0.7 0.5 0.5 Interest Rates and Other Charges Interest Rates: 1/ 6.o - 8.o % Commitment Fee: O.63- 1.50% 1/ Charged on the total outstanding of the loan during the]ife of the loan. MADAGASCAR BANKIN' NY INDOSTRIA (BNI) STAFF APPRAISAL REPORT 1. THE ENVIRONMENT A. The Industrial Sector 1/ 1.01 Background. At Independence in 1960, Madagascar possessed very little industry, mostly the processing of foodstuff and minerals for domestic consumption or export. Industrial production accounted for only 5% of GNP. The new Government actively encouraged industrial development whilst retaining very close ties with France. It created favorable conditions for business by means of the Investment Code (1961) and a system of protection against foreign competition, whilst setting up new institutions such as the Societe Nationale d'Investissement (SNI), the Banque Nationale Malagasy de Development (BNM), the Bureau de Developpement et de Promotion Industriels (BDPI). Value added by industry increased at 6% per annum in real terms from 1966 to 1971. 1.02 However, the industrial sector had several problems. A dispropor- tionate part of business was in non-Malagasy hands. There were roughly 400 enterprises in 1974, but the largest 80, which accounted for 70 to 75% of value added in the sector, were almost entirely owned or controlled by for- eigners, mostly French. A very high proportion of smaller businesses were owned by entrepreneurs originating from the Indian subcontinent and often holding French passport. The industrial structure was not an integrated one, but was mostly composed of simple industries, either catering to local con- sumption or processing local raw materials for export. Much industry being concerned with foodstuffs, output was restricted by the marketed agricultural product and subject to severe fluctuations. The geographical distribution of industry was very uneven, most being concentrated around Tananarive 2/. The high costs and difficulties of transport over most of the country, and the greater poverty of other regions were the main reasons for this lopsided distribution of industry. 1.03 Changes in Economic Policy. The political changes of 1972 brought about a change in basic economic policy. (a) It became the declared policy to Malgachize business and a number of large enterprises were brought under state control by a partial or complete acquisition of their capital. (b) The Govern- ment also declared that key industries would be reserved to the state. (c) Madagascar left the Franc zone in 1973 and applied strict controls over the import and the transfer of money abroad. (d) Foreign enterprises were obliged to establish legal domicile in the country. (e) A new Investment Code was promulgated in 1973. 1/ Defined to comprise manufacturing but not mining and energy, which in some Malagasy statistics are included in the sector. 2/ There is now some concentration of industry in the port of Tamatave, mainly in petroleum refining and related products. - 2 - 1.04 With the advent of the present Government in 1975, the systematic restructuring of the whole economic system began and the socialist aspects of policy were formulated much more explicitly. All banks and insurance companies were nationalized in June 1975 and work started on preparing long- term plans for the economic development of Madagascar. The system being created rests essentially on five basic features: (i) The Charter of the Socialist Revolution of 1975; (ii) The Law on Socialist Planning (December 1977); (iii) The Charter of Socialist Enterprises of May 1978; (iv) The program of decentralization; (v) The Investment Code (originally of 1973, being revised). 1.05 The process of nationalization began in 1973, but it was the Charter of the Socialist Revolution that gave, for the first time, formal ideological and economic meaning to actions that might otherwise have appeared haphazard. It includes among the objectives of the Government eventual control of the principal means of production and the nationalization of all mineral wealth. It also advocates reducing Madagascar's heavy dependence on foreign trade. The promulgation of the Charter of Socialist Enterprises in May 1978 clari- fied the new system which is designed to permit the state to determine the overall direction of the economy by means of the enterprises and corporations it controls, whilst granting the autonomy necessary for efficient management, 1.06 The Charter of Socialist Enterprises defines as socialist enter- prises those of strategic importance in which the state owns or controls, directly or through the holdings of other state enterprises, 51% or more of the shares (with the implication that the state will not seek to control enterprises to which it does not attach key importance). Each enterprise is to be managed by a committee composed of representatives of the state, of local institutions (when appropriate), of workers' representatives, and of partners of the state, meaning private investors and organizations belonging to other cooperating countries. In addition, the enterprise will have a managing director nominated by the Prime Minister on the advice of the Managing Committee, and bound by a personal contract to the enterprise. Socialist enterprises are grouped into sectors, the industrial sectors being textiles and leathers; wood and derived products; foodstuffs; mechanical and electrical industries and chemical industry. 1.07 Each sector will have a Policy Council (Conseil d'Orientation) responsible for deciding on the sector's policy in conformity with the Plan. This Council also proposes to the Prime Minister the state's representatives on the managing committees, the committees' chairmen (who cannot be managing directors) and auditors for the enterprises. The committees and the managing directors are jointly answerable to the Councils. - 3 - 1.08 Each Council is composed of state representatives; of members of the national assembly; of representatives of managing committees of the sector; workers' delegates, and representatives, as appropriate, of the sector's socialist cooperatives. It is presided over by one of the state representatives. The Councils are answerable, jointly and severally, to the Supreme Council of the Revolution. 1.09 Profits, after a small allocation to the enterprise's reserves, are divided into four parts: the part Df the state, i.e., taxes; the part of the workers (mainly for their collective benefit); the part of the nation and the part of the entrepreneur. The nation's part can be reinvested in the enterprise if the entrepreneur so invests his part, otherwise it will be invested elsewhere or placed in a national loan fund to earn interest. 1.10 The Law on Socialist Planning and the Plans describes itself as the legal instrument for translating the "fundamental options of the Charter of the Socialist Revolution" into operational terms. It prescribes that planning will be done with three kinds of plans: long-term, medium-term (3-6 years) and short-term. It also provides for a Supreme Council for the plan, sectoral committees and plan committees for the decentralized bodies at all levels. The law describes some of the development targets to be attained and the evolution prescribed for the economic system. 1.11 The Program for Decentralization, which is not yet fully developed, envisages a system of decentralized planning with different tiers and in which the decentralized bodies will be able to undertake projects on their own initiative. 1.12 The Investment Code of 1973 was promulgated in order to replace the Code of 1962 which was felt to be unsuited to the policy of malgachiza- tion and to the greater part the state was expected to play in the economy. It offers two alternatives to investors: (1) Agreement. Under this alternative,import duties on equipment, excise on products and taxes on profits can be reduced or waived. The enterprise can also be granted priority in the allocation of foreign exchange and in the sale of goods and services to the state and its enterprises. The agreement which in the case of existing enterprises is referred to as "encouragement" cannot exceed 5 years and is not renewable. (2) Participation. Here the state enters into the investment as a partner and the contract between the parties becomes law. 1.13 Eligible for these incentives are enterprises that promise to be of particular economic benefit, especially technically and financially, but purely domestic commercial enterprises are excluded. The beneficiaries undertake to fulfill a precise program of investment, production, prices, 4 training, malgachisation and plowing back of profits. The Code provides for temporary relaxation of the process of malgachisation when necessary. This 1973 Code is presently being revised to include more explicitly the socialist enterprise but its main provisions are likely to remain unchanged. 1.14 Recent Performance. Since 1972, industrial production has developed very unevenly from one branch to the other and overall industrial growth has been slow, as output increases up to 1974 were partly cancelled out by the recession during 1975/76. Since then output has recovered and in most branches reached or exceeded the levels of 1974. As statistics on industrial production have been based on limited samples only since 1975, output figures have to be interpreted with caution, but on the basis of the sample surveys and related data (electric power consumption) it can be estimated that overall ouput increased by 2 to 3% per annum in real terms during 1972-77 and now accounts for about 10% of GDP. This average disguises wide differences in performance. For instance, the two major industrial branches (textiles and food and beverages) which each account for about one-third of industrial output fared quite differently: textiles grew by 5-6% per annum while the output of food and beverages declined by about 1% per annum. Some growth in output (between 1 and 5% per annum) was registered by the tobacco, leather, rubber, paper and chemical industries, while output of construction materials, transport equipment, petroleum products and wood products declined (also between 1 and 5% per annum) 1/. 1.15 The reasons for declining or stagnating output in these industries are varied: (a) shortage of domestic inputs (mainly food industry); (b) short- age of imported inputs (mainly transport, equipment, metalworking); (c) de- pressed demand (mainly construction materials) 2/. 1.16 Information on capacity utilization is available only for some indus- trial branches. It appears that the textiles, paper, cement, and chemical industries worked close to capacity, while capacity utilization in the food industry, construction materials (other than cement), transport equipment and petroleum products was relatively low although, in many industries, capacity has already been considerably reduced by the age and condition of plant, mostly because investment in industrial plant has remained low since 1972, partly as a reaction to the changing economic policy framework. On the basis of very global estimates, for instance, it appears that investments in industry in real terms in 1976/77 were less than half of those in 1972. 1.17 The low level of investments is not necessarily a reflection of lagging profits. Again, there appear to be wide variations, with some stag- nating industries incurring losses, but others -- mainly among the growing branches -- making reasonable profits, although overall profitability in real 1/ Exact data are not available as the sample figures are in current prices and volume data for output of industrial products are available only for a few items. 2/ The decline in the output of petroleum products was due mainly to the loss of markets in the Comoros and Reunion, which stopped purchasing products from the refinery in Tamatave. terms has been limited in some sectors, largely because of strict control over some sale prices (mainly consumer goods) exercised by the authorities and the increase in the cost of inputs including wages. There are no firm employment statistics for the sector but manufacturing employment in 1976 can be estimated at 45,000. 1.18 Policies. The Government's basic objective is to control the economic decision-making bodies and to define their activities on the basis of national needs and priorities. This is considered to be a necessary step to overcome the colonial heritage and to achieve a socialist society. The present situation is characterized by the creation of new structures in all economic sectors specifically tailored to achieve this objective and industrial policies are geared toward building-up a domestic industry to satisfy local needs. Exports are seen as an added -- marginal -- possibility at this stage. Employment creation is a priority objective but superseded when necessary by the need to create -- and develop -- strategically important industries which may require more capital intensive investment. 1.19 Promotion. The Bureau de Developpement et de Promotion Industriels (BDPI) was created in 1966 to assist Madagascar's overall industrial develop- ment. Its main activities have consisted in screening project ideas, preparing feasibility studies for some projects, looking for potential investors and providing technical and managerial assistance to entrepreneurs. However, only a few of these projects were actually implemented. It is also responsible for providing technical assistance to SSI's; however in practice its activities in that field have been very limited due to a lack of adequate manpower resources, which in turn is mainly due to the low level of Government salaries. 1.20 Prospects. The new Government initially showed little interest in industrial development, other than to "Malgachize" the sector. The new economic system remains unclear in many respects but consciously leaves the door open for substantial private activity in the industrial sector, principally in small- and medium-sized enterprises. Although there is always the question on how the private sector will react to the changes in economic policy (para. 1.03) there are increasing signs that show the positive sides of the Government's interest in and policy towards the industrial sector. In turn, the private sector is increasingly ready to play by the rules of the game. Indeed, and in addition to active -- sophisticated -- Malagasy private investors, there is a group of people in Madagascar with very substantial investible funds -- which cannot be shifted out of the country because of foreign exchange regulations -- who have shown an increasingly keen interest in investing in industry as the best way to put their capital to productive use. These are the traders of Indian and Pakistani origins, whose commercial operations were nationalized -- with compensation -- when the Government decided to take control in the major sectors of the economy, including whole- sale trade. 1.21 The 1978-80 development plan aims at an industrial output growth of 10.77% per annum compared to 5.75% for the economy as a whole. The bulk of these investments is scheduled for various large industrial plants, but the residual for small- and medium-sized industry still would amount to FMG17 -6- billion for 1978-80, or about FMG6-7 billion for 1979 and 1980 each. These objectives which do reflect the emphasis that the Government wants to put on industry, are probably somewhat optimistic. 1.22 Artisans. Malagasy legislation defines the artisan as a manual worker working alone, with members of his family or with a few helpers. It is estimated that artisans in Madagascar number about 100,000 i.e., 1.2% of the total population and 2.8% of the labor force. Although it is not possible to quantify the significance of the sector to the economy because of the lack of production statistics at the artisan level, it appears that it provides a substantial amount of the country's consumer goods and tools. Data on total exports of artisan products are not available, but the potential seems good. Indeed, CETA, an agency created by the Govern- ment in 1962 to develop the artisan sector, sold abroad FMG350 million worth of Malagasy handicrafts in 1977, 80% of which was basketry and the remainder mostly gemstone crafts. Artisan activity is spread throughout the country with a heavy concentration in the Hauts Plateaux, specially around the city of Tananarive. Most private artisan workshops are located either inside or adjacent to the owner's house while cooperatives are often housed in make- shift quarters. The majority of artisans living in the rural areas tend to perform work on a seasonal basis, from May to September. During the rest of the year, they are small farmers. In the towns, one tends to find mostly full time artisans. Monthly salaries vary, according to profession and whether the artisan works full or part time between an extremely low level of FMG3-4,000 per month and FMG30,000. Constraints to the development of artisans are: difficulty in obtaining local raw materials at reasonable prices and imported raw materials; lack of adequate technical and design know-how; difficult access to the wider domestic market and to the export market; difficulty in obtaining loans for the expansion and improvement of work facilities and for working capital. The Government which is aware of both the potential and the problems of the artisans is presently trying to implement a National Development Plan for the sector. The World Bank was invited to participate in the financing of this project and reviewed the proposed Plan. It concluded that the Plan puts too much emphasis on the administrative framework and not enough on production and marketing of artisan goods. The Bank suggested a modified approach and a dialogue is being pursued with the Government on the matter. 1.23 Small-Scale Industries (SSI's). In Madagascar, SSIs are generally defined as enterprises which employ from 5 to 30 workers, and have assets of up to FMG15 million (US$70,000). In addition to greater size, one of the essential differences between the artisan enterprises and the SSI's is that, in the latter, ownership and management can be differentiated. Because of lack of statistics, it is not possible to ascertain the economic significance of SSI's in Madagascar, but they seem to be considerably fewer than artisans. More than half of SSI's are concentrated in the Province of Tananarive. The main activities of the sector include food processing, printing, transport, and construction. The production techniques they use are in general non- modern and their owners frequently lack required technical and financial know- how. Constraints to their development are basically the same as those of the artisans. There appears to be some potential for further SSI development in the context of a relative revival of the country's private sector (para. 1.19). -7- B. The Financial Sector 1.24 The Banking System. Until mid-1975, the banking system in Madagas- car consisted of the Central Bank, four commercial banks partly foreign-owned and a development bank, BNM, owned by the Malagasy Government and the French Caisse Centrale de Cooperation Economique (CCCE). At that time, the Malagasy Government assumed control of the entire banking sector by purchasing CCCE's shares in BNM, by nationalizing the four commercial banks and by appointing Malagasy nationals as managers of the financial institutions. However, the structure of the banking system remained unchanged. In 1977, the Government restructured the system by merging the development bank and the four commer- cial banks into three sectorally specialized banks: the National Bank for Industrial Development (BNI), the National Bank for Rural Development (BTM), and the National Bank for Commerce (BFV). Despite their sectoral specializa- tion, the three banks are in competition for collecting deposits and also to some extent for extending credit to individuals or enterprises outside their sector of specialization. Furthermore, because of imbalances of resources, the three banks must often pool resources in consortium loans to meet cor- porate financing needs. The following table presents some information on the three banks: As of 12/31/78 (FMG billion) BNI BFV BTM TOTAL Total Assets 60.9 46.8 45.7 153.4 Short-term deposits from clients - FMG billion 32.1 20.9 22.7 75.7 - % of total deposits in the financial sector 42% 28% 30% Loan portfolio - FMG billion 42.8 26.4 30.5 99.7 - % of total lending in the financial sector 43% 26% 31% - Staff 963 1000 1,217 3,180 Branch Offices 13 24 41 78 BNI is larger than BFV and BTM in terms of total assets and short-term deposits from clients. Furthermore, BNI accounts for a larger share of credit (43%) than the other two institutions despite a smaller staff and less branch offices. This results mainly from the transfer to BNI of all the industrial term portfolio of the former BNM and, to a lesser degree, from the larger loans made recently by BNI to its industrial clients. 1.25 Credit Policy. In the context of a centrally planned economy like Madagascar, the decision making process for the allocation of resources is largely centralized. Although market forces do play a role in this respect, they are only secondary. The main objective of the credit policy in Madagascar - 8 - is to limit overall credit expansion to a level consistent with internal and external stability while increasing the share of credit for production and credit directed to Malagasy enterprises. To fulfill these objectives, the Central Bank relies on quantitative and qualitative instruments. Quan- titative controls consist of an overall target on credit for consumption, production and exports and on monthly rediscount ceilings which are set periodically for each individual bank on the basis of its liquidity position and its expected needs. The qualitative instruments consist of advance authorization by the Central Bank for short-term credit to firms whose total outstanding bank credit is in excess of FMG100 million and minimum ratios according to which banks are mandatorily required to devote 6.5% of their demand deposits to finance medium-term loans and 15% for short-term credit to Malagasy nationals. 1.26 Following the reform of the banking system, the Central Bank is assessing the effectiveness of policy instruments used until now. Pending the results of this evaluation, it has suspended the automatic application of most credit policies and operates on an ad hoc basis. 1.27 Inflation. Between 1975 and 1977, inflation in Madagascar, measured by the cost of living index in Tananarive -- which is a weighted average of consumer price indices of low and high income households -- followed a decreasing trend and averaged 6.8% (9.4% in 1975, 6.7% in 1976, 4.2% in 1977 and 6.8% in 1978) throughout the period. The decrease in the index in 1977 was partly due to Government's decision to reduce the price of rice which has a significant weight in the consumer basket. For the next few years, prices are expected to increase somewhat faster (perhaps, 10-12%) due to inflationary pressures created by expansionary fiscal policies. 1.28 Interest Rates. Because of the centralized decision making on investments and the allocation of credit, interest rates do not play a sig- nificant role in resource allocation in Madagascar and the structure presented in Annex 1 has remained practically unchanged since the end of 1974. The Central Bank's rediscount rate for short-term paper is set at 5.50% (except for export bills for which the rate is 4%). The rediscount rate for medium- term paper stands at 5% except for small business credits of less than FMG5 million extended to Malagasy nationals for which the rate is 3.75%. 1.29 On medium-term loans (2-5 years) that are rediscountable by the Central Bank, the three banks (BNI, BTM and BFV) charge to enterprises, except small-scale enterprises, in all sectors, rates which vary between 6.25 and 7.25% depending upon the risk associated with the specific lending operations. Loans to small-scale enterprises vary between 5 and 5.75%. The rate on consumer and housing loans is 7.50%. On medium-term loans that are not rediscountable by the Central Bank, the authorized rates for loans to enterprises and individuals vary between 6.75% and 10%. In addition, a commitment fee of 0.5% to 1.5% is charged to the borrowers. On long-term loans (more than 5 years), the rates vary between 7 and 9% depending on the cost of the resources. A. commitment fee of 1 to 1.50% is also charged. Interest rates on deposits range from 0.75% to 7.5% depending upon the maturity and the size of deposits. - 9 - 1.30 Present interest rates in Madagascar are low in relation to pro- jected inflation and some upwards adjustments are probably in order to bring the structure more in line with the expected inflation rate in the country (para. 1.27). This matter was discussed during negotiations and the Govern- ment's representatives agreed that in the event the inflation rate in Madagascar would increase substantially in the future, the Government would consider raising the interest rates. II. THE INSTITUTION A. Institutional Aspects 2.01 Background and Objectives. BNI, created in January 1977 as a result of the 1976 banking reform, took over the term loans and equity 1/ portfolio of the former Banque Nationale Malagasy de Developpement (BNM) in the industrial sector, and assumed the industrial loan portfolio of the former Banque pour le Commerce et l'Industrie de Madagascar (BCIM), a commercial bank nationalized in 1976. BNI is primarily responsible for promoting the development of industry and handicraft through short, medium and long-term loans, and equity investments. It also finances individual and collective housing and provides loans to households for domestic equipment. 2.02 Ownership, Board. BNI is a socialist enterprise with a share capital of FMG2 billion owned by the State (85%), the Central Bank (10%) and the Social Security Fund (5%). BNI's Board (Comite de Gestion) which is common to the country's three banks -- is chaired by the Minister of Finance and Planning and composed of the General Managers of the Central Bank and the Finance Ministry and of the former General Manager of the Ministry of Economy and Commerce. This composition is likely to be modified to include representatives of the staff and management of BNI but this should not affect the Board's effectiveness. The Board meets on an ad hoc basis, to examine and discuss projects submitted by BNI's management or policy matters, but its members are informally available for discussion with BNI's Management at any time and have been playing an effective role in supporting and guiding BNI's management. BNI's General Manager is author- ized to approve without consultation with the Board secured loans up to FMGIOO million, unsecured loans up to FMG20 million and equity investments up to FMG20 million per investment. 2.03 According to the Charter of Socialist Enterprises, a Policy Council (Conseil d'Orientation) will oversee the activities of enterprises in each of fifteen sectors of economic activities 2/ (para. 1.06). The Policy Council 1/ In 1973, BNM had itself absorbed the Societe Nationale d'Investissement (SNI), an equity investment company. 2/ These sectors are: agricultural production, fisheries, cattle, water and energy, transport, mining and extractive industries, public works and housing, trade and distribution, textile and leather, wood products, food industries, mechanical and electrical industries, chemical indus- tries, services. -10 - for banks, to be created at a date not yet specified, should review the operating policies of all banks in the country. 2.04 Management, Organization and Staffing. BNI is headed by a Malagasy national, the former General Manager of the Banque Nationale Malagasy de Developpement (BNM). He is assisted by managers formerly with BNM and BCIM. BNI's management is competent, experienced, and dynamic. BNI's organization, which includes nine departments reflects its dual role as a development and a commercial bank and is adequate for the institution's role and objectives. However, there is need to strengthen BNI's technical capabilities for project preparation and appraisal. Management is aware of this deficiency and is taking steps through staff recruitment and training to remedy the situation. The technical assistance component of the proposed line of credit is intended to help management in its efforts (para. 3.02). BNI's staff, which is composed of Malagasys only, presently totals 963 persons, of whom about 634 in Tananarive and 329 in the thirteen branch offices. 2.05 Operating Policies. At present, BNI applies the policies of the former BNM for its industrial medium and long-term loans, as its Board of Directors has not yet approved formally a policy statement for the institu- tion. These policies are adequate, except that specific clauses dealing with the following matters need to be adopted by BNI's Board: exchange risk on foreign borrowings not to be taken by BNI, limits on BNI's exposure overall and in individual projects, more precise definition of BNI's role and criteria for project selection. During negotiations, a draft Statement of Rules of Operations 1/ that consolidates all BNI's policies, including the new clauses (Annex 2) was discussed and formally agreed upon. BNI's Board of Directors has now approved this document. 2.06 Procedures. BNI's procedures for project appraisal, follow-up procurement and disbursement have not yet been spelled out in writing. There is a need to formalize procedures and to that end management is prepar- ing an Operational Manual. 2.07 (a) Appraisal. As BNI was born from the merger of a development bank and a commercial bank, the somewhat opposite influence of each of the two former institutions is being felt. While the former BNM staff and manage- ment want fairly detailed and analytical project appraisal reports, those who came from BCIM are in favor of short, commercial bank type reports. Appraisal reports, tend to be a compromise between these two attitudes and are not as comprehensive as they should be to justify investment proposals. In addition, they do not include in their economic analysis a calculation of the economic rate of return (EROR). BNI management has agreed that BNI's future appraisal reports will be more comprehensive and a format including EROR calculation for medium/large scale industrial projects was discussed and agreed upon during negotiations. 1/ During negotiations, at the request of the Malagasy delegation it was agreed that BNI's Policy Statement would be formally referred to as "Rules of Operations". - 11 - 2.08 (b) Follow-Up. BNI does not have a comprehensive data reporting system for projects under supervision which is made essentially through the monitoring of the short-term credit accounts of clients. There are no periodic visits to projects being implemented or in operations. Although BNI management believes the present system is generally adequate, it does need to be sig- nificantly improved, both in content and periodicity. The matter was discussed during negotiations and appropriate supervision policies and pro- cedures were agreed upon. 2.09 (c) Procurement. As a normal procedure, BNI requires the borrower to submit several pro forma invoices. However, as BNI does not have the necessary technical staff, it relies on the selection of the project equip- ment and the supplier upon the judgment of the Industry Division of the Ministry of Economy and Commerce and on the opinion of the Bureau de Developpement et de Promotion Industriels (BDPI). The present system is adequate but it will be improved once BNI will have recruited its own technical staff to supervise procurement matters. 2.10 (d) Disbursements are made against presentation of invoices. BNI starts disbursements on its loans only after the promoter has used his own resources. Long-term loans are utilized first, followed by medium-term loans. BNI's disbursement procedures are adequate. 2.11 (e) Project Promotion. Until now, BNI has not been very active in project promotion for various reasons. First, it did not have the necessary manpower resources to be seriously engaged in these activities; second, during the first two years of existence of BNI, management attention and resources were concentrated mainly in ensuring the success of the merger of the two institutions that formed BNI; third, the volume of operations was high enough to make the institution financially viable. Management believes that the time has now come for a more active role in industrial project promotion. The proposed IDA Credit would assist BNI in its effort by providing technical assistance for the development of its Project Promotion Department. 2.12 Strategy. BNI strategy is essentially to assist the Government in its efforts to develop an industrial base that is geared toward Madagascar's priorities and needs and that includes mainly local entrepreneurs. In apply- ing this strategy BNI is being increasingly called upon to act as a financial adviser to the Government on very large projects such as fertilizers (FMGIO billion investments), ferrochrome, railroads, etc. For medium-size projects, defined as those with investments up to about FMG400-500 million, BNI provides financial resources under the form of loans and/or equity investments. Finally BNI intends to provide increasing assistance for the development of small-scale enterprises. 2.13 Interest Rates. BNI presently charges interest rates which vary between 6 and 8% depending on the risk situation of the borrowers. In addi- tion, it charges a commission varying between 0.63% and 1.50%. This is in fact a supplement to the interest rate as the commission applies to the amounts outstanding during the whole life of the loan. On that basis, the - 12 - total interest charged by BNI on its loans is presently 8.50%, with some exceptions marginally above or below. Discussions during appraisal on the possibility of raising interest rate for industrial lending through BNI met with opposition from BNI and the Central Bank. They stated that the Government intended to review the interest rate structure and that they could not agree at this stage to an across-the-board increase for industrial lending. 2.14 Understandably, the Government does not want to increase overall rates at a time when it is debating on a new structure which could represent lower rates for some activities and IDA's line of credit, representing a small proportion of BNI's resources cannot be used as a leverage to propose changes to the country's overall interest rate structure at this time. We recommend, however, that regardless of the changes that could be intro- duced in the rate structure, the Government should agree that BNI would charge on medium- and long-term loans to its IDA financed industrial clients a minimum rate of 8.5% and that the final borrowers would assume the foreign exchange risk, with the exception of artisans/SSE for which the Government would take it against payment of a 1% fee. As the average cost of BNI re- sources is low (3.9%) and its commercial operations very profitable, a spread of about 1% on the IDA credit would be adequate. 2.15 The proposed rate is in line with those charged by other financial institutions in Madagascar and by shifting to the final borrower the foreign exchange risk, the arrangement would bring the cost of borrowing by industrial enterprises more in line with the cost of capital on international markets. Furthermore, in relation to international inflation which is the key factor here because the sub-borrowers would assume the foreign exchange risk, the actual rate is likely to be positive except for loans made to artisans/SSEs with the small proposed pilot SSE financing component (para. 3.02(b)) for which final rates -- at 9.5% including fees for foreign exchange risk coverage -- are likely to be marginally below positive rates. The amounts involved are, however, very small and the impact of such distortion very marginal. Finally this first operation by IDA would permit the start of a dialogue with the Government on industrial policies, including interest rates, at a time when the role of the industrial sector in the economy is going to be greatly enhanced. 2.16 Audit. Until recently BNI accounts were reviewed by external accountants "commissaires aux comptes" but they had not been audited yet. BNI management agreed that the institution's accounts would be audited annually in the future, by a qualified Malagasy CPA firm, which has already performed satisfactorily audits for two projects financed by the Bank Group. The first audit report for the fiscal year ending December 31, 1978 has been submitted to IDA. The report which is satisfactory provides a clear picture of BNI's situation. - 13 - B. Operations 2.17 Main Features of Past Operations. Annual approvals of term financ- ing operations carried out by the two institutions which formed BNI (para. 2.01) averaged about FMG2 billion per annum in the period 1966-76 1/. There are no data available concerning the main features of these past operations total interest charged by BNI on its loans is presently 8.50%, with some exceptions marginally above or below. Discussions during appraisal on the possibility of raising interest rate for industrial lending through BNI met nor the annual level of equity investments and the overall level of commit- ments and disbursements throughout that period. Consequently, in order to ascertain the main characteristics of the operations financed before BNI's creation in 1977, one has to rely on the analysis of BNI's term and equity portfolio as it results directly from these past operations. 2.18 More than half of BNI's FMG8.1 billion term portfolio at December 31, 1977 was in industrial projects, the rest in housing (about 15%), public works (10%) and transportation (6%) with tourism and agriculture representing marginal proportions. Equity investments -- totalling FMG2.4 billion -- at 12/31/77 were overwhelmingly in the industrial sector. The overall industrial portfolio, 2/ is well diversified, mostly among activities using local raw materials (textiles and agroindustries represent about 60% of it, wood indus- tries 20% and construction materials about 10%, the remaining being evenly distributed between chemicals and metal working). The portfolio is also well distributed geographically with about 60% of the amounts loaned and invested being located outside Tananarive. As for ownership, close to 65% -- by amounts -- of this overall financing to the industrial sector has supported public enterprises but it is interesting to note that equity investments have been made predominantly in the private sector. Indeed, close to 60% -- by amount -- of the total equity portfolio at 12/31/77 was in private enterprises, in most cases with substantial foreign participation but also with significant private Malagasy participation. 2.19 BNI's Operations. During 1977, BNI's first year of operations, term credit approvals totalled only FMGO.4 billion and equity investments FMGO.2 billion. This relatively low level of approvals was a result of the changes and the restructuring involved in the creation of BNI. However, operations picked up dramatically in 1978 when term loans totalling FMG 2.9 billion and equity investments amounting to FMGO.5 billion were approved. At September 30, 1979 FMG 1.8 billion in term loans and FMG 0.5 billion in equity operations had been approved. There is an increasing emphasis on manufacturing opera- tions, which represented 70% of 1978 approvals, witnessing BNI's role in 1/ Considerable variations in this annual level of approvals, particularly in 1972 and 1974, were the result of the country's political upheavals in those years. 2/ Practically no information is available concerning the main features of the non-industrial projects in the portfolio. - 14 - industry following the reform. Tourism, housing and services accounted for the remaining 30%. Fifty-three precent of approvals for 1979 (at September 30) were in manufacturing, 9% in mining, 7% in housing and 31% in services. Within the manufacturing sector, the distribution of operations follows a similar pattern than in the past with agroindustries represenLing about 54% of total approvals during 1978 and 1979 followed by textiles 17%, wood industries 15%, and chemicals 14%. Close to two-thirds of the projects financed are expansions of existing units, and diversification away from Tananarive con- tinues also as in the past. Finally, concerning the ownership of the projects financed, there is an increasing emphasis on private sector projects. Indeed, while in value, public sector projects represented slightly above 50% of total financing, due to two big Government promoted projects - a refinery and a sugar mill - in number, they represented only one-third of the projects fi- nanced by BNI in 1977/78. It is significant to note that during that two-year period, foreign promoted projects (overwhelmingly private) represented 35% of total financing while projects controlled by private Malagasy investors received above 10% of total BNI financing. This indicates the existence of a relatively lively private sector interested in industrial investment (para. 1.20). 2.20 Economic Impact. Given the status of BNI's accounting and informa- tion system, it is not possible to give any information concerning the economic merits of the projects financed before 1977. The industrial and tourism projects financed by BNI in 1977 and 1978 are estimated to represent more than FMG5.6 billion in new investments in fixed assets and generate close to 1,200 new jobs. This rather high capital intensive situation results from: (i) the high proportion of expansions of existing units among BNI's latest approvals; and (ii) the existence of a few highly capital intensive projects -- partic- ularly a refinery and a paper mill -- in sectors which are considered of strategic importance. Most of BNI's industrial projects in 1977/78 substitute existing imports and only two have a clear export orientation, but they are all based on the use of local raw materials, many outside Tananarive. These results, which broadly are a reflection of the country's industrial policies (para. 1.18) and BNI's role in it, have to be interpreted with caution, how- ever, as they apply to less than two years of operations. C. Financial Condition 2.21 Loan Portfolio. BNI's short-term portfolio at 9/30/79 totalled FMG45.6 billion, of which FMG1.5 billion (3.3%) was considered doubtful. Provisions made totalled FMGO.8 million (1.8% of the short-term portfolio). Medium/long-term portfolio totalled FMG8.9 billion and doubtful loans repres- ented 7.1% of it. Provisions made amounted to FMGO.78 billion or 8.7% of the portfolio, a rather large proportion but necessary considering the relative importance of doubtful loans. BNI's management has taken a rather conservative and prudent attitude in evaluating its doubtful loans and the need for provisions. In fact, only four projects in BNI's medium/long-term portfolio -- three industries and one hotel -- are serious problem cases (they represent about 60% of the outstanding doubtful loans), and adequate provisions have - 15 - been made on each of them. Overall, BNI's loan portfolio is of acceptable quality. I/ 2.22 Equity Portfolio. BNI's equity portfolio at 9/30/79 totals FMG3.7 billion investments in 47 companies. Overall, it is of rather good quality. Of the 39 operating companies, 25 are regularly profitable and have good prospects to continue being so. Most of them distribute dividends (close to 7% return on equity portfolio). Twelve have losses of which seven are in liquidation and fully provided for while the other five unpro- fitable companies have good prospects of recovery. 2/ Provisions made -- totalling FMG35 million (0.9% of portfolio) are adequate. 2.23 A particular feature of BNI's equity portfolio is that in the last two years it has been increased by a few companies transferred from the State to BNI following the role assigned to it after the banking reform. BNI's performance in accepting only the good investments witnesses the independence and autonomy of the institution in investment decisions; indeed of the eight companies so transferred, six have book values above par values and, of the remaining two, one has already been profitable in 1977 and the status of the other one is yet unclear following its national- ization by the Government but BNI's stake in it is marginal. 2.24 Provisions. BNI's accounting system does not allow for a classifi- cation of the arrears situation per type of loan (i.e., short, medium, and long-term) but each loan is closely monitored. Accounts are classified as normal or needing surveillance, and different degrees of control are estab- lished thereafter according to BNI's periodic review of the situation. This allows for an early detection of the doubtful cases and, when necessary, provisions are made which are tax exempted and have to be approved by the country's tax authorities. Overall, BNI's provisions policy is adequate, loans and investments are closely followed up and management is on top of the situation. 2.25 Resources. In addition to its capital and deposits which it uses to finance equity investments and short-term credits respectively, BNI also has term resources both in local and foreign currency. Term resources in local currency, have been provided by the Treasury, the Post Office, Insur- ance Companies and other local financial institutions, generally ranging between 2 and 5 years, but with a few exceptions for 7, 8 and 10 years to 1/ Eleven loans (including short and term debts) have been rescheduled -- mostly in connection with a Government takeover or a restructuring program following the political events of the early 1970s -- but BNI still keeps the provisions made for nine of them, even after agreeing to the rescheduling. 2/ There is no information concerning the performance of two companies in BNI's equity portfolio. They correspond to investments recently trans- ferred by the State to BNI for which no information is yet available. Investments involved are, in any event, of marginal importance. - 16 - finance specific projects. The weighted average cost of these resources was 3.9% at the end of 1978. In addition, BNI has, under certain circumstances, rediscounting possibilities at the Central Bank for the financing of short and medium-term credits (para. 1.25). Concerning foreign currency resources, all of them have, so far, been provided by CCCE (since 1963 to 1971) and KfW (granted in 1970), mostly for the financing of specific projects in housing (CCCE) and industry (CCCE and KfW). Terms range between 10 to 15 years for the CCCE loans and 20 years for the KfW loans. The weighted average interest rate paid by BNI on these resources is 3.8% at the end of 1978. At the same date, only FMG200 million were available for commitments in foreign exchange. 2.26 Financial Position. BNI's -- summarized -- balance sheet for 1977-1979 is shown in Annex 3. At 9/30/79 assets totalled FMG75.5 billion, of which loan portfolio represented FMG52.9 billion and equity portfolio FMG 3.7 billion. Capital, reserves and surplus totalled FMG7.2 billion and term borrowings FMG3.6 billion. BNI's debt/equity ratio is thus 0.5:1, a very low proportion for a combined commercial and development bank allowing for substantial additional borrowing capacity. BNI's financial position is very sound. 2.27 BNI has been rather active in giving guarantees particularly in the past two years. Most of them correspond to short-term operations, i.e. advances guaranteed by contracts obtained with the Government, but an increas- ing proportion represent BNI's guarantees for its clients' medium-term oper- ations financed by suppliers credit (between 3 and 6 years). At the end of September 1979, BNI had about FMG9.7 billion such guarantees outstanding. In principle, BNI uses its regular appraisal criteria to evaluate guarantee requests which are, in most cases, submitted by companies well known to BNI. Given its expected role as sole provider of financing for industry in the country and the fact that the Government is very reluctant in directly guaranteeing loans for industrial projects, BNI is likely to be more and more involved in these types of operations. During negotiations, it was agreed that these guarantees for suppliers' credits will be limited to twice the amount of BNI's equity resources and that they will be taken into consideration in limiting BNI's exposure in a single project. Clauses to that effect included in BNI's Rules of Operation. 2.28 Profitability. BNI's Income Statements for 1977-1979 are summarized in Annex 4. In its first year of operations, BNI made a net profit of FMG738.5 million which represented a return of 12.2% on average net worth. The results obtained in 1978 were still better with a net profit of FMG839.3 million, representing 13.5% of average net worth. Gross income represented 8.7% of total assets in 1977 and 8.3% in 1978, while administrative expenses represented 2.8% ofd total assets in 1977 and 2.6% in 1978. These results are satisfactory. Preliminary results for the first nine months of operations in 1979 confirm BNI's good profitability. - 17 - D. Prospects Forecast Operations 2.29 Annex 5 shows BNI's pipeline of projects at the end of 1978. It consisted of 18 industrial projects totalling more than FMG 25 billion of investments, of which more than FMG17 billion in foreign exchange, and requesting possible term/equity financing from BNI of about FMG6.9 billion (US$33 million); i.e., of total cost of the projects. Agroindustries, is by far the leading sector followed by textiles and chemicals. The majority of these projects are Government-owned, but more than half of them are joint- ventures with foreign partners. As in the past, half of the expected projects are new, the rest being extensions and modernizations of existing units. Regional diversification continues and a substantial part of the projects are expected to be located outside Tananarive or have some units throughout the country. BNI has also identified projects in housing and other activities but not in new tourism activities as it realistically considers that the market is already rather saturated. Overall, the projects in BNI's pipeline provide a solid basis on which to support BNI's expectations of future business. 2.30 BNI's forecast approvals of operations for 1979-82 by sector and type of activity are shown in Annex 6. This forecast does not take into account the very large projects which BNI may be called upon to finance as a result of its role in the industrial sector -- on a managed funds basis on behalf of the Government -- and, to a certain degree, in the housing area (financing of the big housing companies). BNI expects to approve FMG2.2 billion in 1979, 2.5 billion in 1980, 3.2 billion in 1981 and 3.3 billion in 1982. BNI's projections are realistic and jugtified by reasonable prospects in the industrial sector and by a solid pipeline of projects. Resource Requirements 2.31 As a result of these business projections, BNI's commitments for term and equity financing operations should evolve from FMG2.3 billion in 1979 to FMG3.3 billion in 1982. At October 1, 1978, BNI had practically no resources available in foreign currency and in January 1979, it obtained a FMG200 million line of credit from CCCE, mostly for the financing of SSIs/ artisan operations. BNI has started negotiations with some foreign financial institutions and expects to sign a FMG1 billion tied line of credit from the Italian Government and renegotiate with KfW an additional line of credit of FMGO.3 billion available by 1980. In addition, BNI's term operations could continue being refinanced on a case-by-case basis by the Central Bank and CCCE. 2.32 BNI's resource needs through the period September 1979 to December 1981 can thus be reasonably expected to evolve as follows (in FMG million): - 18 - 1979 (3 months) 1980 1981 Total Commitments 577 2,410 3,090 6,077 (of which in foreign exchange) 384 1,568 1,R88 3,840 Local 193 842 1,202 2,237 Foreign exchange resources: Italian Government - 500 500 1,000 CCCE 200 400 400 1,000 KfW - 100 200 300 Total 200 1,000 1,100 2,300 Excedent (gap) in foreign exchange (184) (568) (788) (1,540) BNI would therefore, need FMG6 billion (about $29 million) of which FMG3.8 billion ($18 million) in foreign exchange, to cover commitments throughout the period and BNI expects that, during the same period it would have avail- able for commitments only part of its new foreign exchange resources available to it, as shown in the table above. Local currency needs could be covered by BNI's ample internal cash generation and, if necessary, Central Bank rediscounting. These expectations are reasonable and would leave a resource gap in foreign exchange of FMG1.5 billion ($7 million) part of which would be covered by IDA's proposed credit of $5 million. BNI should have no problem in securing the additional financing from other sources and the proposed IDA credit should play a catalytic role in that respect. Projected Financial Condition and Performance 2.33 The basic hypotheses underlying BNI's projections are in the Project File. Projected balance sheets, income statements and sources and uses of funds for the period 1979-82 are presented in Annexes 7 to 9. Total assets will grow to about FMG92 billion from the FMG54 billion at end 1977. The projections show that BNI is capable of sustaining this expected growth in its operations while continuing on a sound financial basis. It will maintain a satisfactory liquidity position of above 1 and keep its conven- tional debt to equity ratio at a rather low level around 2.2:1. BNI is also expected to continue being a very profitable institution. Administrative expenses -- decreasing from 2.7% of average total assets in 1979 to 2.3% in 1982 -- will be well controlled and kept at a reasonable level for a combined development and commercial bank. With financial expenses representing, on the average, only 2.5% of average total assets throughout the period, profits before taxes would be rather high (from 2.2% of average assets in 1979 to 4.1% in 1982). At the same time, provisions at acceptable levels will be made to cover risks in the portfolio -- representing 3.3% of total portfolio at the end of the period -- while dividends could continue to be distributed at the same level of 1977 (42% of net profit), representing a substantial return on average equity of 8.9% in 1979 to 9.9% in 1982. - 19 - III. THE PROJECT A. Objectives of Proposed First IDA Credit 3.01 The main objective of the credit is to support the country's growing industrial sector and BNI's crucial role in it by providing the foreign exchange needed for capital investment and the technical assistance needed for the training of the staff, the institutionalization of its procedures and the setting up of a Promotion Department. Indeed, with important tools at its disposal since the banking reform, the institution has already carved out a significant position for itself, not only as direct financier but also -- and increasingly so -- as a financial consultant to the Government both in project and policy matters. The institution building impact of the proposed credit should thus have a significant impact on the sector as it would strengthen BNI, the main institution responsible for industrial financing in the country. Another objective of the credit will be to provide -- on a pilot basis -- financial assistance to artisan/small-scale enterprises. B. Description of the Project 3.02 The proposed project would have the following five components: (a) Medium and Large Projects Financing. US$4.0 million would be used by BNI to finance medium and large industrial, agro-industrial, and tourism projects. This would represent about 15% of BNI's projected commitments for medium and large projects in these sectors during the period September 1979 to end 1981, and about 24% of BNI's gap in foreign exchange needs during the period. (b) Artisan -- SSE Financing. US$0.5 million would be used to finance artisans -- small-scale industrial enterprises, including transport, and semi-industrial services, defined as those with fixed assets below FMG15 million (about US$70,000). This component, which would be a pilot and experimental effort in this sector would complement the technical assistance to be offered to artisans under the National Artisan Development Plan, which does not include funds to satisfy the artisans' credit needs, when the Plan becomes operational. However, the component should be available to all artisans irrespective of whether they are part of the National Plan or not. BNI will use a simplified appraisal format -- to be agreed with IDA -- for these projects. IDA will review extensively the first five projects submitted under this component to ensure the adequacy of BNI's appraisal, which will be monitored thereafter by Bank supervision missions. (c) Feasibility Studies. US$0.3 million would be allocated to the financing of feasibility studies for special industrial, agro- industrial and tourism projects selected by BNI. This would supplement BNI's efforts to set up its project promotion and evaluation departments at a time when BDPI is going through a much needed restructuring and should thus benefit both BNI and the overall industrial sector. Consulting companies selected - 20 - to carry out these feasibility studies would be chosen by BNI after consultation with IDA from among capable foreign and Malagasy consultants. BNI should submit for approval the objectives of each study, its detailed terms of reference and a short list of the consultants envisaged to carry it out with a detailed explanation of their expertise in the particular field of study. (d) Training of BNI's Staff. US$0.1 million would be used to finance the training of BNI's staff specifically in project promotion and appraisal at other experienced development banks and rele- vant training institutions. This should allow about 10 to 15 BNI's staff members to benefit from training programs throughout the period. (e) Technical Assistance. US$0.1 million would be allocated to the financing of up to two man-years of foreign experts' services to set up BNI's Promotion Department and improve its Project Preparation Department. These experts would not be permanently stationed at BNI but would conduct their assignment in phases of 3 to 6 months. C. Proposed Credit to BNI 3.03 The US$5 million line of credit to BNI will finance the foreign- exchange component of the fixed capital investment of large, medium and small subprojects approved by BNI in the industrial, transportation and tourism sectors. It will also provide BNI with the technical assistance required to strengthen its project preparation and appraisal capabilities. 3.04 Terms and Conditions. The proposed first line of credit to BNI would carry the following terms and conditions: (a) Limit per Project. To avoid that the line of credit be used only for a few large projects the IDA funds would be used only to finance projects with total costs up to FMG500 million (US$2.4 million) and the maximum credit granted by BNI to a single project with the IDA credit would be limited to US$750,000. These limitations are considered within BNI's definition of medium size enterprises (para. 2.12) and they would concentrate IDA financing on projects of total costs between FMG300 million and FMG450 million (US$1.4 million- US$2.1 million). (b) Onlending Rate to BNI. To provide BNI with an adequate 1% spread on the IDA funds,the credit will be onlent by the Government to BNI at 7.5% with the normal rate commitment fee except for the technical assistance/ training/studies component of US$0.5 million which would be passed on by the Government to BNI at the IDA service charge but without any commitment fee. - 21 - (c) Onlending Rate by BNI. BNI would charge a minimum rate of 8.5% to its IDA financed clients. (d) Foreign Exchange Risk. The foreign exchange risk should be passed on all medium and large-scale borrowers. For small- scale enterprises (defined as those with fixed assets below FMG15 million or about US$70,000), the Government will carry the foreign exchange risk at a 1% fee. The Government should also assume the foreign exchange risk on the technical assistance/training/studies component. This should be agreed upon during negotiations. (e) Free Limit. The free limit for projects in all sectors should be US$150,000 and the aggregate free limit US$1.5 million. IDA would also review the first five subprojects submitted under the proposed SSE component. This would allow IDA to review most of the projects likely to be submitted by BNI. (f) Economic Analysis of Subprojects. BNI will be required to provide a complete economic analysis, including calculation of the economic rate of return on all medium/large scale industrial subprojects submitted to IDA for financing. (g) Amortization Schedules. The US$4.0 million component to finance medium/large scale industrial enterprises would have a flexible amortization schedule conforming to the aggregate amortization schedule of BNI's subloans, none of which should in principle exceed a maximum period of 15 years The US$0.5 million to finance artisans -- SSI projects and the US$0.5 million technical assistance component would be repaid under fixed amortization sched- ules to be agreed between BNI, the Government and IDA. 3.05 Other customary conditions and covenants would be included in the credit and project agreements. 3.06 Project Cost Financing. The total cost of projects that BNI is likely to finance from September 1, 1979 to December 31, 1981 is expected to total about FMG25 billion. BNI's contribution to these projects would amount to FMG6 billion of which the foreign exchange component is estimated at FMG3.8 billion. 3.07 BNI's financing plan for the period September 1979 to December 1981 is as follows: - 22 - Financing Plan September 1979-December 1981 (FMG billion) Local Foreign Total Total Commitments 2.2 3.8 6.0 Resources available for commitment 9/1/79 - - - RESOURCE GAP 2.2 3.8 6.0 To be financed by Local Currency Cash Generation 2.2 - 2.2 Foreign Currency CCCE - 1.0 1.0 KfW - 0.3 0.3 Italian Government - 1.0 1.0 IDA - 0.9 0.9 Other - 0.6 0.6 TOTAL 2.2 3.8 6.0 IDA would, therefore, cover about 24% of BNI's foreign exchange requirements or 15% of the total resource requirements between September 1979 and December 1981. D. Project Implementation 3.08 Reporting Requirements. BNI would be required to submit quarterly reports which would include financial statements, resource position, statement of arrears and notes on subprojects encountering serious operational difficul- ties. BNI would also be required to submit annual audit reports in accordance with IDA guidelines for audits of DFCs, prepared by qualified accountants approved by IDA along with BNI annual report. 3.09 Procurement. Procurement for the subprojects financed under the credit would be in accordance with the standard IDA practice for development banks. 3.10 Disbursement. The proceeds of the proposed first credit would be disbursed on BNI subloans as follows: (a) 100% of the c.i.f. cost of imported goods or services for eligible subprojects; (b) 85% of the cost of previously imported equipment which is purchased locally for the subprojects; (c) 70% of the cost of equipment produced in Madagascar substantially from previously imported components or raw materials; - 23 - (d) 55% of the cost in Malagasy Francs of construction works included in subprojects and carried out by Malagasy contractors; (e) 100% of foreign expenditures or 80% of local expenditures for experts and consultants' services and training of BNI's staff. 3.11 The credit component is expected to be fully committed by December 1981 and to be fully disbursed by March 1984. E. Benefits and Risks 3.12 After a period of stagnation that was in part related to political factors and also to a reassessment of the country's general orientation, the industrial sector is showing signs of revival. While the new Government initially showed relatively little interest in the sector, its attitude has been changing recently in that respect, as demonstrated by the search for foreign partners to launch several industrial projects and its request for assistance from the Bank Group to the sector. An IDA credit for that purpose at this juncture would permit the Bank Group to participate in the development of an important part of Madagascar's economy. The credit would finance projects with total cost of about FMG25 billion and create about 6,000 jobs even on the pessimistic assumption that past cost per job of about $20,000 is maintained (para. 2.20). Employment generation will in fact, become considerably larger as BNI moves increasingly into project promotion, mostly SSEs. 3.13 Despite the generally positive attitude of the Government, there remains still some uncertainties as to how the sector will evolve in the coming years, particularly in the context of the transition toward a system of socialist enterprises, and this may create a climate not conducive to private investment, particularly foreign. Although this may result in a somewhat reduced industrial growth, it should not materially affect the utilization of the proposed credit as: (i) its amount is reduced in compari- son with BNI's expected needs; and, (ii) private investment has been given little weight in evaluating BNI's financial needs in the near future. These risks, thus, should not detract from the validity of the main objectives of the proposed credit, particularly concerning the strengthening of BNI and the IDA support of the overall industrial sector and the artisan/SSE activities. IV. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS 4.01 This report recommends an IDA credit of US$5 million for BNI through Government to be retroceded to BNI on the terms and conditions specified in paras 3.03 to 3.07. 4.02 During negotiations, agreements satisfactory to IDA were reached on the following: - 24 - (a) With Government, that: (i) the minimum lending rate for BNI's IDA financed projects will be 8.5% (para. 2.14); (ii) BNI's medium/large borrowers will carry the full foreign exchange risk and the Government will carry such risk for artisan/SSE lending at a 1% fee (para. 2.14); (iii) Government will carry the foreign exchange risk and will pass to BNI the $0.5 million technical assistance/ feasibility study component at the IDA service charge but without any commitment fee (paras 3.04(b) and (d)). (b) With BNI: (i) a Statement of Rules of Operations that BNI's Board of Directors has approved (para. 2.05); (ii) that adequate project appraisal and supervision procedures will be implemented (paras 2.07 to 2.08); (iii) that the economic rate of return of medium/large scale industrial subprojects will be calculated (para. 2.07); (iv) that the auditor acceptable to IDA will carry out the yearly audit of BNI's accounts (para. 2.16); (v) satisfactory appraisal format for artisan/SSI projects (para. 3.02(b)). - 25 - ANNEX 1 MADAGASCAR Interest Rate Structure (In per cent per annum) Central bank rates Effective October 1, 1974 Rediscount of: Short-term paper 5.50 Export bills 4.0o Bills secured by products under contract with stabilization funds 4.75 Medium-term paper 5.00 Long-term paper 1/ 6.oo Advances 6.50 - 8.oo Commercial bank rates on credit operations 2/ Credit secured by: Commercial paper 6.75 - 8.00 Government contracts 6.75 - 8.50 Stocks of coffee 6.75 - 7.25 Stocks of other crops 7.125 - 9.25 Stocks of other merchandise 8.00 - 9.25 Overdrafts 8.00 - 9.25 Commercial bank rates on deposits eMinimum deposit Sight deposits tthousands of FMG) Private sector 0.75 Public sector 3.00 Insurance companies - 3.00 Time deposits At least 2 months 75,000 4.90 At least 3 months 50,000 4.75 From 6 to 12 mohths 500 4.75 From 1 to 2 years 300 5.65 From 2 to 2-1/2 years 300 5.8C Certificates of deposits From 6 months to 1 year 500 3.70 From 1 to 2 years 50 4.25 From 2 to 3 years 50 5.30 From 3 to 4 years 50 5.80 From 4 to 5 years 50 6.80 From 5 to 6 years 50 7.50 Source: Central Bank of Madagascar 1/ Rediscounting of long-tern paper was introduced in August of 1974. 2/ Refers to credit that is rediscountable with the Central Bank; non rediscountable credit bears, on the average, a rate that is 0.75 to 2 percentage points higher. EAPID December 1979 -26 - ANNEX 2 Page 1 BANKIN' NY INDOSTRIA (BNI) Draft Statement of Rules of Operation (To be approved by BNI's Board of Directors) 1. Objectives and Operational Criteria (1) The Bank's general objective is, within the framework of a developing socialist economy, to promote the growth of industry and handicraft, to help improve housing, as well as domestic and collective equipment and to mobilize national savings. To that end, the bank will assist in the creation and development of enterprises in Madagascar in all productive sectors of the economy. (2) The Bank shall extend its assistance in accordance with the objectives of the National Development Plan and on the basis of economic and financial criteria only. Enterprises that submit projects to the Bank shall be required to have efficient management, be technically sound, have satisfactory market prospects for their production, be able to guarantee a financial return on the investment and generally to contribute to the economic growth of the country. The Bank shall take all these different aspects into consideration when appraising the projects submitted to it. (3) The Bank shall extend all kinds of assistance. The Bank shall invest in the capital of enterprises and shall subscribe to issues of shares and other securities. It shall grant short-, medium- and long-term loans, for periods depending on the type of project involved, with an appropriate grace period. The Bank may also furnish guarantees in certain cases. Normally, the Bank will not be engaged in refinancing operations. It shall endeavor to actively promote the establishment of new and the expansion of existing enterprises. It shall give its clients technical assistance and advice on the planning, layout and execution of their projects. These loans and participations may be granted for construction work, purchase of plant and equipment and for the constitution of working capital. 2. Investment Policy (4) Short-term loans shall not exceed two years, medium-term loans five years and long-term loans ten years. However, the ten year limit can be exceeded whenever the Bank is able to borrow locally or abroad resources for a longer period. In such a case the maturity of the loans made with these resources shall not exceed their repayment period by the Bank. ANNEX 2 - 27 - Page 2 (5) As a general rule, the total amount of medium and long-term loans granted by the Bank at its own risks together with its participations and any other medium and long-term commitments in favor of a single enterprise may not exceed 25% of the Bank's equity. (6) The Bank shall normally limit its share participation to 35% of the share capital of any given enterprise. However, in specific circumstances such as insufficient participation of other shareholders to the share capital of an enterprise operating in a priority industrial subsector or whenever the Bank will consider appropriate to assume a majority position in a company, its Board may decide to exceed the 35% limit. In no case, however, such participation shall exceed 51% of the share capital of the enterprise. Furthermore, the Bank's total investments in the form of equity participations may not exceed the Bank's equity. (7) The Bank may guarantee the fulfillment of assistance commitment by other credit institutions or suppliers; it may also provide guarantees in favor of physical or moral individuals in charge of implementing public projects. However, the guarantees shall be only in favor of physical or moral individuals that have received or are receiving one or several loans from the Bank with maturities at least equal to the duration of the guarantee. The total amount of medium and long-term guarantees by the Bank may not exceed two times its equity. (8) The Bank shall join with other financing institutions, whether local, foreign or international, in financing projects whose financial requirements exceed its capacity. (9) When deciding upon the amounts and form of financial assistance it shall provide, the Bank shall take into account all the financial requirements of the project and the financial situa- tion of the enterprise in question. In principle, the financial assistance granted shall not all together exceed 75% of the total cost of the project. (10) The Bank shall endeavor to maintain a balanced portfolio by dis- tributing its loans, participations and other commitments among all the sectors of industrial and economic activity within the range of its objectives. 3. Financial Policy (11) The general aim of the Bank's financial policy is to main- tain the value of its own capital, to manage its funds in ANNEX 2 -28 - Page 3 such a way that it is at all times able to honor its obliga- tions on time and to achieve a profit margin that enables it to cover its operating costs, form adequate reserves and distribute reasonable dividends to its shareholders. To this end the Bank shall: - maintain a satisfactory balance between the maturities of its own obligations and those of the loans and other financial assistance it grants; - not incur debts of more than one year of term including term guarantees in excess of four times the amount of its equity; - not incur exchange risks in respect of those of its borrowings that are repayable in foreign currencies; - generally require appropriate guarantees for the loans it grants; - fix its interest rates, commissions and other charges at a level that will enable it to obtain a satisfactory return; - make adequate provisions against potential losses and build up reserves to a level consistent with sound financial practices. 4. Special Provisions (12) The Bank shall supervise the execution of projects it finances to protect its interests and contribute as much as possible to their implementation. (13) The Bank's own accounts shall be kept in accordance with generally accepted international standards. The Bank shall engage the services of an independent firm of professional accountants of international repute to audit its annual accounts. EAPID December 1979 - 29- ANNEX 3 BANKIN' NY INDOSTRIA (BNI) Summarized Balance Sheet (In FMG million) Year Ended December 31 1977 1978 1979 (Audited) (Audited) (As of 9/30) (Provisional) ASSETS Current Assets 1/ Cash and Banks 2,367 2,924 2,365 Accounts receivable 1 786 14,153 5,9091 ,8 Managed operations on behalf of Government 1,743 1,770 2,045 Miscellaneous debtors 295 3,465 4,587 Other accounts 3,663 3,894 4,643 Portfolio Short-term portfolio 34,429 36,027 44,807 Medium/Long-term portfolio 6,478 6,799 8,142 Equity Portfolio 2,335 2,638 3,742 43,242 45,464 56,691 Net Fixed Assets 1,184 1,303 1,306 TOTAL ASSETS 54,280 60,990 75,453 LIABILITIES Current Liabilities Banks 1,327 745 585 Short-term deposits (up to 2 years-) 25,321 32,107 37,358 Central Bank refinancing for short-term credits 3,338 187 596 Miscellaneous creditors 5,738 7,133 12,149 Other accounts 4,832 5,908 8,137 40,556 46,080 58,825 Term deposits (more than 2 years) 109 255 218 Miscellaneous term creditors 811 1,054 1,376 Borrowings Medium and Long-term borrowings 2,792 2,o64 1,570 Central Bank refinancing for medium-term credits 1,103 1,349 2,011 3,895 3,413 3,581 General provisions for loans and investments 1,389 1,814 1,895 Managed operations on behalf of the Government 1,568 1,896 2,337 Ecluity Share capital 2,000 2,000 2,000 Reserves 2,213 2,629 3,o69 Advance from Treasury 1,000 1,000 1,000 Undistributed surplus 739 849 1,152 5,952 6,478 7,221 TOTAL LIABILITIES AND EQUITY 54,280 60,990 75,453 * Out-of-balance sheet commitments 3/ Guarantees 7,917 15,872 17,761 Letters of credit 6,702 10,534 13,973 Others 3,146 - 3,212 17,765 26,406 34,946 l/Includes a FMG170 million short-term investment. i/Net of provisions for losses. 3/Of which FMG9,746 are term guarantees. EAPID December 1979 30- ANNEX 4 BANKIN' NY INDOSTRIA (BNI) Summarized Income Statement (In FMG million) Year Ended December 31 1977 1978 1979 (Audited) (Audited) (As of 9/30) (Provisional) Interest Income 3,644.8 3,976.4 3,666.9 Income from other commercial operations 789.0 683.7 559.8 Dividend Income 143.9 167.9 91.2 Other Income 149.3 252.5 21.6 Total Income 4,727.0 5,o80.5 4,339.5 Expenses Personnel Expenses 1,052.4 1,096.4 917.3 Other Administrative Expenses 444.5 514.2 523.7 Total Administrative Expenses 1,496.9 1,610.6 1,441.0 Financial Expenses 1,274.7 1,172.5 994.6 Depreciation 95.1 136.5 120.0 Total Expenses 2,866.7 2,919.6 2,555.6 Profit Before Tax and Provisions 1,860.3 2,160.9 1,783.9 Provisions for Loans 544.6 453.5 350.0 Provisions for Future Equity Investments 150.0 300.0 100.0 Profit Before Tax 1,165.7 1,407.4 1,333.9 Taxes 427.3 568.1 533.6 Net Profit 738.4 839.3 800.3 EAPID December 1979 181111I i!Y INDOSTIA (BCI) Project PiPeline at cnd 1978 BNI spcected fiac ice Project' expcted i0nt1 -J.tioc Total cost of pro-Jct Year of expected Start of Start of Probbillty ProRiecr/Octoo Nature of Project Proter- (of which foreign exchanRe) Loan Equity approval inveetaeot Oeeraolone (I to 5) Rearks (to HgF. nillfoo) (in MgFr. million) SOh-os-o - litiug Rtopo-iog and Publto sector! 260 (130) 75 10 1979 - 1980 2nd half 1980 let half 1981 3 Feceibility tu.dy redy. oodnrulouccoo pr--o e forelgn study nor ype dOe by 8NI. Jlrami - Pcblc- otilLties E--cni-on PnbliC -eccoo 6,800 (5,100) 500 - 19S0 to 1984 1980 to 1984 1980 to 1984 5 Peaxibility tudy redy. Study under prepartio by BNIt. I/ Solinu - Ch-emcals Extc0i00 Ptblic soctor no cu. 300 - 1980 to 1984 1980 to 1984 1981 te 1984 5 Projeot under atudy by MinIstry cf Industry with p-rtctpatioo 881. Cenot Antsirabh Now Ptblic ccoon pi-vato foreign 3,800 (2,390) 600 - 1979 1979 1981 5 Sopreu- Che-iculu New Public -e-oor/ 1,050 (650) 725 83 1980 1980 1981 to 1982 5 8Bth feaaibiltry and oNl studies redy. private M l-afuy/ Looking for finencing in foreign axohasge. privt rtcorni somacoreo - Totiles Ette...on p-blictcocoon 700 (525) 390 100 1979 1979 1980 5 Both feasibility and 8INI' studina ready. procaco foroign Firuteg up local ftD eolng Co-tcn Tl or - Toxtle- New Public s-c-or/ 4,500 (3,375) 1.250 . 1979 1979 19H0 5 P-oJect under s-ady t Ministry pnivato forrign of lIdnautry. Ti-coc - Textiles New Prioate M-gasy/ 1,200 (900) 600 - 1979 1979 1980 5 Pe-ibility study ready. private foroige INI r-vine underw. 0il Ma-tge - Ag-oird-try Nw PNbli t*ecotor 220 (120) 70 10 1979 1979 1980 3 3 nuga- mills - tNe Public nertor 315 (215) 100 - 1980 1980 1981 4 s-rums - Ag-ofodustr tooy Peloc Nublic *ecto- 650 (550) 520 _ 1979 to 1984 1979 1984 5 881 study ready and .ent to Centrl lak. SN8ct - Agroicdust-y Etonsion Public sector/ 2,800 (1,540) 300 - 1979 1979 1980 5 , pofoate foroLgo star- Ag-riodu-trly E-to ione Public -ector/ n.- na 500 - 1980 1979 1980 to 1981 4 Project under study *t Ciiefety pniv-et foroigV of Industry Br-adowking - Agroird. Nec Pe1lic SectOr 414 (360) 125 - 1979 1979 1981 3 SID - Agro-idustry Exte-sion Public -ctor 270 (140) 152 - 1979 1979 1981 4 t81 so dy ready. satig fr Gner--e to- ispleset BleN scedatcs Hsc V-o - Agroiod. Nco P0bli,c ctoo! 250 (1501 50 70 1979 1979 1979 5 rNI -tody ready, to b presented priv-to for-igc to Board shortly. bata - Shoo- tention Ptivat- foroign/ 914 (685) 40 135 1980 1980 1980 to 1981 5 Fea-ibility study ready. public sector Under di .oss on vith IFC and BNT 8uts - T;onnry Nev Private foreign/ 882 (485) - 100 100 198O 1980 1982 5 V Per -vvm public ector_ EApIr 24c765 17,315 6.397 508 Dec-ober 1979 - 32 - AZOIEX 6 BANKIN' NY INDOSTRIA (BNI) Projections of Operati6ns 1979-82 (In FMG million) 1297 1980 1981 1982 APPROVALS Medium and Long-Term loans Industry 1,500 1,700 2,000 2,000 Tourism - - 150 150 Housing 150 150 250 250 Others 300 300 300 300 Total 1,950 2,150 2,700 2,700 Equity Investments Industry 250 300 500 600 Tourism - _ - _ Total 250 300 500 600 COMMITMENTS Medium and Long-term loans Industry 1,560 1,660 1,940 2,000 Tourism 31 - 120 150 Housing 150 150 230 250 Others 320 300 300 300 Total 2,061 2,110 2,590 2,700 Equity Investments Industy 250 300 500 600 Tourism - _ Total 250 300 500 600 Short-term credits (outstanding beg. of year) 40,578 46,664 53,445 58,790 Guarantees, letters of credits and others (outstanding at beginning of year) 21,300 24,175 28,405 28,405 DISBURSEMENTS Medium and Long-Term loans Industry 1,241 1,620 1,828 1,976 Tourism 120 13 72 138 Housing 148 150 198 242 Others 320 308 300 300 Total 1,829 2,091 2,398 2,656 Equity investments Industry 250 300 500 600 Tourism _ - - - Total 250 300 500 600 Short-term credits (outstanding beg. of year) 40,578 46,664 53,445 58,790 EAPID December 1979 - 33 - ANNEX 7 BAANKIN' NY INDOSTRIA (BNI) Projected Balance Sbeets - 1979-82 (In FMG million) 1979 1980 1981 1982 ASSETS Current Assets Cash, banks and foreign correspondents 1,140 1,097 1,000 920 Managed Operations on behalf of Government 1,120 1,120 1,120 1,120 Miscellaneous debtors and other accounts 4,510 4,961 5,457 6,002 Portfolio Short-term portfolio 46,664 53,445 58,790 64,669 Medium/long-term portfolio 9,876 11,004 12,341 13,765 Equity portfolio 2,954 3,254 3,754 4,354 59,494 67,703 74,885 82,788 Net fixed assets 1,315 1,262 1,207 1,149 TOTAL ASSETS 67,579 76,143 83,669 91,979 LIABILITIES Current Liabilities Banks and foreign corref7'ndents 2,680 4,448 4,820 4,692 Short-term deposits 26,620 29,282 32,210 35,431 Central Bank refinancing for short-term credits 4,413 4,856 5,342 5,876 Managed operations on behalf of Government 1,420 1.420 1,420 35,133 40,006 43,792 47,419 Term deposits 9,900 10,890 11,979 13,176 Miscellaneous creditors and other accounts 4,510 4,961 5,457 6,002 Borrowings Medium and long-term borrowings 6,696 7,620 8,094 9,338 Central refinancing for term loans 1,975 2,200 2,468 2,753 8,671 9,820 10,562 12,091 Provisions for loans and investments 1,584 1,684 1,819 1,880 Other provisions 872 872 872 872 Equity Share capital 2,000 2,000 2,000 2,000 Reserves 2,213 2,213 2,213 2,213 Undistributed surplus 2696 3697 4975 6326 6,909 7,910 9,188 10,539 TOTAL LIABILITIES AND EQUITY 67,579 76,143 83,669 91,979 STRUCTURAL RATIOS Term Debt/Equity Ratio 1/ 1.3:1 1.3:1 1.2:1 1.2:1 Term Debt/Equity Ratio 2/ 2.2:1 2.2:1 2.2:1 2.2:1. Current Ratio 3/ 1:1 11 1:1 1:1 Provisions as % of Portf
Группа Всемирного банка · Staff Appraisal Report
Madagascar - Bankin'ny Indostria (BNI) Project
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