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

FILE COPY RESTRICTED Report No. DB-41a 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 The report may not be published nor may it be quoted as representing their views.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 DEV'ELOPMENT ASSOCIATION APPRAISAL OF THE BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE MOROCCO October 16, 1968 Development Finance Companies  CURRENCY EQUIVALENTS CurFency - Dirham (DH) DH 5.06 = U.S. $ 1 DH I U.S. $ 0. 198 DH 1, 000, 000 = U.S. $ 198, 000  APPRAISAL OF THE BANQUE NATIONAIE POUR LE DEVELOPPEMENT ECONOMIQUE This report was prepared by Ilessrs. Sekse, Boyd and Helling on the basis of all information available, including that obtained during two visits to Morocco in October 1967 and February 1968. Table of Contents Page SUMMARY i- iii BASIC DATA iv - v I. Introduction 1 II. BNDE 1 Objectives; Policies 1 The Institution 1 Operations 2 Resources 2 Capital Structure 3 Financial Results 3 III. Role of BNDE in the loroccan Economw 3 Contribution to Investment 3 Contribution to Economic Growth 5 Other Factors in BNDE's Economic Performance 5 Relations with Government 6 IV. Operational and Financial Performance 7 Quality of Portfolio 7 Investment Criteria and Appraisal Standards 8 Management 9 Decision-making 10 Financial Position and Results 11 Evaluation of Improvements 13 V. Prospects 13 Investment Outlook 13 Operational and Financial Outlook 14 VI. Conclusions and Recommendations 16 Conclusions 16 Recommendations 17  ANNEXES 1. Statement of Policy 2. Shareholders and Ownership Structure as of December 31, 1967 3. Board of Directors as of May 31, 1968 4. Organization Chart 5. Analysis of Assistance Approved 6. Summary of Direct Loan Activity 7. Summarized Balance Sheets 196h - 1967 8. Profit and Loss Accounts 1964 - 1967 9. Forecast of Operations 1968 - 1971 10. Projected Cash Flow Statement 1968 - 1971 11. Projected Balance Sheets 1968 - 1971 12. Projected Operating 2esults and Allocation of Income 1968 - 1971  SUMIARY i. BNDE was very active in 1966 and 1967. In number and volume, its operations exceeded those of any previous year. Direct investment operations approved (loans and equity investments) were $12.1 million equivalent in 1966 and $10.3 million in 1967, and disbursements were $9.6 million and $9.8 million equivalent, respectively. In addition, BNiDE approved for rediscounting at the central bank medium-term loans granted by commercial banks aggregating $9.4 million equivalent 1/. Total assistance approved was thus $31.8 million equivalent during these two years. Of this total, 90% by amount was financing of majority private and lO/,majority gcvernment enterprises. BUDE was also active in promotion of new enterprises. ii. In the same two years, total investment in industry and tourism aggregated about $114 million equivalent, so that BNDE provided, or helped to provide, about 28% of the total. iii. The bulk of BNDE's assistance fell in two sectors, the food industry (31.5%, most of which was a large rediscountable credit for a sugar mill) and the textile industry (26.3%). The rest was fairly evenly divided among a number of industries, of which the tourist industry (i.e. hotels) received 6.4%. iv. While impressive in quantity, the quality of these investments was uneven, and some appear rather weak. This may be particularly but not exclusively so for a number of new, mainly small, textile mills. The coincidence of a very rapid expansion of investment in textiles with two successive bad harvests (1966 and 1967) created a situation of, at least temporary, over-capacity, the domestic market could no longer absorb the total textile output, most enterprises were not competitive in exports, and many of them found themselves in financial difficulties. Financing of new textile mills is now held back and, with the good out- look for the 1968 harvest, there is hope that the textile situation will slowly go back to normal. v. BNDE has not so far suffered any serious losses, and the repayment record of its borrowers is good. lqevertheless, BNDE is exposed to substantial risk and, although BNDE's ability to meet its obligations is not likely to be jeopardized, continued rapid build-up of reserves is essential. vi. Staff, appraisal and follow-up procedures continued to improve in the two past years, under the leadership of Mr. Benkirane, the Director General of BNDE. However, weaknesses still exist in these respects, and the decision-making at Board level (for commitments of 2/ Concerning this amount, see footnote 2 on page 4 of report.  -ii - US$ 150,000 and more), usually done through mail voting, has offered little possibility for discussion of the merits of investment projects by the directors and little opportunity for them to influence management's views. vii. Strengthening of appraisal standards and investment criteria, management, and the Board's role in decision-making has therefore been agreed upon during loan negotiations. An Executive Committee, created by the Board on May 31, 1968, now examines and decides, at meetings, on most of the investment proposals, up to a maximum commitment of DH 4 million ($800,000) in any single enterprise, while larger proDosals will be considered by the full Board, also at meetings. An Advisor, to assist BNDE's management at all stages of appraisal and decision-making, will be engaged before the end of 1968. As the Director General has no Deputy, a qualified nerson to fill this post is being sought, but no candidate has yet been found. viii. As a further means of lessening BNDE's exposure in weak projects, agreement has been reached with the Government that it will provide full guarantees for projects judged by BNDE not to meet its usual criteria of financial and economic soundness, but which the Government may nevertheless have good reasons to see implemented. ix. BNDE's financial performance has not so far been satisfactory. Net profits increased from 4.9Wb of equity capital in 1963 to 6.99% in 1967, leaving available for distribution as dividends only 3% in 1964 and 1965, 3.5% in 1966 and 4% in 1967. The reason for the slow improve- ment in profitability is the low spread on borrowed funds (costing 5% net to BNDE, the additional interest expense being refunded by the Government on a subsidy basis, while BNDE lends at 7%) and the low leverage. When the Bank first lent to BWDE and IFC decided to invest in its shares, in 1962, it was hoped that BMDE's shares would, within a few years, become profitable enough to attract private Moroccan investors. This has not happened. x. Discussions have been held with BNDE and the Government about the possibility of increasing BNDE's lending rate in order to improve the profitability. The Government has so far been opposed to such action but now plans to make a full review of the interest rate structure in Morocco in order to lay a basis for reviewing its position. As an immediate measure for improvement of BNDE's position, the Government proposed, and an Extraordinary Shareholders' Meeting of BNDE decided, on June 24, 1968, to reduce BNDE's share capital from DH 30 million to DH 20 million by redeeming shares at par, for cash or for bonds. At the same time, the Government made a new loan of DH 10 million to BNDE, on long term (30 years) and at low (2%) interest, and ranking pari passu with the share capital in the case of liquidation of BNDE.  -iii- xi. The profitability outlook is therefore now better, and dividends of 6-7T may become immediately possible. However, this rate is unlikely to make BNDE's shares easily marketable. xii. Taken together, the various measures to strengthen BIMDE constitute a considerable improvement, and are believed an adequate basis for recommending a new, the third, Bank loan to BNDE. Because of the need to watch closely the effect of the measures taken and BNDE's performance in general, a loan to cover requirements for a period of about one year is considered appropriate. It has been estimated that BNDE could effectively use $15 million in foreign exchange for such a period. xiii. The provisions of the pronosed new loan should follow closely those now usually applied to development finance companies. No change is proposed in the amount ($150,000) which BNDE can commit from the loan for single projects without the Bank's prior approval. The restrictive effects on MNDE's borrowing capacity of a new definition of debt and equity, in line with recent practice for other development finance companies, have been offset by a proposed change of the allowable ratio from previously 3:1 to 4.5:1. In absolute terms, the new ratio means a small increase of BNDE's borrowing capacity.  -iv- B A S I C D A T A I4OROCCO: BANQUE NATIONAIE POUR LE DEVETWPPEI"ENT ECONOMIQUE Year of establishment: 1959 Situation as of December 31, 1967 Ownership Dirhams % Government, direct and indirect 13,055,450 43.51 Moroccan private institutions 4,355,500 14.52 Moroccan individuals 89,050 0.30 Total Moroccan 17,500,000 58.33 Foreign financial institutions 5,000,000 16.67 IFC 7,500,000 25.00 Total Share Capital 30,000,000 100.00 Total Long-term (LT) and Medium-term (MT) Resources DH Thousands Equity 38,613 Goverr.ment subordinated loans (ranking pari passu with share capital) 30,000 Bond issues 16,375 Total Dirham Resources 84,988 IBRD loans net of repayments made ($30.3 million) 153,257 Total LT and NT Resources 238,245 * Resource Position Total LT and MT dirham resources 84,988 Long-term investments outstanding 89,103 Dirham Shortfall (financed from short-term funds) ( 4,115) Foreign exchange resources 153,257 Loans and investments outstanding 89,158 Foreign Exchange Available for Disbursement 64,099 Operations Approved (DH million) 1963 1964 1965 1966 1967 LT and MT loans 31.6 18.9 34.0 56.0 50.2 Rediscounts 10.8 10.7 41.4 22.2 70.6 Equity Investments 1.1 1.7 5.3 5.5 2.1 Total 43.5 31.3 80.7 83.7 122.9  1963 1964 1965 1966 1967 Disbursements on loans and investments 21.6 15.9 28.5 48.8 49.8 Earnings Record (percentages) Earnings before provisions and tax to average total assets 3.06 2.73 2.16 2.01 2.05 Net profit to average total assets 1.53 1.65 1.h6 1.60 1.45 Net profit to average equity 4.90 5.16 5.03 6.57 6.99 Net profit to share capital 4.64 5.95 5.93 8.01 8.83 Dividends paid to share capital 0 3.0 3.0 3.5 4.0 Dividends to net profit 0 5o.4 50.6 43.7 45.3 Financial Position Current ratio 0.60:1 Total debt/equity ratio 4.06:1 Conventional LT-MT debt to equity plus subordinated debt (limited to 3:1 under previous Bank loan agreements) 1.54:1 Subordinated debt to equity 0.78:1 SubordLnated debt to share capital 1:1 Reserves and provisions to loan and investment portfolio (including guarantees) 5.73% Debt Service Coverage 1966 1967 Interest coverage 1.72 1.67 Principal coverage 2.73 2.42 Interest Rate Structure in M,orocco Prime discount rate Banque du Maroc (since November 12, 1951)... 3.5% Sight deposits (maximum) ....................................... 1.5% Term deposits 3-6 months (maximum) .......................... , 2.5%o Term deposits 6-12 months (maximum) ........................... 2.75% Term deposits more than 12 months (maximum) ........ .......... 3.0% Government 15-year bond issues (effective rate) .............. . 6.5-7% Short-term commercial bank credit (including commissions)..range 8-13.5% Medium-term rediscountable credits (maximum 5 years) .......... . 6.5-7.0% BNDE lending rate ....................................fixed 7% Credit Immobilier et Hotelier du IHaroc (CIII): Housing loans (customer subsidized by Treasury) ......... fixed 8.75% Hotel loans (customer subsidized by Treasury) . ...... fixed 8.75% Caisse Nationale de Credit Agricole: Short-term loans ............ range 3-6% LT and MT loans .... .. ....... .......... . ...... . ...... 6.5% Caisse Marocaine des Marches (special short-term loans) .6.15-6.75% - Source: Banque du Maroc.  APPRAISAL OF THE BANQUE NATIONAIE POUR IE DEVELPPE=NT ECONOMIQUE I. Introduction 1. The Bank has granted two loans to BNDE: the first, $15 million, in December 1962, the second, $17.5 million, in May 1966. Both are fully committed. IFC invested about $1.5 million in BNDE shares alongside the first loan. BNDE has requested a third loan from the Bank. 2. This report examines whether ENDE is a suitable borrower for a third Bank loan. It concludes, like the two previous appraisal reports (DB-3b, December 10, 1962 and DB-27b, April 26, 1966), that, on balance, BNDE is. This conclusion, as well as the whole report, is based on experience of a six-year old relationship, on a mission to Morocco in October 1967 to re-appraise BNDE and another mission in February 1968 to discuss the loan request, on loan negotiations held in Washington in May 1968, and on the review and evaluation of all evidence and material available. II. BNDE 3. Objectives; Policies. The objectives of INDE, a development finance company established in 1959, are to assist the economic develop- ment of Morocco through medium- and long-term investment in productive enterprises, mainly private, through the promotion of and technical assistance to such enterprises, and through the active encouragement of capital market operations. Its Statement of Policy (Annex 1), adopted in 1963, gives BNDE a particular role in the industrial field, but it has 0 also been active in other sectors, such as tourism. BNDE will finance non-private enterprises only when private capital to carry out the project cannot be found on reasonable terms. 4. The Institution. Of the present DH 30 million share capital (prior to the reduction which is presently under way), the Government owns 43.5%, IFn 25%, foreign financial institutions 16.7%, and private Moroccan shareholders 14.8%. Nore details are given in Annex 2. The proportionate distribution will remain approximately the same after the reduction. 5. The Board of Directors (Annex 3) consists of 17 members. Of the present Board, 8 directors have been nominated by the Government (including the Chairman and the Director General). Five are private Moroccan bankers and businessmen, 3 represent the foreign shareholders, and one IFC (Mr. E. T. Kuiper).  -2- 6. An Executive Committee of the Board was created on iMay 31, 1968, to replace the former Consultative Committee. Its composition and powers are described in paragraph 39. 7. By agreement between the Government and the Board of BMDE, the chief executive of BNDE (the Director General) is nominated by the Government (through its Board representatives) and appointed by the Board. Since July 1965, Mr. I"bhamed Benkirane, former Director of Credit in the Banque du Maroc (the central bank), has held this position. He is a member of the Board, and of the Executive Committee. He has a renewable tenure of contract of two years at a time. The present term expires in July 1969. A general Advisor to BNDE will be engaged soon and a person to become Deputy Director General is being sought (see paragraphs 36-37). 8. The organization is divided into seven departments or sections (see Annex 4). Staff number 71, of whom 31 are professionals. Except for four foreign staff members, of whom one is a department head, all staff are now Moroccan. 9. _prations. Summary statements of BNDE's operations are given in Annexes 5 and 6. Total financial assistance approved amounted to DH 650 million by the end of 1967. Of this total, DH 266 million was in the form of direct medium- and long-term loans; DH 337 million, inter- mediary commitments for medium-term rediscountable (at the central bank) credits granted by commercial banks; DH 17 million, equity investments; and DH 30 million, guarantees. Average loan size is about $277,000 equivalent; average equity investment, about $105,000. 10. Up to 1965, the annual volume of new direct loans granted was, on average, about DH 25 million. In comparison, an amount of DH 56 million was granted in 1966, and DH 50 million in 1967. New annual rediscounting commitments have shown great fluctuations, from a low of DH 11 million in 1964, to a high of DH 71 million in 1967, mainly influenced by the incidence of occasional very large commitments. l1. Resources. Of total resources in use at end-1967, DH 195 million, share capital and reserves were DH 38.6 million or 20,o, the Government had contributed (apart from its shareholding) DH 30 million or 15%, the Bank DH 89.2 million or 46%, local bond issues DH 16.4 million or 8%, and short-term liabilities DH 21.3 million or 11%. As of August 31, 1968, the second Bank loan had been fully credited (since July 1968), but an amount equivalent to DH 40 million ($8.0 million) was undisbursed. Apart from normal recoveries on loans not required for debt service and other internal cash generation, the second Bank loan was BNDE's only available resource for further disbursement.  -3- 12. Capital Structure. Summarized balance sheets for 1964 through 1967 are given in Annex 7. In 1965 through 1967, the current position remained negative (0.60:1 at end-1967), but about half of the current liabilities consisted of short-term (3-6 months) bonds held, mainly, by insurance companies and automatically renewed at maturity. The ratio between total equity and other long-term funds was, at end-1967, 1:3.5. Total equity was 22% of the total loan and investment portfolio out- standing; reserves alone stood at h.83%o of the same amount. 13. Financial Results. Summarized profit and loss accounts are shown in Annex B. BNDE's lending rate of interest, for direct loans, has remained unchanged at 7% since 1959, when it came into existence. In addition, BNDE charges a commitment fee of 0.75-0.85% p.a. on undisbursed portions of loans, and certain other fees. On rediscountable credits, granted by commercial banks at 6.5-7%, BNDE retains a commission of 3/4% if the credits are held by the banks themselves, and 1-1/8% if the credit is rediscounted at the central bank. On average equity investment out- standing, BADE earned dividends of 1.3% in 1966 and 2.1% in 1967. 14. In return for BNDE's keeping its direct lending rate at 7%, the Government refunds to BNDE, on a subsidy basis, all interest expenses on its borrowings in excess of 5% (up to 7%), so that its total interest spread is 2%. Administrative costs, in 1967, were 1.3% on average total assets. Earnings after financial costs and administrative expenses but before provisions and taxes, as a percentage of average total assets, were 2.0% in 1967, down from 3.1% in 1963. 15. Net earnings after provision for losses and taxes, as a per- centage of average equity, increased from 4.90% in 1963 to 6.991% in 1967. On share capital (at year-end), they represented 4.6h4% in 1963 and 8.83% in 1967. 16. BNDE's first dividend, 3%, was paid from 1964 income. The dividend remained at 3% for 1965, was increased to 3.5% for 1966, and further to 4% for 1967. The remainder of income was allocated to reserves, the main portion under tax exemption. III. Role of BIDE in the Moroccan Economy Contribution to Investment 17. BNDE is still the largest domestic source of medium- and long- term lending to the industrial and tourist sectors of the Moroccan economy. The growth of its activity, especially in the past two years, has been impressive, mainly in the area of medium- and small-scale private enterprises in a fair range of industries (see Annex 5).  18. The following table compares BNDE's a.pprovals of long-term financing operations of all kinds in the industrial and tourist sectors with estimated net public and private sector fixed asset investment in those sectors in the past three years (DHI million): Year Public Private Total BNDE Approvals 1965 204 117 321 81 1966 106 164 270 84 1967 n.a. n.a. 300 78 2/ Directly (loans, equity investments) or indirectly (rediscounting commitments), therefore, BNDE has participated to the extent of between 32% (in 1966) and 26% (in 1967) of all investment in these sectors. As, on average, BNDE financing of any kind has represented about 43% of the total investment cost of the projects BNDE assists, one can estimate that BNDE participated in the financing of 74%, in 1966, and 60%, in 1967, of all investments, public or private, in industry and tourism. As about three-fourths of BNDE's assistance went to the private sector, it is easy to see that BiDE has been a partner to a predominant portion (perhaps 85-9W0%) of all investment carried out under private sponsorship. This clearly demonstrates the crucial place BMDE now occupies in the develop- ment of private industry (in a broad sense) in Morocco. 19. To balance the picture somewhat, it should be noted that a considerable portion (26% in 1966, 57% in 1967) of BNDE's operations is a result of its being an intermediary (between the commercial banks and the central bank) and secondary risk-taker for rediscountable, medium- term credits, for which the commercial banks assume the primary risks. Economically speaking, BNDE's role in these credits is of secondary importance. Typically, however, these credits make part of a financing plan in which there is also a direct loan from BNDE (normally to finance imported goods), so that BNDE's partnership is an integral and essential pre-requisite. Even so, leaving aside the rediscountable credits, BNDE's direct loans and investments were about 23% in 1966, and 18% in 1967, of total estimated investment in the relevant sectors. Since, as has been noted, BNDE's participation in the total cost of projects assisted is about 43o, it is once again indicated that, also in a direct way, BNDE was partner to a large portion of all new investment. Statistics of this type are seldom very reliable, but the importance of BNDE in mobilizing and assisting investment in MvIorocco is unquestionable. BNDE's estimate (Annual Report 1967). 2/ This excludes an unusually large (DH 45 million) rediscountable credit approved in the last days of 1967, inclusion of which would distort the 1967 total. However, Annex 5 puts this credit into the 1967 total.  Contribution to Economic Growth 20. A study made by BNDE /concludes (with appropriate rese v,ations) that enterprises which had received direct loans from BNDE added- about DH 265 million in 1966, and about DH 294 million in 1967, to the gross domestic product. Total investment in these enterprises was around DH 687 million, and the annual value added was thus around h0% of the investment. If this is correct -- and one must take such statistics with considerable reservation -- it is a good result. 21. A major reservation here stems from the fact that, in the 1963- 1967 period, industry's contribution to the GDP remained fairly static at a level of 12-13%; this seen against a background of a low annual rate of economic growth (in real terms) of 1.9% (in 1963-1967) to 2.2% (in 1964- 1967). BNDE in its study mentioned above points to one of the reasons for there being under-utilization of capacity in important sectors. While, for example, there was a fairly reasonable utilization, in 1967, of 75% of installed capacity in the cement industry, in the two important sectors of textiles and edible oils utilization was little more than half (57% for cotton spinning/weaving, 5010 for oils). In the latter two sectors there is now clearly over-capacity, most enterprises are small and operate only at one or two shifts, and better utilization of existing capacity is a matter of great importance. The question of whether BNDE may have assistved capacity expansion somewhat too indiscriminately in certain sectors will be discussed later (paragraphs 29-34). Other Factors in BNDE's Economic Performance 22. Shift from Public to Private Sector. Since the beginning of BNDE's association with the Bank Group in 1962, its direct financing operations have shifted markedly towards assistance to the private sector. Since its operations began, about 71%' of financing of any kind has been in the private sector. In 1966, by comparison, 86% went to majority private enterprise, in 1967, 60%. In 1967, however, the lower percentage was entirely due to a single large rediscountable credit to a Government sugar mill. Both in 1966 and 1967, BNDE made no direct loans to Government enterprises. 23. Encouragement of Moroccan Ownership. While, in the 1959-63 period, almost half of all assistance from BNDE went to predominantly foreign-owned enterprises, in 1966, by comparison, 38% went to such enterprises, and in 1967 only 23l. The reason is not that foreign investor interest in ilIorocco has declined (BIDE financing to foreign- sponsored projects was substantially higher both in 1966 and 1967 than / BNDE Annual Report 1967. Value added taken as net sales minus purchases.  -6- in the two preceding years), but rather that BIDE has significantly contributed to encourage and to create investment possibilities for Moroccan-owned capital. 24. Introduction of Better Investment Standards. BNDE has done much to introduce and make known better methods and standards for the appraisal and follow-up of investments. Although important weaknesses still exist (discussed in paragraph 33), not only has BNDE itself gone a long way toward more consistent and critical appraisal, on financial and economic criteria, since 1962, but it has also, through its collaboration with commercial banks on rediscountable credits, and through its direct relations with clients, helped to instill in the business community a stronger sense of the need to apply such criteria rather than pure security considerations. 25. Promotion. BWTE has long undertaken a considerable amount of successful promotion in tourist projects (through its subsidiary SOMADET), and has more recently broadened its work in this field into the industrial sector, in areas which include plastics, tripolyphosphate, bitumen and lubricants, cement, feed, fish-meal, olive oil, bottling and refrigeration. Many of these studies have resulted in the establishment of enterprises. The tourist projects are nearly all successful or likely to be so. However, some of the industrial projects have run into initial difficulties. Never"tleless, BNDE has a philosophy of not merely waiting for projects to come to its doors, but of actively promoting new ventures where opportunities of foreign exchange savings or earnings present themselves. 26. Tourist Lending. A new feature in BNDE's activity was the beginning, in the second half of 1966, of lending to the tourist sector through the Credit Immobilier et Hotelier (CIH), the Government's chosen instrument for the financing of tourism. Although differences in BNDE and CIH appraisal and disbursement methods, as well as difficulties in relating those methods to the Bank's disbursement procedures, have so far inhibited BNDE from becoming really active in hotel projects, BNDE, in applying its usual appraisal methods, has contributed to a more critical approach to such projects. While hotel loans amounted to only 11% and 14% of the total direct loan approvals in 1966 and 1967, respectively, all parties concerned have now agreed to certain modifications of the procedures which, it is hoped, will give them better practicability for all. The outlook in this field is discussed in paragraph 52. Relations with Government 27. An important asset to BODE is the confidence and support it enjoys from the Government. BNDE not only has the Government as its major shareholder, but also benefits from contributions of low-cost, subordinated funds, subsidies, and rediscounting privileges.  - 7 - In its operations the staff of BNDE work closely with officials of the economic ministries. Government officials are generally satisfied that BNDE has worked well in harmony with the objectives of its economic development plans. The other side of the picture is that this relation- ship has resulted in a high degree of reliance on Government views and opinions and, in certain cases, in a difficulty for ENDE to assert its own views. IV. Operational and Financial Performance 28. Over the years, both the strengths and weaknesses in BNDE have come more clearly to light. The main problems encountered, and the solutions to these problems, which can be seen, or which have been agreed on, are discussed in the following. Quality of Portfolio 29. The heavy expansion of MNDE's business in recent years has not been without considerable increase in exposure to risk. This is especially apparent in the textile sector, investments in which, at the end of 1967, represented about 33% of BNDE's portfolio. But also a number of other enterprises financed appear to be weak, and some are in difficulties. It is difficult to measure the degree of risk involved, because the largest element of the risk depends on the future for the Moroccan textile industry. 30. BNDE reacted slowly to Bank advice in 1966-67 on over-capacity developing in the textile sector, but has since shut off the high level of financing in this sector - a policy of import substitution which was undertaken very rapidly and through a nunber of enterprises of a scale too small to be economically efficient. Economic factors, such as two successive bad harvests (1966 and 1967) reducing sharply purchasing power among the rural population, and failure of the Government to take, at an early enough time, action to curtail imports to offset increasing textile inventories, aggravated the bad effects of the rapid build-up of capacity. An analysis made by BNDE of a sample of 11 textile companies (out of the 40 it has assisted) shows that sales dropped by 15% from 1966 to 1967, inventories increased by 11%, sales prices decreased between 10% and 25%, and six of the eleven companies ended up with a small or large net loss. Given BNDE's large exposure in the textile sector, the poor situation of the industry at the present time gives cause for some concern. 31. Fortunately, 1968 is going to be a good year for agriculture, and this should help to improve the companies' sales and perhaps reduce the large inventories. It also appears that the Government, which had plans for setting up several large textile mills, on top of the many  -8- medium and small ones hardly yet gone into operation, has decided at least to postpone its plans. This is essential for re-establishment of sound conditions in the textile sector. BNDE will assists its clients in modernizing and improving their existing plants, and is making a study of the situation in the textile sector to be able to assess more clearly its future. With the growth of BNDE's portfolio in other sectors, its relative exposure in textiles should decrease over time to a more reasonable level. 32. A large portion of BNDE's loans and investments made is young of age and has not really reached the stage where an evaluation based on actual performance - including repayment performance for loans - is possible. On the other hand, of BIDE's total portfolio of loans and investments at end-1967, DH 178 million, about DH 52 million, or 29% were old investments covered by Government guarantees. Of the remaining DH 126 million, it was estimated, in October 1967, that DH 30 million consisted of loans and investments to companies in various degrees of serious difficulties; DH 13 million in textiles and DH 17 million in other sectors. As against this assessment, BNDE's experience in delinquencies has been good (orly about 2% of all loans are in arrears or default), and securities and personal guarantees held by BNDE for its loans will no doubt ward off too serious losses. Nevertheless, a considerable area of heavy risks overhangs BIDE. Investment Criteria and Appraisal Standards 33. The somewhat indiscriminate assistance by BNDE to the expansion of the textile industry, as well as its financing of a number of weak projects (many of which were either rejected by the Bank for use of Bank funds or approved only after lengthy correspondence and with considerable reservations), emphasize the need for BNDE to tighten up its investment criteria and to continue its efforts to improve appraisals. In the latter, the application of independent judgment on technical and marketing aspects is still weak, and conclusions do not always follow from information provided. IWhile the considerable progress already mentioned (paragraph 2h) was noted, this question was at the center of the recent loan negotiations with BNDE, and BNDE assured the Bank that the necessary efforts will be made. It should be noted that BNDE has recently strengthened its technical staff, and intends to engage soon at least one more engineer. 34. It was recognized, during the loan negotiations, that there probably have been, in the past, and will be, in the future, cases of projects in which the Government, having to consider the social, political and regional interests of the country, takes a strong interest, and which it would like to see financed, but which cannot be justified on strict financial and economic criteria. IWith its close association  -9- with the Government, and being the only source of long-term industrial finance, BNDE is hard put to turn down such projects in the absence of alternative ways of financing. To solve this problem, the Bank has suggested to the Government the creation of a special development fund for the financing of this category of projects. BNDE, if the Government so agreed, would act as a manager of the fund against an appropriate fee or commission. BNDE's role would be solely advisory and administrative; the final decision, and the risks, would be assumed by the Government. The Government has not found it possible to create such a fund, for the time being, but has agreed instead to provide unconditional and full guarantees for BNDE loans to projects which do not meet BiDE's usual investment criteria, but which the Government may consider to be in the national interest. Such projects would not, in any event, be financed by Bank funds. Management 35. Related to the question of strengthening appraisals and invest- ment judgment is that of strengthening BIDE's management. The present Director General, Mr. Benkirane, has managed BNDE for three years, but he is alone. With the rapid growth in the volume of business, an increasingly heavy load has been placed on the Director General, who bears responsibility for most of the decisions on day-to-day affairs. As he has no Deputy, he has long felt the need to find a qualified person for this position, but has not so far found one. 36. During the loan negotiations, it was agreed that BNDE would recruit an Advisor, initially for a term of one year, before the end of 1968. BNDE is now actively seeking to find a qualified person for this position. The Advisor would be available to the staff, management, and Board of BNDE, would assist in the improvement of appraisal standards, and would give his advice on all investment proposals before BNDE, both during the appraisal stage and during the various stages of decision- making. When the Advisor's term comes to an end, or if he should leave before his term of contract is out, BNDE will consult with the Bank on what further steps should be taken. 37. The engaging of the Advisor, however important, would not resolve the problem of finding a Deputy. A Deputy is needed both to share the Director General's workload and to provide for continuity and depth in the management of BNDE. It was agreed, during the loan negotiations, that BNDE will continue to look actively for a suitable, qualified, person for this position, with a view to an early appointment so that the Deputy can work with and benefit from the presence of the Advisor.  -10- Decision-making 38. In the past, decisions on investment proposals have been made either by the Director General (up to DH 750,000) or by the Board. A Consultative Committee, whose composition, apart from the Chairman and the Director General, consisted entirely of representatives of various economic ivfnistries and Government agencies, made recommendations on each proposal. The Board meets only four times a year, and most proposals for it to decide on have therefore been submitted to the Directors and voted on by mail. 39. It has proved difficult, under this procedure, to get an effective exchange of views among Board members or to focus their collective attention on the issues they must decide on. Hence, it has been difficult for the Board to play the strong role it ought to in decision-making. Because of this it was agreed, during the loan negotiations, that the management would propose to its Board important changes in the decision-making process. The changes, which were approved by BNDE's Board at its meeting on May 31, 1968, involve the abolition of the Consultative Committee and the creation of an Executive Committee composed of Board members. The Committee consists of seven members: the Chairman and Director General of BNDE, two Government directors, two private resident directors and the IFC director. Although it would have been desirable also to have a foreign director (other than the IFC director) on the Committee, the Government was opposed to the concept and, in any event, no such director felt that he would be able to attend a sufficient number of meetings to take on this responsibility. If and when the foreign directors should be willing to take a seat on the Committee, IFC would be ready to abandon its seat to make room. The Committee meets about once a month and has been given powers to approve primary risk commitments by BIDE up to a limit of DH 4 million in any single invest- ment enterprise, and all commitments, irrespective of size, for rediscountable, secondary risk credits. However, all matters of policy, including any proposal for financing involving questions of policy, are to be exclusively the preserve of the Board. 40. These arrangements should improve the opportunity for discussion among Board members, and between Board members and management, practically eliminate the need for mail voting, reduce the number of projects for consideration by the full Board to a few, important, cases to which Board members could give the attention they deserve, and generally strengthen the role of the Board, in session or in Committee, in the making of decisions.  -11- Financial Position and Results 41. Balance Sheet and Cash Flow Position. On the face of it, BNDE's current position (0.60:1 at end-1967) is weak. If the short-term notes (see paragraph 12) should, for one reason or another, not be renewed by the insurance companies holding them, BNDE might find itself in some temporary difficulty. The danger is not very real, however, first, because of an understanding between BNDE and the insurance companies that the latter would not refuse renewal unless BNDE had been warned sufficiently long in advance and, second, because B2DE's use of these funds, although ostensibly long-term, is to a large extent temporary financing of loan disbursements for which BNDE already has the Bank's undertaking for reimbursement. This is, therefore, profitable management of short-term resources, unlikely to jeopardize BNDE's financial position. 42. The many weak loans and investments made and held by BNDE (see paragraphs 29-32) are likely to result in some losses. It is almost impossible to predict the extent of these losses, which will depend, in considerable degree, on the future of the textile industry. It is not considered likely, in any event, that losses will exceed the total of BNDE's reserves, now DH 8.6 million, or 4.8% of the total portfolio. This possibility, however, indicates that BNDE's financial position is weak, though not critically so. It is important, therefore, that BNDE continue to build up reserves at a rapid rate, so as to keep them at least at the same proportionate level as now and, preferably, to increase them. 43. There has been a healthy excess of net cash inflow to service BNDE's debt and BTDE should have no problems with its debt service even if quite substantial losses occur. 44. Profitability. BNDE has had a structural weakness, from the point of view of profitability, because of the large size of its equity in proportion to borrowed funds (for short, "low leverage"; see paragraph 12). Combined with the fact that its spread on new funds, borrowed and re-lent, is only 2% (see paragraph 14), of which administrative expenses (having come down, in percentage of average total assets, from 2.0% in 1961 to 1.3% in 1967) take more than half, this explains the sluggish growth of BNDE's profitability. Net profit has grown only from 4.90% in 1963, to 6.99% in 1967, on average equity, and from 4.64% to 8.83%, over the same period, on the share capital. Because of the need to contribute a substantial portion of earnings (665 in 1967) to reserves, only a 4% dividend on shares could be paid for 1967. This is insufficient to make BNDE's shares marketable, an event which was hoped for when the Bank first lent to BNDE and when IFC became its shareholder.  -12- 45. Because of the low spread, BNDE's profitability does not respond well to increases ia the volume of financing and, hence, increased leverage. The most obvious solution would therefore be to increase the spread, by raising BNDE's lending rate of interest (7%). This possibility has been discussed with BNDE, and with the Government. The latter will have to approve an increase of the lending rate if BNDE is to continue receiving the rebate on the cost of borrowings (see paragraph 14). The Board of the Bank expressed its concern about BIDE's low lending rate of interest in 1962, on the occasion of approving the first loan, and the matter has been one of continuing concern since then. The Government is not yet prepared to approve a higher rate. However, it now plans to make a full review of the interest rate structure in Morocco, in order to lay a basis for reviewing its position. Reliance cannot at this time be placed on expectation that BNDE's interest rate will be increased. 4t6. As an immediate measure to improve BNDE's profitability, the Government suggested, and BNDE's Board agreed, on Nlay 31, 1968, to propose to the shareholders a reduction of BNDE's share capital by one-third, from DH 30 million to DH 20 million., in order to increase the leverage on the remaining share capital proportionately. The reduction was approved by a shareholders' meeting on June 2h, 1968 and is presently under way. The distribution of ownership will remain, with very minor adjustments, as now. The shareholders have been given the choice between redemption in cash, at par value, or in bonds, guaranteed by the Government, at 6% interest repayabl3 over 10 years. The reduction of share capital is offset by a new loan in the same amount from the Government. This loan of DH 10 million, subordinated to other debt and ranking Pari passu with share capital, is on terms and conditions similar to the two previous Government loans (2% interest, repayable over 15 years after 15 years of grace). The new cash contribution of the Government in this operation is DH 5.7 million, the remainder being provided by the Government's share in the capital reduction. 47. IFC has agreed to this proposal by the Government to reduce the share capital because it will enhance BIDE's profitability and hence make the BNDE shares which remain outstanding somewhat more attractive to private investors, which was one of IFC's original objectives in investing in BNDE. IFC has opted for redemption of the one-third of its shares in cash. 48. Effect of Changes. To the extent shareholders are willing to reinvest their proceeds in bonds, this will add to BNDE's long-term resources, but the total amount is expected to be only about DH 1.7 million. Otherwise, BNDE's resource position will be unchanged, its borrowing capacity (based on the total of equity and quasi-equity) the same, but its capacity to invest in shares of companies (normally limited to an amount equivalent to the institution's own equity) reduced from about DH 39 million to about  -13- DH 29 million. The total of paid-up equity investments and subscribed, but as yet unpaid, investments is about D.I 20 million, so that there will be room for only about DH 9 million more. This, however, should enable BNDE to make new investments at its past pace (about DH 3 million/year) for three years more, and probably longer, as its reserves will increase unless very heavy write-offs become necessary. 49. The reduction of the share capital increases BIDE's ratio of total debt to equity (as of mid-1968) from 4.4:1 to about 6.2:1. The ratio between share capital and quasi-equity will change from DH 30/30 million now to DH 20/40 million hereafter, or from 1:1 to 1:2. The return on share capital, as a result, will increase by about one-third, and dividends of about 6-7% should become possible while maintaining reserves at least in the present relationship with portfolio. Evaluation of Improvements 50. Adherence to stricter business criteria, strengthening of staff, the agreement on special financing arrangements for weak projects, strengthening of management and decision-making, taken together, should constitute a substantial improvement of BNDE's efficiency and ability to make sound investment decisions. Given the importance of BEDE to Morocco, these developments should substantially improve BiNDE's ability to con- tribute to the economic development of 1Sorocco. In addition, the structural measure of reducing BNDE's share capital is likely to result in a higher return on equity and may thus be a step in the direction of making BNDE's shares more attractive to the Moroccan public. On the assumption that the steps in process will be effective, the conclusion is that they will rectify the weaknesses which had developed and which had threatened adversely to affect BNDE's performance. There will, however, be a need to continue to watch closely the progress of BNDE in all aspects of its operational and financial performance. V. Prospects Investment Outlook 51. Trends. The shift of emphasis in B71DE financing in recent years, away from financing of enterprises in the public sector and toward the financing of a variety of medium- and small-sized private industrial ventures, has produced considerable benefits to the economy in import substitution. The opportunities for such activity in coming years appear to be less than in the past. Consumer markets in M4orocco are small for many products, and are largely confined to the major cities, while the rural population, about 80% of the whole population, has little disposable  -14- income and still remains largely outside the monetary economy. There is therefore now a high degree of market saturation in many of the import- substitution consumer goods industries (e.g. textiles), but some import substitution is no doubt still possible in some sectors. The character of industrial financing appears to be changing towards the development of industrial projects closely linked to Moroccan agriculture and food- processing, and toward industries with foreign exchange earnings potential. The latter includes tourism, which has a high priority under the Govern- ment's five-year plan. The extent to which BNDE can continue to participate in this sector will be an important factor in its future volume of business. 52. Tourism. It is the Government's policy to centralize lending for tourist projects through one agency, the Credit Immobilier et Hotelier (CIH). Its preference would have been for the Bank to grant a direct loan to the CIH for this purpose. For a number of reasons, the Bank has not found it possible so far to lend to CIHI, but will continue to keep the institution under review with a view to determine its suitability as a direct borrower from the Bank. MIeanwhile., it was agreed during loan negotiations that the arrangement mentioned in paragraph 26, whereby BNDE re-lends Bank funds to CIH for tourist projects, after the usual appraisal by BADE of the project, will continue at least during the period of commitment of the proposed Bank loan to BIDE. Projects involving direct BNDE loans of DH 31 million ($6.2 million) are now under active study by BNDE, anid preliminary discussions have started on further projects which might need another DH 48 million ($9.6 million). This is about one-third of all projects under study or discussion. 53. Industry. Projects for direct BNDE loans involving DH 42 million ($8.4 million) are under study at BNDE, and further possibilities for lending DH 99 million ($19.8 million) under preliminary discussion. They include three very large projects (a mixed-ownership beet sugar mill, a paper pulp expansion project, and a caustic soda project linked to the paper pulp one) which alone, if found feasible, could require DH 90 million ($18 million) of loans. Operational and Financial Outlook 54. Business and Resources Required in the Short Term. While all projects now under study, in an active or preliminary way, could require as much as DH 220 million ($44 million) of BADE funds, many of these projects - as is normal - are not likely to materialize, others are too big for BNDE to appraise and finance alone, and many are likely to take considerable time before they can be carried out. In particular because of the doubt regarding various very large projects, any forecast of likely loan approvals by BADE is subject to great uncertainty.  55. All things considered, BNDE Aight be able to approve loans, in the next 12 months, for about one-third of the total under study mentioned above, or about DH 70 million. This compares with DH 56 million in 1966 and DH 50 million in 1967, and takes into account the real possibility that BNDE will finance portions of the very large projects under study. In addition, BNDE might find possibilities for equity investments of some DH 3 million. 56. The requirements for funds to cover both a backlog of projects already approved and the new estimated approvals of loans and investments in the next year, appear as follows: DH million Backlog of projects approved 20 New loan approvals - one year 70 New equity approvals - one year 3 93 less: Surplus of internal cash generation 15 Net new requirements 78 DH 78 million corresponds to $15.6 million, or rounded $15 million. As, in the past, 85-90% of all BIDE loans have been for the financing of imported goods, and this pattern is likely to continue, the entire $15 million would be used for imported goods and could therefore be financed by the Bank. 57. Longer-Range Outlook. The forecasts contained in Annexes 9-12 are based on the assumption that DH 70 million forecast for the next year will be a slightly higher than ordinary level of loan approvals, and that a more normal level (including tourism lending) for the next few years would be around DH 65 million, which is still higher than in any year so far. Disbursements are expected to be around DH 60 million a year (compared with DH 49 million in 1966 and DH 50 million in 1967). If BNDE discontinues lending to CIH for tourist projects (see paragraph 52), approvals and disbursements are likely to drop below these estimates. 58. Financial Structure. If the Bank were to be the only supplier of new long-term funds to BNDE, the Bank Group's share (including the IFC investment) in BNDE's total non-current debt and equity would be about 64% by end-1968, 7MZ by end-1969, and 7h4, by end-1970. This suggests that BNDE should be encouraged to obtain substantial amounts of new long- term funds from sources other than the Bank. During the loan negotiations, it was agreed that BNDE will actively seek to do so.  -16- 59. As forecast, conventionral borrowings would more than double from DH 106 million at end-1967 to DII 218 million at end-1970. The ratio of long-term conventional borrowing to equity and quasi-equity would increase from 1.5:1 to 3.0:1, so that by the end of 1970 BNDE would reach its current borrowing limit. In line with recent practice for other development finance companies loans, the new Bank loan agreement for BNDE will exclude from the borrowing base those maturities of quasi-equity that are payable by BNDE before the last maturity on any Bank loan. Thus redefined, a new borrowing limitation of h.5:1, which is slightly in excess of the old 3 to 1 ratio, is proposed for the new loan. 60. Profitability. While the changed capital structure (see para- graphs 46-19-Twill have little effect on the rate of BNDE's earnings on total resources, profitability in terms of owner's funds (equity and share capital) is expected to increase considerably above the 1967 level: 1967 1968 1969 1970 Profit before Tax and Provisions in relation to Average Total Assets 2.041o 2. lQY 1.90% 1.73% Net Profit to Average Equity 6.99% 10.9% 11.1% 11.2% Net Profit to Share Capital 8.871/ 16.2% 17.7% 19 1; These are probably optimum forecasts, however, which assume provisions for losses at an annual level of DH 500,000 per annum, approximately equal to the provision made for 1967. The need for BNDE to keep its reserves at a 5-6% level of the overall portfolio will consume about two-thirds of net profits, so that dividends of more than 6-7.o on the shares would not be feasible. VI. Conclusions and Recommendations Conclusions 61. BNDE has made a vital contribution to the development of industry in the past and a more modest one to the development of tourism. Its assistance, however, has been somewhat indiscriminate in character, and sufficient weight has not always been given to the necessity of a sound financial and economic return on investments. A better performance in these / This is the return on the old share capital (DH 30 million). On the new capital (DH 20 million), the return would have been 13.2%.  - 17 - respects is required to make sure that scarce resources, mainly foreign exchange, are put to effective economic uses. 62. To achieve this, measures for strengthening of staff, manage- ment and decision-making, and improvement of BVIDE's profitability, have been agreed upon with BNDE. In addition, the Government has agreed to give unconditional full guarantees for the financing of projects which do not meet BNDE's normal criteria for investment, but which the Govern- ment nevertheless considers should be implemented. It is reasonable to hope, therefore, that BNDE's performance in the future will be increasingly strong, and its use of resources effective and economic. 63. BNDE's financial position is weaker than would have been desirable, mainly because, by its lack of selectivity in past financing, there have developed heavy areas of potentially high risks in its loan and investment portfolio. Although the situation is not considered to be such as to jeopardize BNDE's creditworthiness, it is important that BNDE continue to build up protective reserves at a rapid rate, and that it refrain from getting into heavier exposure in sectors under strain, such as textiles. 64. BNDE can be considered a suitable borrower of a new Bank loan. However, there is need to watch closely the effectiveness of the changes introduced, or about to be introduced, as measures to improve BNDE's performance. It would therefore be appropriate for the Bank to grant a new loan in an amount which would meet BNDE's requirements for new resources for a period of about one year, so that there will be an early opportunity for a complete re-assessment of the effectiveness of the changes mentioned and of BNDE's suitability as a continuing channel for Bank funds into the Moroccan economy, and of the need, if any, to seek further improvements before more Bank funds are made available. Recommendations 0 65. A new Bank loan to BNDE should be geared to its ability to effectively use new foreign exchange resources for a period of about one year. On this basis, an amount of $15 million would be suitable. 66. The features of the proposed loan should be those normally applied for loans to development finance companies. Hence, the proceeds should be used to cover the foreign exchange cost of specific projects, and the Bank's normal commitment charge would apply to the undisbursed portion of the loan. The amortization schedule for the loan should reflect the repayment schedules for BNDE's sub-loans or of those agreed upon between the Bank and BN1DE for equity investments. Mo change is proposed in the $150,000 limit which BNDE can commit from the loan for any single project without the Bank's prior approval. The loan agreement should stipulate a maximum ratio of total debt to equity, as these terms are now usually defined for this purpose, of 4.5 to 1.  -18- 67. Before the proposed new Bank loan becomes effective, the reduction of BAIDE's share capital from DH 30 million to DH 20 million, and a new loan of DII 10 million from the Government to BiNDE, both on terms and conditions satisfactory to the Bank, should have entered into force. 0  Annex 1 Page 1 '3A1QTE TATTONAlE OIR L DEVELOPPEIT ECO1(4IQTTE Statement of Pblicy (Approved by the Board of.DIi ctorsonIIarch 29, 1963, and Amended on March 7, 1966) 1. BIDE's general investment policy will be guided by the following principles: (a) 3NDE'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) BTDE 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 "private" if the Government or any of its agencies directly or indirectly hold 505 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. BMDE wqill perform adequate supervision of the operations it finances. 3. BEDE 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. 4. 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 own interests and to those of the other participants in the investments sold.  Annex 1 Page 2 5. 'When one or more commercial barnks narticipate with BDUDE in lending to an enterorise, 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. 6. BlADE should, whenever aniropriate, extend technical assistance to its clients in respect of the formulation, execution and operation of wrojects. 7. BNDE should not make direct credits (other than those covered by a public guaranty) or other investments for any single investment enterprise aggregating more than 10% of BNDE's paid-up capital, reserves and outstanding long-term Government loans. In entering into discounting arrangements with a commercial 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 BNDE's share capital and reserves.i/ 8. In general, BIDE should not take any single equity participation larger than the smaller of (a) 10% of BIDE's 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. 9. BNDE will build reserves consistent with sound financial practice. It will annually appropriate a portion of its income to reserves. Appropriations will be made so as to build up total reserves to a level that is appropriate to the size and quality of BNDE's portfolio of loans and equity investments, while permitting the distribution of an adequate dividend to ENDEts shareholders. The Board of BNDE will review every year the situation in this respect. - BNDE's management intends to propose to its Board of Directors,on September 2h, 1968, the following amendment of the first sentence of paragraph 7, to which the Bank has agreed: "BNDE should not normally make direct loans or other investments in favor of one single enterprise aggregating more than 10o of BlADE's paid-up capital, reserves and outstanding long-term Government loans, with the exception of such loans and investments which are covered by a Government guarantee or guarantee from the Caisse Centrale de Garanties or by a bank guarantee after examination of the financial position of the bank concerned." IFC/DFC September 9, 1968  Annex 2 Page 1 BANQUE IT!ATIO0ALE FOIJR LE DEVELOPFETMNT ECONOMIQUE Shareholders and Ownership Structure (as of December 31, 1T 67) Amount in % of Dirhams Total A. IIoroccan - 1. Government and Semi-Ptbolic Agencies Government 12, 803, 450 Credit Inmobilier et Hotelier (CI) 250,000 3anque du I-laroc 1,000 Caisse de Depot et de Gestion (CDG) 1,000 Total 13,07,150 43.51 2. Moroccan Financial and Insurance Institutions Banco Espanol en IIarruecos 100,000 Banque Comnmereiale du Elaroc 00, 000 Banque Franco-Suisse pour le Maroc 100, 000 Danque lIiarocaine pour le Commerce et l'Industrie 501,000 Compagnie Ilarocaine de Credit et de Banque 550,000 Societe de Banque du Maghreb 450,000 Societ6 Generale Mlarocaine de 3anques 425, 000 The British Bank of the NIiddle East 100,000 Union Bancaria Hispano Mlarroqui 351,000 Union Marocaine de Banques 100,000 Jorms et Compagnie ilaroc 261,000 Societe Financiere et de Farticipations 50,000 Credit du Ilaroc 325,000 Caisse Iiarocaine des ilarches 100,000 Omnium IMarocain dtInvestissement 125,000 Caisse Interprofessionelle iarocaine des Retraites 200,000 Compagnie d'Assurances et Reassurances "Atlanta"' 5,000 La Paix Africaine 5,000 La Providence Mrarocaine 20,000 'Soci6te Marocaine d'Assurances 7,500 Total 4T,175,500 13.92 3. Mloroccan Subsidiaries of Foreign Insurance Companies L'Aigle Accidents 50,000 Hiuttielle Assurance Automobile des Institrlteurs de France 10,000 Le Soleil Accidents 100,000 L'Urbaine et La Seine 20,000 Total _ 8,00 0. 60  Annex 2 Page 2 Amount in % of Dirhams Total H. Toroccan Individuals 89,050 0.30 TOTAL MI0T0CCA1N 17,500,000 58.33 B. International Finance Corporation 7,500,000 25.00 C. Foeign 1. French Caisse Centrale de Cooperation Economioue 700,000 Caisse N'Iationale des I1arclhls de l'Etat 250,000 _3anque INationale de Paris 300,000 Banque de Paris et des Pays Bas 250,000 Credit Lyonnais 250,000 Total 1,750,000 5.83 2. German Dresdner Bank A.G. 300,000 Deutschne Bank A.G. 300,000 Commerzbank A.G. 300,000 Wlestfalenbank 100,000 Total 1,,000,000 3.33 3. Italian Istituto Ilobiliare Italiano 417,300 Banca Nazionale del Lavoro 416,300 Banca Commerciale Italiana b4006,h Total 1,250,000 h.17 4. United States Morgan Guaranty International Banking Corporation 1,000,000 3.33 Total IFC and Foreign 12,500,000 4l.67 TOTAL 30,000,000 100.00 IFC/DFC August 20, 1968  Annex 3 BAITQUE TATIOTALE TDOUR LE DEVELOPPEVYENT ECONOMIQUE Board of Directors as of May 31. 1968 President (Chairman of the Board) S.A. Le Prince Moulay Hassan Ben Mehdi 1l) Vice-President Banque du Maroc (M. Zeghari, Governor) (1) Administrateur - Directeur General Mohamed Benkirane, Managing Director (1) Directors M1hamed Ben Jilali Bennani, Industrialist Caisse de Depots et de Gestion (H. Ababou, Managing Director) Larbi Sakkat, Industrialist i'iohamed 21 kIl'Dagrri, Director of the Treasury (1) Bureau d'Etudes et de Particinations Industrielles (Sinaceur Benlarbi, Mianaging Director) Abderrahman Guerraoui, Director of Industry, MYinistry of Industry Worms et Cie, NIaroc (Jean Pineil, Director General) (1) Union Bancaria Hispano-Marroqui (German Sela, Director General) Societe Nationale d'Investissement (Lemniai, Director General) Jacques Grosjat, General Manager of Banque Marocaine pour le Commerce et l'Industrie (1) 0 Charles Bissell, Vice President of Morgan Guaranty Trust Co. of New York Aurelio Peccei, Managing Director of Italconsult Klaae Peter Jacobs, Director, Commerzbank Esgo Kuiper, IFC Representative (1) Government Commissaire (not a Board Member) Mohamed Benchekroun, IMinistry of Finance (1) Member of the Executive Committee (established on iNlay 31, 1968). IFC/DFC August 20, 1968  MOROCCO: BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE ORGANIZATION CHART AUGUST 1968 BOARD OF DIRECTORS PRESIDENT: S. A. MOULAY HASSAN BEN MEHDI EXECUTIVE COMMITTEE MANAGING DIRECTOR |T ( ADMINISTRATEUR DIRECTEUR GENERAL )|l MOHAMED BENKIRANE | DEVELOPMENT ECONOMIC STUDIES CREDIT AND INVESTMENT LEGAL AND FOLLOW-UP ADMINISTRATIVE DEPARTMENT AND STATISTICS DEPARTMENT DEPARTMENT DEPARTMENTS MOHAMAD BELKHAYAT HANS BURCHARDI MOHAMAD MANSOURI AZZEDDINE SEFRIOUI ACCOUNTS DEPARTMENT OMAR KABBAJ TECHNICAL STUDIES OF PROJECTS GENERAL AND SECTORAL APPRAISAL OF PROJECTS CONTRACTS AND LEGAL WORK ECONOMIC STUDIES TECHNICAL FOLLOW-UP ADMINISTRATION OF FOLLOW-UP OF DIRECT LOANS MARKET STUDIES OF PROJECTS REDISCOUNTABLE CREDITS CONTROL OFFICE TOURIST PROMOTION DISBURSEMENTS ECONOMIC DOCUMENTATION MANAGEMENT OF INDUSTRIAL MOHAMED FILALI MANAGEMENT OF TOURIST EQUITY INVESTMENTS RELATIONS WITH IBRD SECTOR SUBSIDIARIES ARREARS AND DEFAULTS CASHIERS DIVISION PIERRE CASTEUBLE PRINCIPALS 3 1 2 3 3 ASSISTANT PROFESSIONAL STAFF 3 SECRETARIES, OTHERS 3 1 4 3 11 TOTAL 9 5 9 18 MANAGING DIRECTOR'S OFFICE ' 3 OTHER PERSONNEL (MESSENGERS, CHAUFFEURS, ETC.) 16 TOTAL STAFF 71. PROFESSIONAL STAFF 31 z IFC/DFC (3R) IBRD-3911 .s  Annex 5 BANQJE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Analysis of Assistance Approved (amounts in thousands of Dirhams) 1959/63 1964 1565 1966 1967 Total No. Amount No. Amount No. Amount No . Amount No . Amount No. Amount % Type of Assistance Direct medium-term loan 1/ 19 14,940 11 4,970 8 2,710 8 6,660 14 10,005 6t 39,285 6 Direct long-term loans 2/ 50 91,999 11 13,950 13 31,325 32 49,335 28 40,183 134 226,792 35 Indirect loans 3/ 152 191,935 13 10,745 18 41,375 20 22,150 36 70,551 239 336,756 52 rlquity investments 7 2,510 3 1,725 5 5,275 7 5,460 5 2,071 27 17,041 3 Guaranties, etc. 4/ 7 30,125 - - _ - - - 1 48 8 30,173 4 Total Assistance 235 331,509 38 31,390 44 80,685 67 83,605 84 122,858 468 650,o47 100 Ters of Assistance Up to 3 years 26 23,450 3 490 - - 3 880 7 1,330 39 26,150 4 4 and 5 years 148 196,325 21 15,225 26 44,085 25 27,930 44 79,274 264 362,839 56 6 to 8 years 39 38,635 10 13,350 11 10,425 26 36,995 20 20,550 106 119,955 18 9 to 12 years 11 28,775 1 600 1 900 4 10,900 4 13,043 21 54,218 8 Over 12 years 4 41,814 - - 1 20,000 2 1,440 4 6,590 11 69,844 11 &Suity investments 7 2,510 3 1,725 5 5,275 7 5,460 5 2.071 27 17,041 3 Total a 331.509 38 31,390 44 80,685 67 83.605 84 122,858 468 650.o47 100 Size of Assistance Up to DH 200,000 84 10,795 10 1,375 12 ),800 11 1,728 16 2,399 133 18,097 4 DH 200,001 - 1,000,000 99 44,175 21 11,828 22 12,770 30 16,072 54 29,623 226 114,468 17 ai 1,000,001 - 5,000,000 33 82,100 6 12,577 7 11,115 24 53,105 10 27,336 80 186,233 28 5,000,001 and above 19 194,439 1 5.61o 3 55.000 2 12.700 4 63,500 29 331,249 51 Total 331.509 38 3L 390 L 67 84 468 5 Average Size 001,200 ~Pur9ose q fAaaitance New eLterprile 81 149,765 9 4,800 24 57,700 31 48,377 41 81,941 186 342,583 53 Extension 154 181,744 29 26o590 20 22,985 36 35,228 43 40,917 282 307,464 47 Ownership of Baterprise Assisted Majority public 12 63,855 3 7,805 6 57,750 6 11,301 6 49,001 33 189,712 29 Majority private 223 267,654 35 23,585 38 22,935 61 72,304 78 73,857 435 460,335 71 Nationalityof Reci lets P .ad.inat Horoc n 110 179,295 18 18,095 26 67,100 50 51,752 58 94,548 262 410,790 63 Predominantly foreign 125 152,214 20 13,295 18 13,585 17 31,853 26 28,310 206 239,257 37 Geograrhicaf Distribution Casablania 114 148,815 20 10,150 25 30,870 28 24,548 31 26,467 218 240,850 37 Rabat 13 13,200 2 6,477 3 1,675 4 6,450 7 48,860 29 76,662 12 Meknes 8 1,670 2 530 - - 3 1,480 3 9,200 16 12,880 2 Fes 21 32,255 4 7,755 2 500 10 10,512 12 9,141 49 60,163 9 Tetouan 10 3,555 - - 1 60o 2 1,200 3 5,400 16 10,755 2 Tangier 18 4,620 1 280 3 400 13 24,015 6 5,740 41 35,055 5 Eastern Xorocco 4 1,110 2 1,250 - - - - 1 450 7 2,810 0 Tadla 3 600 - - 4 41,850 1 200 2 450 10 43,100 7 Marrakech 10 7,630 1 90 - - 1 7,200 4 4,000 16 18,920 3 Agadir 16 4,890 2 958 4 3,650 2 2,100 6 2,310 30 13,908 2 No specific location 5/ 18 113,164 4 3,900 2 1,140 3 5,900 9 10,840 36 134,944 21 Secto r Power and mining 12 84,944 2 750 1 15,000 1 7,200 2 1,000 18 108,894 17 Petroleum and derivatives 7 61,450 - - - - - - 5 18,410 12 79,860 12 Textiles 58 33,625 12 9,360 13 6,175 33 43,935 11 10,260 127 103,355 16 Food and beverages 44 20,185 4 1,228 7 43,850 4 8,700 23 56,167 82 130,130 20 Mechanical industry 24 36,640 4 6,505 6 2,545 1 800 9 3,050 44 49,540 8 Chemical industry 24 29,410 3 2,407 3 3,250 - - 5 6,450 35 41,517 6 Agriculture 13 2,575 - - 2 1,850 5 7,181 2 460 22 12,066 2 Transportation 10 31,150 4 3,900 2 1,740 - - 4 5,160 20 41,950 6 Tourism - - - - - - 7 6,240 7 7,041 14 13,281 2 Miscellaneous 43 31,530 9 7,240 10 6 275 16 9 549 16 14 860 94 69 4 11 Total Assistance 2 331,509 - 3 31,390 *685 73 228 100 1/ Loans with a tens up to 5 years. 2 Loans with a term longer than 5 years. 3/ Rediscounts. 4/ Guaranties, promise of rediscounts, and operations for account of Treasury. 5/ Assdi,o,'- to owor and transport sectors.  BANQUE NATIONALE POUR LE DEVEIOPPEXENT EOONOMIQUE Sumary of Direet Loan Activity (amounts in thousands of Dirhams) 1959/43 1964 1965 1966 1967 Total No. Amount No . Amount No. Amount No. Amount Nou No. Amount Applications pending at beginning of year 20 24,375 20 35,370 33 78,380 42 169,350 Applications received during year 49 64,850 36 78.545 56 164.765 40 87,908 Total applications under study 69 89,225 56 113,915 89 243,145 82 257,338 Applications pending at end of year 20 35,370 33 78,380 42 169,350 33 195.050 Applications processed during year 49 53,855 23 35,535 47 73,795 49 62,288 Rejected or cancelled 27 34,935 2 1,500 9. 20,100 8 11.100 Net approvals of year 69 106.939 22 18,920 21 34.035 38 53 695Y/ 41 48.188! 191 261,7771/ Contracts signed during year 98 9 27.,324 17 9.87 25 40,115 27 39.625 163 232.774 Loans outstanding at beginning of year _ 80,445 89,154 106,561 134,553 Disbursements during year 93,966 14,745 25,871 42,457 47,399 224,438 Repayments during year 13.521 6,035 8,464 14,465 16370 8 Outstanding at end of year 80,445 89.15 5 106.561 134.553 162.58a | _ 1/ These figures are slightly lower than the corresponding figures in Annex 5 because they reflect cancellations made after the end of the fiscal years during which the operations were approved. IFC/DFC August 8, 196B  A!rTEX 7 ",A'tQJE NATIONIALE OTT? TIE DEVELOPENENT ECONO'SIQTE Sumimary Balance Sheets 1264 - 1967 TARmounts in thousands of Dirhams) Dec. 31 Dec. 31 Dec. 31 Dec. 31 1964 1965 1966 1967 ASSBTS Cash 12,650 6,139 12,905 8,848 Sundry debtors, stocks, etc. 3,989 2,338 4,656 3,866 'Rediscountable loan portfolio 1 042 1,000 - - Total current assets 78 9,77 17,561 12,7Jh Loans and investments Direct loans outstanding 89,155 107,060 134,553 162,582 Other debtors 83 13 14 11 Equity investments naid un 6 307 8,944 15,275 17,650 Total Dortfolio 9516,017 1h9,8k2 180,243 Less: orovisions (1,492) (1 492) (1 1492) (1,982) 94,053 114,525 1T0770 178,261 Fixed assets net of depreciation 3,156 . h902 ,74,1 Total Assets 114,890 128,904 170,651 195,k56 LIARILITIES Special denosits 6,799 4,460 3,534 3,630 Various current liabilities 3,624 3,358 6,652 6,480 Short-term notes 5,510 10,000 9,900 10,000 Dividend nrovision 900 900 1,050 1,200 16,8-33 18,718 21,310 4-1/2% bonds 1961-1965 4,000 - - _ 6-1/2% bonds 1961-1977 8,000 8,000 8,000 8,000 .Si 6% bonds 1961-1971 13,485 11,88o 10,180 8,375 I30 loans 329-_4OR and 447-MOR 17,583 34,437 64,161 89,158 Q3,068 54,317 82,3k1 105,533 2% subordinated Government loans 20,000 20,000 30,000 30,000 Share capital 30,000 30,000 30,000 30,000 Legal reserve 285 416 k66 512 Reserve for rediscountable loans 178 206 254 297 General loan reserve 2,488 3,318 h,513 6,o68 Free general loan reserve 500 500 500 500 Investment reserve 115 237 351 463 Undistributed surplus 1,k23 1,192 1,090 773 34,969 35_869 37,174 -38613 Total balance sheet liabilities 11k, 890 12,904 170,651 195,45 Guarantee liabilities outstanding 26,636 12,952 7,531 4,519 Outstanding commitments for rediscountable credits 84,608 55,792 60,524 79,967 IFC/DFC September 9, 1968  Annex 8 Page 1 %ATUE ITATIOIALE FOUR LE DLEl0 IPR ECON4IQUE Profit and Loss Accounts 1964 - 1967 7Arnoits in tl-ousands of Dirhaas) 1964 1965 1966 1967 Interest and commissions on direct loans 6,310 6,982 8,665 10,882 Interest and commissions on rediscountable loans 1,770 695 521 529 Income fron equity investments 126 163 157 348 Guaranty comrission and minscellaneous income 371 300 337 430 Gross Income 8,577 89140 9,680 12,189 ErENSES Interest, etc., on long-ternr debt 2,9014 3,526 4,506 6,254 Less: Treasury rebate ( 327) ( 377) ( 491) ( 741) ,577 3,149 1,015 5,513 Interest on notes (bons de caisse), deposits, etc. 330 347 345 346 Interest and fees paid to Central BankX and miscellaneous financial expenses 943 58 89 148 Total financial expenses 3,850 3,554 4,449 6,007 Salaries, !7ages and allowances 1,305 1,337 1,546 1,692 Other operating expenses 436 459 443 494 Depreciation of fixed assets 75 154 232 261 Total administrative expenses 1,816 1,95o 21221 2,447 Provisions for doubtful loans and investments 473 170 - 491 Total expenses 6,139 5,674 6,670 8,945 Income before taxes 2,438 2,466 3,010 3,244 Taxes on income 653 686 607 595 NTet Income 1,785 1,780 2,403 2 649 LDirect write-down on doubtful loans.  Annex 8 Fage 2 1964 1965 1966 1967 Allocation of income Investment reserve 28 122 114 112 Legal reserve 88 130 50 47 General loan reserve 895 830 l,15 1555 Reserve for rediscountable loans 17 28 48 43 Total allocations to reserves 1,028 1,110 1,407 1,757 Remainder of net income 757 670 996 892 Exceptional profits (losses) and profits (losses) relating to previous years 355 ( 48) ( 9) Undistributed earnings brought forward 1,211 1,423 1,192 1,090 Total available for distribution 2,323 2,093 2,140 1,973 Dividend 900 900 1,050 1,200 Undistributed surplus 1,1423 1,193 1,090 773 IFC/DFC Sentember 9, 1968  Annex 9 7,:AUJ HATIOALE PCOJR LE DE7LOP-E17P EC011MIQUE Forecast of Operations 1968-1971 Frnounts in thlousands of Dirhams) 1967 1968 1969 1970 1971 (Actual) I. Direct Loans Loan Approvals 48,188 70,000 70,000 65,000 65,000 Contracts Signed 39,625 60,000 65,000 60;000 60,000 Disbursements 47,399 60,000 60,000 60,000 60,000 II. Equity Investments Investments Approved 2,071 2,500 3,000 3,500 3,500 0 Contracts Signed 1,310 2,000 2,500 3,000 3o000 Disburser,aents 2,375 2,500 2,500 3,000 3,000 III. Rediscountable Credits Credits Approved 70,551 40,000 30,000 30,000 30,000 Contracts Signed 27,8h0 70,000 40,000 30,000 30,000 Outstanding End of Period 79,967 105,000 95,000 85,000 75,000 IFCADFC September 9, 1968  A.nnex 10 BP1.lTIF. ITTI(,TrT'E 10TIY LE DEVETOPPEITEflT EC0!T0MTIQUE Projected Cash Flow Statement 1968 - 1971 (Amounts in thousands of Dirhams) 1968 1969 1970 19711.1 REQUIREMENTS Disbursements on direct loans 60,000 60,00 60,000 60,000 Disbursements on equity investments 2,500 2,500 3f,000 3,000 Repayments: IBRD loans 7,560 11,000 12,050 15,000 Long-term dirham debt 2,510 2,660 2,825 3,100 20 20 20 20 * 1,200 1,200 1.200 1,200 73,790 77,380 79,095 82,320 RESOURCES 1st and 2nd IBRD loans 488,000 16,000 - - 3rd IERD loan - 37,000 39,000 - Other new long-term resources - - 11,000 50,000 Repayments received 23,310 25,240 27,000 30,000 Sales of equity investmentsY/ - - - - Net prc)fit after taxes 3,246 3,535 3,825 4,164 Depreciation of fixed assets 261 261 261 261 Provision for doubtful investments 500 500 500 500 75,317 82,536 81,586 8h,925 Surplus of resources 1,527 5,156 2,491 2,605 Opening balance liquid assets (8,596) (7,069) (1,913) 578 Closing balance liquid assets (7,069) (1,913) 578 3,183 1/ Rough estimate. 2/ Forecast impossible. IFC/DFC August 28, 1968  Annex 11 A:-TQUE HATITO-AIE IrTZ LE DEVELT]OPI'IET ECMOMIQUE Projected Balance Sheets 1968-1971 (Araounts in irdIlions of Dirhaams) 1967 1968 1969 1970 1971 (Actual) ASSETS Cash at banks 8.8 6.o 8.0 10.0 10.0 Sundry debtors 3.9 6.o 7.0 8.o 10.6 12.-7 -ITO5 1570 7970 2 0.6 Direct loans outstanding 162.6 199.3 234,1 267.1 297.1 Equity investments paid up- 15.7 17.7 19.7 22.2 24.7 17T.3 217.0 253.8 29.3 3217. Net fixed assets 4.5 h.2 _4.o 3.7 3.4 Total Assets 195.5 233.2 272.8 311.0 345.8 __~ - --t_ LIABILITIES Special deposits 3.6 3.0 1.0 1.0 1.0 Short-terr no'es % 0 '.. 10.0 10/) 10.0 O Siuidry credi9,;ors 6.5 h.8 5.0 5.2 5.2 Dividends 1.2 1.2 1.2 1.2 1.2 21.3 19.0 17.2 17.4 17.4 614% bonds 8.0 7.4 6.8 6.1 5.3 6. bonds 8.h 6.5 4.h 2.3 1st and 2nd IBRD loans 89.1 129.6 13h.6 122.9 111.2 3rd IBIRD loan - - 37.0 75.7 72.4 Other long-term resources - - - 11.0 61.0 105.5 143.5 182.8 218.0 249.9 2% subordinated Government loans 30.0 40.o 40.0 40.0 hO.0 Share capital 30.0 20.0 20.0 20.0 20.0 Legal reserve o.5 o.6 o.6 0.7 0.7 Reserve for rediscountable loans 0.3 0.4 0.4 0.5 0.5 General loan reserve 6.1 7.9 10.0 12.5 15.3 Free loan reserve 0.5 0.5 0.5 0.5 0.5 Investment reserve 0.5 0.6 0.7 0.9 1.0 Undistributed surplus 0.8 0.7 o.6 0.5 o.5 38.7 30.7 32.8 35.6 38.5 Total Liabilities 195.5 233.2 272.8 311.0 345.8 Ratios Het worth/all debt 1:1h.1 1:6.6 1:7.3 1:7.7 1:8.0 Net worth and subordinated Govern- ment loan to other non-current debt V 1:1.5 1:2.0 1:2.5 1:2.9 1:3.2 1Net of provisions 2 Borrowing limitation (max. 3:1) contained in first two IBRD/B.DE Loan Agreements. IFC/DFC September 9, 1968  Annex 12 J3AN.UE 1iATIOUTATL2 ICR TE DEVELOPPE1013T EC0flEIQIE Pro'ected Operating Results and Allocation of Income 1968-1971 (Aic,iot'nts in thousands of Dgihams) 1967 1968 1969 1970 1971 (Actual) Income Study fee 56 75 75 75 75 Commiitment charge 151 200 200 200 -200 Interest on direct loans 10,675 12,667 15,170 17,470 19,680 Interest and comssions on rediscountable loans 529 750 725 650 575 Incolne from equity investments 348 450 500 550 600 Other income 1430 450 500 500 500 Total income 12,189 14h,592 17,170 19,1445 21,630 Expenses Interest on short-term notes 3146 350 350 350 350 Interest on long-terr debt 5,513 6,925 8,958 10,820 12,500 Otlher financial expenses 1148 300 50o 600 700 Net financial expenses 6,007 7,575 9,808 11,770 13,55o Income net of financial expenses -6t82 7,017 7,362 7 675 8goO Salaries, wages and allowances 1,692 1,750 1,800 1,850 1,900 Other operating expenses 14914 500 500 500 500 Depreciation of fixed assets 261 261 261 261 261 Total administrative _expenses 2,4147 2,511 22561 2,611 2,661 Provisions for write-off/ 1491 500 500 50Q 500 Income before taxes 3,22L4 4,oo 4L,3ol 4,564 4i,92 Taxes on income/ 595 760 766 739 755 1Met income 2 6149 3246 lTet of Treasury rebate. In view of doubtful loans and investments, it is likely that T3L'DE will need to mnake new provisions of at least the level of 1967 in future, and this assumption has been made. 410% tax on income less provisions for general loan reserve and rediscount- able loan reserve and less a certain tax free allowance.  Annex 12 1967 1968 1969 1970 1971 (Actu) - Allocation to Reserves Investment reserve W 112 145 146 141 1b Legal reserve _/ -7 59 60 -58 -59 General loan reservei 1,555 1,810 2,167 2,496 2,811 Reserve gor rediscountable loans7/ 43 105 30 30 30 Total allocation to reserves 1,757 2,119 2,403 2 725 3,0o44 Distributable income 892 1,127 1f132 1,100 1,120 Undistributed earnings brought forward 1,081-' 773 700 632 532 Total Available for distribution 1,973 1,900 1,832 1,732 1,652 Dividend (65- on new capital) 1,200 1,200 1,200 12200 1,200 Undistributed surplus 773 700 632 532 52 Tvestment -reserve computed on taxable income at the rates of 5<` on income over DRT- 50,000 and up to DI-I 150,000 and 8P on income over DIH 150,000. Tlis reserve may only be used to cover losses. Legal reserve computed at the rate of 5' on distributable income. General loan reserve computed at the maximum rate of 1/7 of interest on direct loans. J Reserve for rediscountable loans computed at the rate of 0.1517. of new rediscounting commitments during the year. After adjustment (exceptional losses of 9). IF'C/DFC August 28, 1968