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2008 strategic portfolio review

The operating environment of the Bank became more complex in 2008 due to the impact of the economic and financial crisis on its region of operations. The 2008 Strategic Portfolio Review (SPR) provides both a review of implementation of the Capital Resources Review 3 (CRR3) and an assessment of trend shifts resulting from the crisis.

The Bank has continued to implement actively the strategic directions and objectives set in CRR3. During the third year of implementation of CRR3:

  • The Bank maintained a high transition result on its new commitments with around 89 per cent of signed projects in 2008 being rated good or excellent. On its portfolio, 60 percent of projects had an expected transition impact ranked 4 or better, at the top end of the target range. The report shows that the current economic and financial crisis may start to impact transition impact parameters.
  • The portfolio and particularly operating assets have continued to grow with the geographic composition of the portfolio closely aligned to CRR3 objectives for 2008.
  • Reflecting a sharp contraction of credit markets, the downward trend in overall average margins was reversed rising from 2.1 per cent in 2007 to 3.5 per cent in 2008.
  • Following a long period of low impairment, asset impairment rose sharply in 2008 with new additions of €881 million compared with €46 million in 2007. As a result of the impact of the crisis, the impairment ratio increased from a 13 year low of 1.4 per cent in 2007 to 6.8 per cent at the end of 2008.

In line with previous practice and taking account of the upcoming CRR4 preparation process, the 2008 SPR contains both a detailed integrated assessment of transition, operational, risk and financial trends and an analysis of specific topics of relevance to the medium term development of the Bank. The specific topics of analysis for the 2008 SPR include:

  • With the shift of interpretation to an operating assets basis, the dynamics of operating assets growth become particularly relevant to the analysis of future capital utilisation trends to be developed during the preparation of CRR4.
  • The number of projects in the portfolio is an important determinant of the Bank’s workload particularly at a time when risk is rising placing particular pressure on portfolio monitoring functions.
  • The equity portfolio has been a major driver of financial results during the early period of CRR3. As the equity portfolio grows, an analysis of equity portfolio maturity and divestment trends provides a relevant input for the upcoming analysis of potential equity returns during the final phase of CRR3 and during the CRR4 period.

Main findings from these specific analyses are that:

  • Annual net operating asset growth has averaged around €2 billion since 2006, double the level between 2001 and 2004. This acceleration resulted from the combination of rising disbursements with the stabilisation of operating assets reflows. This increase occurred across sectors and has been in part driven by direct equity investments.
  • The total number of portfolio operations increased by 36 per cent during the period 2004 to 2008 reaching 1,416 operations. The fastest growth was in Eastern Europe and Caucasus where the number of portfolio operations more than doubled from 137 to 344 reflecting the expansion of activity in both Ukraine and the Early Transition Countries of this region. Reflecting the impact of the ‘moving south and east’ strategy and of a determined focus on small operations, the number of portfolio operations increased by 50 per cent in Central Asia, 40 per cent in Russia and 37 per cent in South East Europe.
  • The expansion in the level of new equity investments has resulted in 66 per cent of the Bank’s equity operating assets at cost at the end of 2008 having been acquired within the last two years. These investments would not be expected to be divested to a significant extent until well into the CRR4 period. Over the period 2004 to 2008, the Bank divested €1.29 billion of equity assets at cost generating €2.5 billion of equity gains. This represented an average exit multiple of 2.9 with the overall average weighted holding period on these divestments being at 5.7 years.

Last updated 27 May 2010