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Annual Report 2003
Financing OperationsFinancial ResourcesAuthorized capital stock amounted to $52 billion, and subscribed capital stood at $52 billion. ADB raised long-term funds totaling about $4.1 billion, of which $1 billion was raised through a global public offering. Gross income amounted to $1.7 billion, $1.4 billion of which was generated from the loan portfolio, $308.7 million from the investment portfolio, and $48.5 million from other sources of which $41 million came from equity investment operations ($15 million from dividends, $25 million from gains realized on the sale of equity investments, and $600,000 representing the share in net income of the Asian Finance and Investment Corporation Ltd). ADB’s Special Funds consisted of the Asian Development Fund with committed resources amounting to $511.1 million, the Technical Assistance Special Fund of $85.9 million, the Japan Special Fund totaling $19.9 million, and the ADB Institute Special Fund of $11.8 million. LoansLending for both public and private sector operations in 2003 amounted to $6.1 billion for 85 loans to 66 projects. This was ADB’s highest lending since 1997. The average loan size in 2003 was $72 million, compared with $64 million in 2002. Twenty-three DMCs and one regional project received loans. A total of $3.8 billion was disbursed. Of this, $2.1 billion (55%) were for project loans. The rest was for program, sector, and private sector loans.
Of the total lending, loans with government guarantees were over $5.9 billion for 62 projects comprising $4.5 billion for 33 loans from ordinary capital resources (OCR) and $1.4 billion for 47 loans from the concessional ADF. Thirteen were policy-based programs amounting to $1.1 billion representing 19% of total public sector lending. Of program lending, $912 million or 80% of the total came from OCR and $228 million or 20% from the ADF. Policy-based programs support DMC efforts to improve policy, institutional, and investment environments and to help meet short-term adjustment costs. Lending to the private sector without government guarantees, using OCR, amounted to $187 million. Of the 62 public sector loans, 10 were for core poverty intervention projects and 29 were for poverty intervention projects. These 39 projects amounted to about $3 billion or 51% of total public sector lending. Grants from the Japan Fund for Poverty Reduction totaling $35.3 million were approved for nine projects. (For details, see Table 32 in the Statistical Annex.) Poverty partnership agreements were signed between ADB and PRC, Kazakhstan, Kiribati, Samoa, Solomon Islands, Timor-Leste, Tuvalu, and Vanuatu. As in 2002, the largest DMC borrower in 2003 was India at $1,532 million (25% of the total). Other top borrowers included PRC $1,488 million (24%), Pakistan $871 million (14%), Bangladesh $532 million (9%), and Sri Lanka $275 million (5%). The transport and communications sector received the largest share of loans at $2,578 million (42%) followed by social infrastructure $1,131 million (19%), energy $757 million (12%), and finance $483 million (8%). The “others” sector received 5% of total lending. This included projects not falling under the economic sector classification that ADB uses, such central government administration, operation and regulation, customs operations, public sector reform programs, judicial and legislative operations, public finance management, fiscal reforms, environment projects, gender and governance, and tourism (see tables 1–5 in the Statistical Annex).
Technical AssistanceA total of 315 technical assistance grants amounting to $176.5 million was approved in 2003. Of those, 74 were for project preparation; 165 was for advisory and operational purposes; and 76 were for regional activities such as conferences, research, studies, and training. Of the total amount for technical assistance, $87 million were from the Technical Assistance Special Fund using current income from OCR; $37 million were from the Japan Special Fund; and the remaining $53 million came from other multilateral and bilateral sources. The largest recipient of country-specific technical assistance (excluding regional technical assistance) was India at $14.7 million (12%), followed by the PRC $14.3 million (11%), Indonesia $12.5 million (10%), Afghanistan $10.5 million (8%), and Pakistan $10.0 million (8%). Excluding regional technical assistance, the sector distribution was as follows: social infrastructure $24.5 million (20%), agriculture and natural resources $15.3 million (12%), energy $15.1 million (12%), transport and communications $11.4 million (9%), finance $10.7 million (9%), multisector $5.2 million (4%), and industry and nonfuel minerals about $3 million (2%). Other technical assistance received $41 million or 32% of the total (see tables 21–25 in the Statistical Annex).
GrantsTotal grants amounting to $483.5 million were approved in 2003, consisting of grant cofinancing of loan components amounting to $433.2 million from bilateral and multilateral sources, of which $404 million were administered by ADB and $29.2 million were on parallel financing; $35.3 million in projects financed by the Japan Fund for Poverty Reduction; and $15 million from the Kuwait Fund for Arab Economic Development (see tables 6, 32 and 34 in the Statistical Annex). Equity InvestmentsADB approved a total of $35.7 million in equity investments for regional investment funds and financial institutions (see tables 9–12 in the Statistical Annex). Cofinancing and Guarantee OperationsTo maximize development impact, ADB closely coordinated with other development partners on its assistance programs to all DMCs to incorporate cofinancing and coordination opportunities. ADB systematically intensified coordination with official loan and grant cofinanciers to identify opportunities that directly complemented ADB projects or produced other benefits. In commercial cofinancing, ADB actively supported commercially attractive private sector projects and programs by using appropriate credit enhancement products such as guarantees. ADB continued the dialogue with its DMCs to identify the best financing solutions for public and private sector projects and programs, specifically the use of its credit enhancement products (see http://www.adb.org/cofinancing/).
ADB intensified efforts to promote commercial cofinancing and guarantee operations by developing initiatives such as trade finance and private sector investment funds like the ASEAN China Investment Fund and the Asia Clean Energy Fund. ADB also organized cofinancing seminars and training for its staff, DMC officials, and cofinancing partners; adopted an active role in structuring and mobilizing financial resources for public-private partnership initiatives; and strengthened partnerships with its cofinanciers and risk-sharing partners. In total, cofinancing and guarantee operations mobilized about $2.4 billion, which represented about 40% of ADB’s total lending of $6.1 billion. Twenty-eight projects in 14 DMCs including two regional projects involved cofinancing in 2003. The PRC received the largest amount ($1,241 million), primarily from its domestic financial institutions, followed by Bangladesh with $598 million and Thailand with $170 million (see Table 6 in the Statistical Annex). Since 1970, cofinancing and guarantee operations have mobilized a cumulative total of $40.6 billion providing additional resources for 637 ADB-assisted loan projects and programs. The cumulative total comprises $22.9 billion from official sources and $17.7 billion from commercial sources. The energy sector accounted for $17.1 billion (42%) followed by transport and communications $9.2 billion (23%), agriculture and natural resources $4.2 billion (10%), social infrastructure $4.0 billion (10%), and other sectors $6.1 billion (15%). Commercial Cofinancing and Guarantee Operations. These totaled $1.6 billion for 12 projects, of which guarantee operations amounted to $240 million. Additional commercial cofinancing was raised in the form of parallel cofinancing from domestic financial institutions mainly in the PRC ($1.3 billion); from the complementary financing scheme ($100 million); and from parallel loans from financial lenders ($30 million). Official Cofinancing. Cofinancing mobilized from ADB’s bilateral development partners and multilateral financial institutions totaled $775 million for 18 projects comprising $433 million in grant funds and $342 million in loans. Of the grant funds, about $404 million were for the Second Primary Education Development Program in Bangladesh which was cofinanced under a sector-wide approach program (SWAP) with ADB taking the role of lead agency. Apart from the $150 million loan from the World Bank and tied grant funds from Australia and Japan, which were contributed to the Program on a parallel basis under the SWAP, ADB will administer untied grants of $389 million from the European Community ($100 million), Canada ($20 million), the Netherlands ($50 million), Norway ($40 million), Sweden ($29 million), and the United Kingdom ($150 million).
Parallel loans were provided by Finland ($5 million), France ($105 million), Japan ($20 million), the International Development Association ($166 million), the Islamic Development Bank ($9.5 million), the OPEC Fund for International Development ($6 million), and the Nordic Development Fund ($30.6 million) (see tables 6 and 34 in the Statistical Annex). Resource TransfersThe net transfer of resources to ADB from its DMCs increased to 5.3 billion in 2003, compared with 1.4 billion in 2002. During the year, there was a net inflow of 6.0 billion ($2.1 billion in 2002) to ADB from OCR borrowers/investees, mainly from prepayments of 5.9 billion ($2.0 billion in 2002) of OCR pool-based loans. However, net transfers from ADB to ADF borrowers decreased from $717.8 million in 2002 to $640.8 million in 2003. (For details, see tables 26 and 27 in the Statistical Annex.) Loan disbursements in 2003 totaled $3.8 billion comprising 95.8% of the target for the year. Of the total, OCR disbursements were $2.7 billion or 70% and ADF disbursements were $1.1 billion or 30%. (For details, see tables 7, 8, and 14 in the Statistical Annex.) Loan service payments reached $9.1 billion in 2003, compared with $5.6 billion in 2002. The increase was mainly because of higher prepayments ($5.9 billion in 2003, $2.0 billion in 2002). In 2003, the four largest net resource transfers from ADB were to Viet Nam, Sri Lanka, Cambodia, and Bangladesh (see tables 26 and 27 in the Statistical Annex).  Private Sector OperationsIn 2003, ADB approved $562.7 million of assistance in private sector operations, a 174% increase over the 2002 level of $205.5 million. Assistance comprised loans of $187.0 million, equity investments of $35.7 million, guarantees of $240.0 million, and a complementary financing scheme of $100 million. Approved loan and equity investment will mobilize a total of $2,320 million of funding, leveraging ADB’s own funds by about 9.4 times. Private sector operations focused on responding to changing market conditions and on promoting sustainable economic growth in DMCs. Pioneering initiatives included (i) trade finance, (ii) small and medium enterprise (SME) development, (iii) resolution of nonperforming loans to assist commercial banks in resolving “drag” on their portfolios, (iv) local currency financing, (v) projects to finance the upgrading or expansion of existing infrastructure, and (vi) financial restructuring/refinancing for existing infrastructure projects to eliminate currency and tenor mismatch.  Since its first private sector investment in 1983, ADB has approved 160 projects for a total of $3.5 billion, inclusive of equities, loans, guarantees, and complementary financing schemes. ADB’s cumulative equity and loan approvals have catalyzed a total of $21 billion in funding for private sector projects, leveraging ADB’s investments by a ratio of 7.8. In 2003, the majority of the projects in the private sector portfolio were exposures to India (16.7%), Bangladesh (13.0%), PRC (11.0%), Viet Nam (10.5%), and Philippines (9.3%). Regional projects accounted for roughly 18.9% of total exposure. Infrastructure projects were the largest at 52.3%, followed by investment funds at 20.3% and financial institutions at 17.5% with the balance accounted for by other sectors at 9.9%. As of 31 December 2003, the overall private sector portfolio (equity investments, loans, and guarantees) was about $1.4 billion. ADB disbursed a total of $147 million while collecting roughly $48.6 million in principal repayments and interest of $21.5 million. To free up capital resources for new investments, ADB fully or partially divested equity shareholdings in 11 project companies, resulting in net returns of 143% over investment costs. Six loans totaling $18.9 million were fully repaid during the year. To manage risk effectively, ADB sets aside a general provision of 8% of the total outstanding healthy portfolio, excluding projects with specific provisions and mark-to-market investments. The general provision as of 31 December was estimated at $41.9 million with a total specific provision of roughly $111.1 million. The loss-reserve ratio as a percentage of the total outstanding direct portfolio was 19.9% at the end of 2003, compared with 18.9% in 2002. ADB recorded revenues of $40.3 million in capital gains and dividends during the year. Approximately $25.4 million were capital gains from the 11 projects sold/redeemed fully or partially, while cash dividends received from various projects amounted to $14.9 million compared with $8.6 million in 2002.
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