IBRD Flexible Loan Lending Rate Basics Banking and Debt Management (BDM) World Bank Treasury December 31, 2009

Roadmap  Basics of IBRD lending rates  Links between lending rates and current financial market conditions  Attractiveness of IBRD lending rates for clients 2

IBRD borrows and onlends to clients; Financial market conditions affect lending rates 3 LoansLoans Capital Market Borrowings BorrowingsIBRDIBRD

6-month LIBOR 1: Base Rate The lending rate consists of a floating base rate plus a spread 4 Variable Spread Recalculated every six months Fixed Spread Remains fixed over the life of the loan 2: Lending Spread LIBOR (London Interbank Offered Rate) is a floating interest rate. It is the rate at which banks can borrow unsecured funds from other banks in the London wholesale money market.

How are spreads determined? Why and how often do they change? 5 Variable Spread Recalculated every six months Fixed Spread Remains fixed over the life of the loan Front end Fee: 0.25% Market Risk Premium Projected Funding Cost Monitored by management: Can change at any time Actual Funding Cost Re-calculated every semester: January 1& July 1 Contractual Spread Contractual Spread Reviewed annually by Board

Borrowers have two choices of spread over LIBOR Current variable spreads are lower than fixed spreads Borrower is exposed to changes in IBRD funding spreads to LIBOR in the longer term VariableSpreadOption FixedSpreadOption Fixed for life of loan once set at the date of loan signing* Maturity dependent Current spreads reflect higher IBRD borrowing costs at long terms *Fixed Spreads for DDOs are determined at time of disbursement No embedded risk management tools Can switch to fixed spread later at prevailing fixed spread plus a fee Embedded flexibility to fix rates or convert currencies

Current USD Lending Spreads: December 31, Contractual Spread Actual Funding Spread + Contractual Spread Market Risk Premium Projected Funding Spread Fixed Spread 0.50% 0.10% 0.00% % % Average Maturity (Years): Up to to 14 Over % 0.10%0.15% 0.20% 0.40% Variable Spread Average Maturity (Years): Up to 18 LIBOR % LIBOR+0.60%+0.80%+1.05% + Front-end Fee 0.25%

Lending spreads may be different for loans in Euros or Japanese yen 8 Loan Currency Variable Spread over LIBOR Fixed Spread over LIBOR Average Maturity Up to 18 Yrs 10 Yrs and Less Greater than 10 and Up to 14 Yrs Greater than 14 and Up to 18 Yrs USD0.17%0.60%0.80%1.05% EUR0.17%0.60%0.80%1.05% JPY0.17%0.50%0.90%0.95% December 31, 2009 What does this mean in lending rates????

For a rough idea of where current rates are, add spread to 6 month LIBOR in relevant currency 9 Loan Currency Variable Spread over LIBOR Fixed Spread over LIBOR Average Maturity Up to 18 Yrs 10 Yrs and Less Greater than 10 and Up to 14 Yrs Greater than 14 and Up to 18 Yrs USD0.17%0.60%0.80%1.05% EUR0.17%0.60%0.80%1.05% JPY0.17%0.50%0.90%0.95% USD LIBOREUR LIBORJPY LIBOR 0.43%0.95%0.48% December % +0.17% 0.60% 0.43% +1.05% 1.48% 0.43% +0.80% 1.23% 0.43% +0.60% 1.03%

10 IBRD remains an attractive source of financing... Fixed Spread Variable Spread December 2009 Compared to other MDBs

11 …compared to what many middle income borrowers face in the market Funding Cost Comparison Spreads over USD LIBOR December 1, 2009

Main Messages  Clients have a choice between the variable and fixed spread for IBRD Flexible Loans. There are cost and risk tradeoffs with each.  Fixed spread offered for new loans fluctuates to reflect expected funding costs, risks and market volatility at different maturities. Spread is not locked in until a loan is signed.  Variable spread resets semi-annually.  The contractual spread component of the lending spread is subject to adjustment during annual review process.  Beyond attractive pricing, IBRD loans come with technical expertise.

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