Development Bank: successes, but room for improvement
The Oesterreichische Entwicklungsbank AG (in the following: Development Bank) acts on behalf of the Republic of Austria. It is entrusted with a development policy mandate. In its report "Oesterreichische Entwicklungsbank AG" published today, the Austrian Court of Audit (ACA) recommends to make it impacts related to development policy more verifiable and measurable. Furthermore, it points to the increase in claims payments that had to be borne by the Federation. Since the guarantee fees received by the Federal Government by the Development Bank have so far significantly exceeded the claims payments, the bank still generates a profit for the Republic.
The Development Bank is a 100 per cent subsidiary of the Oesterreichische Kontrollbank Aktiengesellschaft, which provides financial and information services to the export industry and the capital market and whose shares are mainly held by credit institutions headquartered in Austria. The audit encompassed those activities that are directly linked to the bank's public mandate. The audited period spanned the years from 2015 through 2019, while significant developments of 2020 were also taken into account.
Higher risks have to be taken
In 2008 the Republic of Austria established the Development Bank. This specialist bank finances private-sector projects in developing countries at market-based conditions. Federal guarantees and federal funds enable it to bear higher risks than conventional commercial banks. It has to take such risks in order to be able to fulfil its development policy tasks. The overarching goal of the Development Bank is to contribute to poverty reduction and to the implementation of the Sustainable Development Goals ("SDGs") by strengthening the private sector in developing countries. However, in doing so, it has to operate on a profit-oriented basis and act economically, efficiently and effectively.
Profit was generated despite an increase in claims payments
The Development Bank has been able to triple its revenue reserves since 2015, namely to EUR 45.31 million in 2020. The bank is therefore also of benefit for the Republic of Austria. For guarantees assumed by the Federal Government, the Development Bank pays guarantee fees: from 2015 to 2020, the Federal Government received EUR 63.56 million. In contrast, the claims payments made by the Federal Government to the Development Bank during this period amounted to EUR 31.29 million, although such claims payments have increased significantly since 2017. By 2015, the claims payments made by the Federal Government to the Development Bank had amounted to EUR 220,000. The Development Bank explained this development primarily with the increasing maturity of its portfolio and the fact that new business areas as well as country markets were opened up.
Taking measures in the case of excessively high loss forecasts
The activities of the Development Bank entail both financial and reputational risks for the Republic of Austria. It is therefore all the more important to clearly identify such risk. The loss forecasts prepared by the Oesterreichische Kontrollbank Aktiengesellschaft for the Federal Ministry of Finance saw a significant increase between 2017 and 2020 in terms of both “expected loss” and “substantial unexpected loss”. The ACA criticizes the fact that no thresholds had been defined for the loss forecasts and actual loss payments, which, if exceeded, would require measures by the Federal Ministry of Finance to reduce both the forecast as well as the actual defaults.
Loans for private projects: EUR 1.312 billion
The portfolio developed by the Development Bank comprises in particular investment financing, fiduciary holdings and own equity interests. Within the framework of investment financing, the Development Bank grants long-term loans for private-sector projects in developing countries. In 2020, such projects amounted to EUR 1.312 billion.
The Development Bank can enter into equity interests in funds and companies financed from federal funds. Such fiduciary holdings amounted to EUR 114.62 million in 2020. The maximum amount of fiduciary holdings the Development Bank can conclude is determined by the Federal Government in its annual budget. The funds earmarked for this decreased significantly: for the period of 2015 to 2017, EUR 10 million were budgeted for such equity interests respectively; for 2018 the budgeted amount was at EUR 12.5 million. In 2019, no funds were budgeted at all and in 2020 the budget envisaged EUR 5 million. Such fluctuations make reliable planning and the systematic and sustainable development of the portfolio held for the Federal Government difficult. The ACA recommend to the Federal Ministry of Finance to determine the volume of the portfolio of fiduciary holdings to be attained by the Development Bank and to provide the necessary funds for this on an ongoing basis.
Measuring developmental effects more accurately
The management of the Development Bank is based on its strategy, which is coordinated with the Federal Ministry of Finance, the Federal Ministry for European and International Affairs and the Oesterreichische Kontrollbank Aktiengesellschaft. Specifically, the Development Bank has set itself the goal, among others, to use, as an average for the years 2019 to 2023, at least 25 per cent of the funds granted for projects in the least developed countries. With 2.54 per cent in 2019, it fell far short of this target. In 2020, the bank achieved a significant improvement in this regard, namely 13.26 per cent. The target values should be evaluated and adjusted if necessary.
The Development Bank and the Federal Ministry of Finance should furthermore determine more target values for developmental effects in order to ensure a stronger focus on the bank's development policy mandate as regards the management of the portfolio and to be able to measure and review the developmental success in a target-oriented manner. Such developmental effects are, for example: the number of local jobs, the number of women in management positions or the number of people supplied with electricity from renewable energy sources.
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Report: Oesterreichische Entwicklungsbank AG (in German)
From July to October 2020, the ACA carried out an audit of the activities of the Oesterreichische Entwicklungsbank AG (in the following: Development Bank) with regard to the tasks assigned to it by the Federal Ministry of Finance. The audit aimed at outlining and assessing the Development Bank’s approach with regard to the performance of tasks, the implementation of its strategy and the implementation of its development policy projects. Furthermore, the ACA assessed the management of the financial risks entailed for the Republic of Austria by the Federal Ministry of Finance. The audited period spanned in particular the years from 2015 through 2019, while significant developments of 2020 were also taken into account.