Annual status report by the Commission on the Guarantee Fund and its management in 1996
COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 13. 05. 1997 COM(97) 208 final ANNUAL STATUS REPORT BY THE COMMISSION ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 1996 CONTENTS 1. LEGAL BASES 2. POSITION OF THE FUND AT 31 DECEMBER 1996 3. PAYMENTS INTO THE FUND 3. 1. PAYMENTS FROM THE GENERAL BUDGET 3. 2. INTEREST FROM FINANCIAL INVESTMENT OF THE FUND'S LIQUID ASSETS 3. 3. RECOVERY FROM DEFAULTING DEBTORS 4. THE FUND'S LIABILITIES 4. 1. DEFAULT PAYMENTS 4. 2. EEB REMUNERATION ^ ANNEXES ANNEX I: LEGAL BASES FOR PAYMENTS FROM THE GENERAL BUDGET 1. DECISIONS COVERED BY TRANSFER 5/96 2. DECISIONS COVERED BY TRANSFER 42/96 3. DECISION COVERED BY TRANSFER 52/96 ANNEX U: EIB STATUS REPORT ON THE FUND AND ITS MANAGEMENT - REVENUE 1 ct \cu 2 2 3 4 4 4 4 6 6 7 7 AND EXPENDITURE ACCOUNT AND BALANCE SHEET AT 31 DECEMBER 1996 1. DEVELOPMENT OF THE FUND IN 1996 2. THE FUND'S RESOURCES 2. 1. THE FUND'S ACCOUNT 2. 1. 1 Payments made by the Fund from 1 January to 31 December 1996. 2. 1. 2 Amounts recovered from defaulting debtors from 1 January to 31 December 1996 2. 2. THE FUND'S. ASSETS 2. 3. LIQUIDITY RISK 3. INVESTMENTS MADE DURING 1996 3. 1. TREASURY OPERATIONS 3. 2. INVESTMENT PORTFOLIO 8 8 8 8 9 9 10 10 11 11 13 ANNEX III: CONSOLIDATED FINANCIAL BALANCE-SHEET AT 31 DECEMBER 1996 16 i CL - ANNUAL STATUS REPORT BY THE COMMISSION ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 1996 1. LEGAL BASES Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 set up a Guarantee Fund for external actions to repay the Community's creditors in the event of default by beneficiaries of loans granted or guaranteed by the Community. In accordance with Article 6 of the Regulation the Commission entrusted financial management of the Fund to the European Investment Bank (EIB) under an agreement signed between the Community and the ELB on 23 November 1994 in Brussels and on 25 November 1994 in Luxembourg. Under Article 8. 2 of the agreement, by 1 March each year the Bank must send the Commission a status report on the Fund and its management, the revenue and expenditure account and the financial statement for the Fund for the preceding year. An extract from the report covering 1996 is in Annex II. In addition, Article 7 of the Regulation establishing the Fund requires the Commission to send the European Parliament, the Council and the Court of Auditors a report on the situation of the Fund and its management for each financial year by 31 March of the following year. 2. POSITION OF THE FUND AT 31 DECEMBER 1996 At the close of the 1996 financial year, the Fund totalled ECU 557 510 343 61 (Annex II). This is the sum, since the Fund was established, of all - budget payments (ECU 779 860 000), - - incremental yearly net results (ECU 41 813 114. 11), late payments from non-member countries (ECU 91 345 772. 68), - debts corresponding to the payments not made to the Bank (ECU 104 534. 51) - minus calls on the Fund's resources (ECU 355 613 077. 69). total amount of the consolidated balance sheet into ECU 330 000 000 is III) The ECU 845 599-807 92, which breaks down in deposits, ECU 14 427 909. 00 on current account, ECU 204 358 136. 23 in the securities portfolio, ECU 8 724 298. 38 at 31 December 1996 (ECU 1 283 620. 82 in interest accrued and not yet due on fixed-term deposits, interest ECU 7 386 889. 78 coupons and and ECU 53 787. 78 to be paid) and interest on ECU 288 089 464. 31 in receivables from the recipients of loans granted or guaranteed yet due sight-deposits accrued accrued and not paid (see Annex accrued interest not on in by the Community, including ECU 271 154 609. 44 in principal and interest due and ECU 16 934 854. 87 in default interest incurred but not received at 31 December 1996. Article 3 of the Regulation establishing the Fund requires that the amount of the Fund has to reach an appropriate level (target amount) set at 10% of the total outstanding capital liabilities arising from each operation, plus unpaid interest due. Outstanding lending and loan guarantee operations for non-member countries plus unpaid interest due totalled ECU 6 715 million at 31 December 1996, of which ECU 194 million was accounted for by unpaid interest. The ratio between the Fund's resources and outstanding capital liabilities within the meaning of the Regulation was 8. 3%. Since this is lower than the target amount of 10%, there was no surplus to be paid back to the general budget of the Communities, as provided for in the third paragraph of ArticLe 3 of the Regulation. There was also no need to review the provisioning rate, as provided in Article 4 of the Regulation. The following sections describe developments affecting liabilities in 1996. the Fund's resources and 3. PAYMENTS INTO THE FUND 3. 1. Payments from the general budget Articles 2 and 4 of the Regulation establishing the Fund stipulate that it is to be endowed by payments from the general budget equivalent to 14% of the capital value of loan and loan guarantee operations until the target amount is reached. Under Article 5 the provisioning rate rises to 15% for new operations if the Fund's resources fall below 75% of the target amount as a result of guarantees being activated to cover any default. The legal bases for the provisioning arrangements are described in Annex I. The Council Decision of 31 October 1994 concerning budgetary discipline authorized the entry in the general budget of a reserve for loan and loan guarantee operations. This item, which was allocated provisional appropriations of ECU 326 million in 1996, is intended to endow the Fund by transferring amounts into the budget item for payments into the Fund. On these legal bases, three transfers totalling ECU 235 390 000 were adopted by the budgetary authority in 1996 to endow the Guarantee Fund. - Transfer 5/96: ECU 191 890 000 This first transfer at the beginning of the year was for payments into the Fund under the Council Decisions of 15 February 1993, 13 December 1993, 24 January 1994, 21 March 1994, 1 June 1995, 10 April 1995 and 30 October 1995, in accordance with the arrangements set out in the Annex to the Regulation establishing the Fund (see Annex I). 3- - Transfer 42/96: ECU 2 250 000 This second transfer was for payments into the Fund in respect of the loan operation adopted by the Council on 25 March 1996 for Moldova. The decision covered by this transfer is given in Annex I. - Transfer 52/96: ECU 41 250 000 This third transfer was for payments into the Fund in respect of loan guarantee operations adopted by the Council on 12 December 1996 for projects in Latin American and Asian countries. The decision covered by this transfer is listed in Annex I. The three transfers to the Fund were made in two payments in May and December 1996. 3. 2. Interest from financial investment of the Fund's liquid assets The Fund's liquid assets are invested in accordance withthe management principles laid down in the Annex to the Community/EEB Agreement. These principles state that during the Fund's first years of operation it will be treated as a money-market investment fund dealing solely in short-term instruments up to one year, as long as the total amount invested does not exceed ECU 300 million. As the amount of the Fund exceeded this ECU 300 million threshold in 1995, the Commission agreed with the EEB to amend the investment principles early in 1996. The list of banks authorized to receive deposits is agreed by the Commission and the EIB. The original list has been revised several times in the light of the latest changes in bank ratings. Most of the banks are members of the ecu clearing system. They all have a Moody's rating of at least Al for long-term investments and PI for short-term ones and investments made with them are governed by rules to ensure a good spread and avoid risk exposure. In 1996 interest on deposits, the Guarantee Fund current account, and securities, totalled ECU 19 834 606. 07, broken down as follows: - deposits: ECU 13 598 452. 62. This represents the situation at 31 December including interest received on bank deposits (ECU 14 120 687. 93) and interest incurred (ECU 1 283 620. 82) in 1996. The interest incurred corresponds to interest which has not been received by the Fund at the end of the year but will be paid at the dates fixed for maturity of the investments. The interest accrued, as shown in the end-1995 situation but received in 1996 (ECU 1 805 856. 13) is deducted from the interest entered in the accounts during 1996. - current account: ECU 522 831. 55, comprising interest recorded on the current account. » - securities portfolio: ECU 5 713 321. 90. The interest on securities is generated by investments placed in the form of securities in accordance with the principles of investment laid down in the Agreement giving the EIB the task of managing the Fund's liquid assets. - 4- The interest received is entered in the results for the financial year. 3. 3. Recovery from defaulting debtors Any late repayments by defaulting countries on operations where the Fund has honoured the guarantee are paid into the Fund. The amount recovered in 1996 totalled ECU 55 715 204. 14 (see point 2. 1. 2 cf Annex II). 4. T HE FUND'S LIABILITIES 4. 1. Default payments The Fund's guarantee was called in on five occasions in 1996, involving a total of ECU 52 540 496. 79 (see point 2. 1. 1 of Annex II). 4. 2. EIB remuneration Article 6 of the management agreement between the Commission and the EIB sets an annual commission of 0. 125%) calculated on the Fund's average monthly balances. The figure is to be reviewed at the end of any year in which the Fund's liquid assets reach ECU 300 million and no later than three years following the date of the first payment into the Fund, taking into account such things as the growth of the Fund's activities. As the Fund had reached ECU 300 million at the end of 1995, the EEB's remuneration was reviewed. Taking into account the Bank's experience of the workload involved in its management, a supplementary agreement dated 17 September and 23 September 1996 to the Agreement on the financial management of the Fund took the annual payment to 0. 05%) of the Fund's assets; this rate was applied retrospectively on 31 December 1994. In 1996 the remuneration paid to the Bank was ECU 205 638. 05 entered in the profit and loss account, including ECU 104 534. 51 entered as accruals (liabilities) on the balance sheet. This payment will be made to the EIB at the beginning of January 1997. - 5- ANNEXES ANNEX I: LEGAL BASES FOR PAYMENTS FROM THE GENERAL BUDGET 1. DECISIONS COVERED BY TRANSFER 5/96 2. DECISIONS COVERED BY TRANSFER 42/96 3. DECISION COVERED BY TRANSFER 52/96 6 6 7 7 ANNEX U: EIB STATUS REPORT ON THE FUND AND ITS MANAGEMENT - REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET AT 31 DECEMBER 1996 1. DEVELOPMENT OF THE FUND IN 1996 2. THE FUND'S RESOURCES 2. 1. THE FUND'S ACCOUNT 2. 1. 1 Payments made by the Fund from 1 January to 31 December 1996 2. 1. 2 Amounts recovered from defaulting debtors from 1 January to 31 December 1996 2. 2. THE FUND'S ASSETS 2. 3. LIQUIDITY RISK 3. INVESTMENTS MADE DURING 1996 3. 1. TREASURY OPERATIONS 3. 2. INVESTMENT PORTFOLIO 8 8 8 8 9 9 10 10 11 11 13 ANNEX LTJ: CONSOLIDATED FINANCIAL BALANCE-SHEET AT 31 DECEMBER 1996. 16 -6 ANNEX I LEGAL BASES FOR PAYMENTS TO THE GUARANTEE FUND FROM THE GENERAL BUDGET The Annex to the Regulation concerning arrangements for payments under the Guarantee Fund stipulates that for borrowing/lending operations or guarantees to financial bodies under a framework facility spread over several years and with a micro- economic and structural purpose, payments will be made in annual tranches calculated on the basis of the annual amounts, indicated in the financial statement attached to the Commission proposal, adapted, where appropriate, in the light of the Council decision. In the case of other borrowing/lending operations such as balance of payments loans to non-member countries, irrespective of whether they are made in one or more than one tranche, the amount to be paid into the Fund will be calculated on the basis of the total amount for the operation decided on by the Council. Three transfers were made under this procedure in 1996. 1. DECISIONS COVERED BY TRANSFER 5/96 - Council Decision of 15 February 1993 calling on the ELB to grant loans for projects of mutual interest in certain non-member countries with which the Community has cooperation fixed ceiling of ECU 250 million a year for a period of three years. agreements, within a - Council Decision of 13 December 1993 renewing the Community guarantee of EIB loans in the countries of Central and Eastern Europe, with a ceiling of ECU 3 billion over three years. - As part of the financial cooperation with the Mediterranean countries: - Council Decision of 24 January 1994 for a three-year loan of ECU 115 million for Syria. - Council Decisions of 30 October 1995 for three-year loans of ECU 30 million for Malta and ECU 50 million for Cyprus. - Council Decision of 10 April 1995 concerning the granting of macro-financial aid of ECU 75 million to Belarus. - Council Decision of 1 June 1995 granting a Community guarantee to the EIB against losses under loans for projects in South Africa, with an overall loans ceiling of ECU 300 million over two years. 7- Council Decision of 21 March 1994 empowering the Commission to contract Euratom loans to contribute to financing improvements in the safety and efficiency levels of the nuclear capacity of certain non-member countries for an amount of ECU 1 100 million. DECISIONS COVERED BY TRANSFER 42/96 - Council Decision of 25 March 1996 providing further macro-financial assistance for Moldova. 3. DECISION COVERED BY TRANSFER 52/96 - Council Decision of 12 December 1996 granting a Community guarantee to the European Investment Bank against losses under loans for projects of mutual interest in Latin American and Asian countries with which the Community has concluded cooperation agreements. An overall ceiling of ECU 275 million is set. A N N E XE EIB STATUS REPORT ON THE FUND AND ITS MANAGEMENT REVENUE AND EXPENDITURE ACCOUNT AND BALANCE SHEET AT 31 DECEMBER 1996 1. DEVELOPMENT OF THE FUND IN 1996 The total holdings of the Fund stood at "ECU 548. 8 million at 31 December 1996 as compared with 298. 4 million in 1995. In view of the drop in rates on the ecu market over the year, the operating result fell from ECU 23. 3 million in 1995 to 18. 0 million in 1996. In view of the level of liquid assets, part of the Fund's holdings has been placed in an investment portfolio. 2. THE FUND'S RESOURCES 2. 1. The Fund's account Resources at 31/12/95 in 1996 TOTALS - Provisions - Activation of guarantee - Late recovery Account balance + + 544 470 000. 00 235 390 000. 00 779 860 000. 00 303 072 580. 90 52 540 496. 79 355 613 077. 69 35 630 568. 55 55 715 204. 13 91345 772. 68 277 027 987. 65 238 564 707. 34. 515 592 694. 99 The activations of the guarantee were lower than in 1995, and, in contrast to 1995, amounts recovered exceeded payments. 9- 2. 1. 1 Payments made by the Fund from' 1 January to 31 December 1996 VALUE DATE 26/01/1996 15/04/1996 11/06/1996 04/10/1996 15/10/1996 TOTAL AMOUNT 5 199 025. 76 31 199 184. 87 6 387 972. 88 8 886 702. 48 867 610. 80 52 540 496. 79 2. 1. 2 Amounts recovered from defaidting debtors from 1 January to 31 December 1996 VALUE DATE 26/01/1996 15/02/1996 17/05/1996 21/08/1996 22/08/1996 30/09/1996 10/10/1996 17/10/1996 21/10/1996 31/12/1996 TOTAL AMOUNT 2 297. 68 15 239. 78 17 291251. 52 46 715. 01 11 837 400. 00 111 449. 97 6 961 662. 79 11 625 570. 00 34 126. 37 7 789 491. 01 55 715 204. 14 -10 2. 2. The Fund's assets The Fund's assets totalled ECU 548. 8 million at 31 December 1996, of which 330 million is invested in short-term monetary deposits, 14. 4 million on current account and 204. 4 million in the investment portfolio (see table below 2. 3). THE FUND'S ASSETS UP TO 31. 12. 1996 (ECU millions) 600 T 500 - 400 -- 300 -~ 200 -: 100 - 0 - co CD CD c CO \ 1996 1995 CO o CD CD CD CD 03 2 CO CD QL < »8 CO CD CD CO CD CD 3 —i CO CD CD T- I O) < CO o> CD i Q. d) CO CO CD CD O O CO CD CD T- I > o CO CD CD Q 2. 3. Liquidity risk Investments at less than 3 months Investments at 3-6 months Variable-rate securities TOTALS Current accounts 14 427 909. 00 Fixed-term deposits 310 000 000. 00 20 000 000. 00 14 427 909. 00 330 000 000. 00 Securities portfolio 76 601318. 92 26 265 895. 01 98 490 922. 30 204 358 136. 23 TOTALS 404 029 227. 92 46 265 895. 01 98 490 922. 30 548 786 045. 23 in percentages 73. 62 8. 43 17. 95 100. 00 Cover of more than 60% at less than three months is maintained to correspond to the time by which the Commission must call on the Fund in the event of defaults on loan repayments. 11 - 3. INVESTMENTS MADE DURING 1996 3. 1. Treasury operations The Fund operates in a single currency: the ecu. The yield on investments in 1996 averaged 4. 5% as against 6. 12% in 1995. The yield obtained is 24 basis points above the three-month LEBID rate which was the 1996 reference. In 1995, the reference was the one-month LIB ED. MONTH YIELD LIBID three months MARGIN January - December 4. 50% 4. 26% 0. 24% Movements in rates over 1996 The table below shows the rates obtained for interbank money-market investments as compared with the three-month LIBED reference rate. EVOLUTION DES TAUX DES DEPOTS A TERME RATE 3-MONTH LIBID CD C D. CD CD i jQ CD CD CD i !. Q. < CO CO I 03 CD CO CO CO CO co 3 < CD CO i CL CD C7> CO CO I o O CD CO I > o CD CO Ô CD Q 6 5 + 4 3 - 2 - 1 - 0 CD CD C CD - 12- Geographical breakdown of the countries with which the Fund made fixed-term deposits with indication of the average capital (ECU million). Situation at 31. 12. 1996 (million) Average capital in 1996 (million) Average capital in 1995 (million) - Germany: - Austria: - Belgium: - Spain: - Denmark: - Finland: - France: - Ireland: - Italy: - Luxembourg: - Netherlands: - United Kingdom TOTALS 45 25 25 30 80 65 15 45 330 47,7 5 42,5 8. 5 22,4 0,9 69,2 13 17. 3. 15,4 31,8 28,7 302,4 35,4 9. 4 65,5 0 16,2 0 160,2 0 0 21,9 53,3 11. 3 373,2 The objective of better geographical distribution has been pursued throughout the year, with the result that the deposits operation could be extended to counterparts in Spain, Finland, Ireland and Italy. GEOGRAPHICAL DISTRIBUTION OF FIXED-TERM INVESTMENTS (average capital in million ecus) 70 y 60 - 50 -- 40 -- 30 - 20 -- 10 -- 14, 3 E 0) 13 3. 2. Investment portfolio The securities portfolio, seen as an investment portfolio, is made up of securities in ecus acquired with the intention of keeping them until maturity: the fixed-interest securities whose residual period to maturity is less than 6 months total ECU 105 867 213. 93 and the variable-rate securities total ECU 98 490 922. 30. The starting value of the securities in this portfolio is the cost of acquisition. The difference between the entry price and the redemption value is divided pro rata temporis over the remaining life of each of the securities. At 31 December 1996 investment portfolio was ECU 203. 8 million against a book value of 204. 4 million (including the premium to be written off). the nominal value of the The portfolio gave a result of 4. 1 million at 31 December 1996. This result breaks down as follows: Interest received Appreciation Depreciation Spread of the premium 5 713 321. 90 7 943. 70 - 6 179. 80 - 1 625 722. 05 4 089 363. 75 Taking account of the acquisitions made in the second half of the year, the book profit of the investment portfolio came to 4. 53%. MATURITIES OF FIXED-RATE SECURITIES (THOUSANDS) DUE DATES Redemptions 35. 000 30. 000 25. 000 20. 000 15. 000 10. 000 5. 000 0 Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 - 14 MATURITIES OF VARIABLE-RATE SECURITIES (THOUSANDS) 25000 -r 20000 - DUE DATES 15000 10000 -- 5000 -- Apr-1997 Jul-1998 Feb-2000 Apr-2000 Aug-2001 Profile of issuers: in accordance with the agreement between the Community and the Bank on the management of the Guarantee Fund, all the securities held have a minimum credit rating of Al. PROFILE OF ISSUERS 12% Other 88% Government securities - 1 5- PosrnoN OF THE GUARANTEE FUND AT 31 DECEMBER 1996 ASSETS 31 December 1996 Receivables with credit institutions CURRENT ACCOUNT FIXED-TERM DEPOSITS Investment portfolio SECURITIES PORTFOLIO Other receivables ACCRUALS LIABILITIES Guarantee Fund GUARANTEE FUND Other liabilities ACCRUALS Result Result carried over Result for 1996 PROFIT AND LOSS AT 31 December 1996 1. INCOME Interest and similar income Appreciation on transfer of investment securities Interest on investments Interest on current account SUB-TOTAL 2. COSTS Spread of premium or discount Commissions Financial charges Depreciation on transfer of investment securities SUB-TOTAL NET RESULT 14 427 909. 00 330 000 000. 00 344 427 909. 00 204 358 136. 23 204 358136. 23 8 724298. 38 8 724 298. 38 TOTAL 55751Q343 6J 31 December 1996 515 592 694. 99 515 592 694. 99 104534. 51 104 534 51 23 819 842. 85 17 993 271. 26 41813114. 1' TOTAL 557 510 343 61 5 713 321. 90 7 943. 70 13 598 452. 62 522 831. 55 19 842 549. 77 -1 625 722. 05 -205 638. 05 -11738. 61 -6 179. 80 1349 2n 51 1793327125 - 16- ANNEXin CONSOLIDATED FINANCIAL BALANCE SHEET OF THE GUARANTEE FUND AT 31 DECEMBER 1996 The consolidated financial balance sheet at 31 December 1996 is provided to supplement the position of the Guarantee Fund as set out in Annex II. The consolidated balance sheet also includes an additional ECU 288 089 464. 31 which breaks down as follows: - on the assets side, receivables with recipients of loans granted or guaranteed by the Commission totalling ECU 271 154 609. 44 for third countries' arrears on the payment of principal and interest and ECU 16 934 854. 87 for default interest incurred but not received at 31 December 1996. This default interest has been calculated in line with the penalty rates laid down in the loan contracts. - on the liabilities side, the Fund's resources which still have to be replenished received interest (ECU 264 267 305. 01), (ECU 16 934 854. 87), interest received on late recoveries (ECU 6 887 304. 43) entered in the profit and loss account. incurred default but not - 1 7- CONSOLIDATED FINANCIAL BALANCE SHEET OF THE GUARANTEE FUND AT 31 DECEMBER 1996 ASSETS Receivables with credit institutions CURRENT ACCOUNT FIXED-TERM DEPOSITS Investment portfolio SECURITIES PORTFOLIO Receivables with recipients of loans granted or guaranteed by the Community ARREARS COVERED BY THE FUND DEFAULT INTEREST INCURRED BUT NOT RECEIVED Other receivables ACCRUALS LIABILITIES Guarantee Fund TOTAL PAYMENTS FROM THE BUDGET DEFAULT INTEREST INCURRED BUT NOT RECEIVED Other liabilities ACCRUALS Result Result carried over Result for 1996 PROFIT AND LOSS AT 31 December 1996 1. INCOME Interest on investment securities Appreciation on transfer of investment securities Interest on investments Interest on current account Default interest received on late recoveries SUB-TOTAL 2. COSTS Spread of premium or discount Commissions Financial charges Depreciations on transfer of investment securities SUB-TOTAL NET RESULT 31 December 1996 14 427 909 00 330 000 000 00 204 358 136 23 271154609 44 16 934854 87 288 089 464 31 8 724 298 38 fl77A79fl3fl 845 599 807 92 31 December 1996 779 860 000 00 16 934 85487 796794 854 87 104 534 51 104 534 51 23 819 84285 24 880 575 69 48 700 418 54 TOTAL 845 599 807 92 5 713 32190 7 943 70 13 598 452 62 522 831 55 6 887 304 43 26 729 854 20 1 625 722 05 205 638 05 11738 61 6 179 80 1849 778 51 24 880 575 69 ISSN 0254-1475 COM(97) 208 final DOCUMENTS EN 01 03 17 Catalogue number : CB-CO-97-193-EN-C ISBN 92-78-19476-X Office for Official Publications of the European Communities L-2985 Luxembourg