The International Finance Corp. is trying to persuade reluctant U.S. banks to participate in its loan syndications to developing countries. In spite of the nearly taboo nature of such lending, the IFC's efforts seem to be working.
The IFC's "preferred lender" status makes this possible. As a unit of the World Bank, any IFC-syndicated loan is entitled to protection.
Like the World Bank and the International Monetary Fund, the IFC still gets its money back even if a particular country blocks debt payments to foreign commercial banks.
"We can offer banks an umbrella in a way that reduces country risk," says Norwegian-born Jannik Lindbaek, executive vice president of the IFC. Mr. Lindbaek, who joined the agency in January, is the former president and chief executive of Nordic Investment Bank.
To date, eight U.S. banks have participated in IFC-organized loans: American Express Bank, Ltd., BankAmerica Corp., Chase Manhattan Corp., Citicorp, Comerica Inc., MTB Bank, Nations-Bank, and NBD Bancorp, and one finance company, Orix USA Corp. Historically, many of them have been among the 30 most active participants in IFC syndications.
Nevertheless, persuading U.S. banks to lend to developing countries has been an uphill struggle since the debt crisis started in the early 1980s. Most banks have pulled back on their overseas operations and dramatically slashed cross-border lending.
IFC officials note that the crisis, coupled with capital shortages, has pushed U.S. banks who remain active in the developing world into fee-based advisory businesses that do not require any commitment of funds.
But some of the hesitance about cross-border lending is starting to fade. With markets taking off again in Latin America, Asia, and Eastern Europe, even the U.S. banks least willing to become involved in such loans are having second thoughts.
"They're coming back," says Richard H. Frank, vice president for finance and planning at the IFC. "We're seeing active renewed interest, not only among money centers, but among regionals as well."
At Comerica, officials confirm Mr. Frank's observations. "There are certain advantages to dealing with the IFC and those are certainly not lost on us," says Ralph Heid, first vice president in Comerica's international finance department.
"We have participated in and are in the process of participating in IFC transactions in a number of countries, notably Mexico, Eastern Europe, and Brazil, and would certainly be interested in participating in more."
IFC officials decline to spell out the names of the banks with whom they are holding talks, but say they are mainly big regional and superregionals, many based in the Midwest.
"It's the usual and best known names from places like Cleveland, Detroit, Raleigh, and Denver," says Mr. Frank.
They add that the U.S. and overseas customers of large regionals are the main driving force behind these banks' renewed interest in cross-border lending with the IFC.
"Their customers are asking them about how to arrange investments and we encourage them to bring their clients to us so that we can help them structure financing that might otherwise be slow and cumbersome," Mr. Frank says.
Mr. Heid explains that "what we've found is that the IFC has been, in a number of instances, working with customers or potential borrowers with whom Comerica has had a short-term working relationship for a number of years."
This, he adds, has permitted Comerica to extend short-term relationships, such as cash management, into longer-term lending relationships without adding on major risk.
"We found in a number of cases our short and long-term focuses have dovetailed nicely," says Mr. Heid.
Other U.S. bankers add that they are more than satisfied with the IFC's record to date. Says Frank Tordella, chairman and chief executive of MTB Bank in New York, which has participated in an IFC syndication to a Turkish borrower: "If other items of interest came down the pike, we'd certainly want to become involved."
Banks are not the only U.S. financial firms taking an interest in participating. GE Capital Corp. and other institutions, such as investment funds and insurance companies looking for higher yielding assets, are in advanced discussions with the IFC, officials said.
What distinguishes the IFC from the World Bank and the IMF is that it lends to private borrowers, rather than governments, and also acquires equity stakes in private ventures.
Although IFC lends to projects around the world in 90 countries, around 40% of the loans go to projects in Latin America. Another hefty chunk goes to projects in the Far East. IFC-arranged loans are used mainly for oil and gas, mineral, manufacturing, and petrochemical projects.
Mr. Lindbaek notes that the IFC's ultimate objective is "to work ourselves" out of a job by providing financing to help developing economies become self-sufficient.
For the moment, that's not about to happen. Since 1990, the amount of total annual financing, including equity acquisitions, approved by the IFC has nearly doubled, to $4.3 billion this year from $2.2 billion in 1990.
Agency officials say the fall of communism and increasing deregulation around the world are behind the rapid growth in lending to the developing world's private sector. Such lending, Mr. Lindbaek predicts, will probably continue to grow for the foreseeable future.
"There's been a change in thinking," Mr. Lindbaek observes. "The private sector is coming into its own and being recognized as the prime driving force in economic development all over the world."
IFC loans usually run from around $5 million to $100 million, although the IFC recently syndicated a $350 million deal as part of a $1 billion development project in Thailand. The IFC usually provides servicing, takes 25% of the loans onto its own books, and syndicates the rest.
The loans have an average maturity of 12 years and, compared to the kind of lending generally available to banks, can be very attractive.
According to IFC officials, yields range from 2%, or 200 basis points over the London interbank offering rate, to 3.5%, or 350 basis points over Libor.
That's not to say risk isn't there. Like any other lending institution, the IFC does risk that the enterprise to which it lends will fail. The spreads over U.S. government securities are higher, reflecting the higher risk involved in lending to companies in the developing world.
But bankers still say they are prepared to take on those remaining risks once uncertainties, such as possible foreign exchange controls, have been removed.
"We're comfortable with risk on a selective basis in selected countries and industries with which we have a selective relationship," said Mr. Heid.
So far, the IFC record has been fairly solid. Since the agency was set up in 1956, it has provided a combined total of more than $14 billion in funding, with only 1% of that amount going into default.
"What you're looking at is a banking transaction with moderate risk and an attractive spread," says the IFC's Mr. Frank.