04 Οκτωβρίου 2014

1968 March 18 First Funding for Greece First funding for Greece: Loan 0530

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RESTRICTED
FILE      9COPY                 Report No. P-572
This report was prepared for use within the Bank and its affiliated organizations.
They do not accept responsibility for its accuracy or completeness. The report may
not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
REPORT AND RECOMMENDATION
OF T HE
PRESIDENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
NATIONAL INVESTMENT BANK
FOR INDUSTRIAL DEVELOPMENT
IN
GREECE
November 17, 1967
INTERNATIOINAL BANK FOR RECONSTRUCTION AND DEVELOPiENT
REPORT AID RECODEENDATTON OF THE PRESIDENT
TO THE EXECUTIVE DIRECTORS OD) A
PROPOSED LOAN TO THE NATIONAL INVESTiiENT
BANK FOR INDUSTRIAL DEVELOPi!dTDNT IN GREECE
1.        I submit the following report and recommendation on a proposed
loan in an amount in various currencies equivalent to U.S. $12.5 million
to the National Investment Bank for Industrial Development (NIBID).
PART I - HISTORICAL
2.        The war and the disturbed conditions which followed it left
Greece with the whole of her prewar external debt in default.   Negotia-
tions for settling these defaults were started in the 'fifties and the
sterling debt, which constituted over one-half of the total, was settled
in 1964.   In view of the progress in this and other settlements and in
the expectation that the remaining debts would be settled promptly, I
decided that the Bank would be justified in starting an active relation-
ship with Greece.
3.        In January 1966 NIBID asked the Bank for a loan of !>20 million,
and the Greek Government agreed to guarantee a loan in this amount.   An
appraisal mission visited Greece in August 1966 and concluded that NIBID
could utilize i!20 million within two or three years and that it was a
suitable institution to receive a Bank loan.   Since the European Invest-
ment Bank (EIB) was also prepared to lend to NIBID it was agreed that
negotiations should proceed on the basis of $12.5 million from the Bank
and �7.5 million from EIB.   Negotiations for the loan from the EIB were
completed earlier in the year.   However, the Financial Protocol to the
Agreement of Association between Greece and the European Economic Com-
munity, which authorized lending by the EIB in Greece, expired on October
31 znd signature of the EIR loin will hrve to await the conclusion of
new Prrrngements.
4.        The Bankts negotiations began in January 1967 with a Greek de-
leaation headed by Mr. George Gondicas, General Manager of NIBID.   The
Government was represented by l'ir. Aristotelis Sismanidis, Economic Coun-
selor at the Greek Embassy in Washington.   Some items were left out-
standing at the end of the first round of negotiations.   These were
satisfactorily resolved in August 1967 during further discussions with
r. Gondicas, and ifxr. Georgiopoulos, legal advisor to the Hiinister of
Coordination.
5.        As over a year had passed since the last economic mission and
the appraisal of NIBID, and in view of the political changes in Greece in
April 1967, Bank and IFC staff visited Greece in the beginning of Septem-
ber to review recent economic developments and to reappraise ,1BID's need
for funds. Recent economic developments are summarized in the attached
memorandum entitled "Recent Developments in the Economy of Greece" (No. 1).
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6.        The Bank has made no loans in Greece and no further loan proposals
are expected to be presented to the Executive Directors in the near future.
Preliminary consideration is, however, being given to a road project and -
further discussions are expected to be held on the Bank/FAO report on agri-
culture which was presented to the Government in December 1966. Greece
has received no IDA credits.
7.        IFC has an investment of $719,082 in ordinary shares of NIBID,
and is represented on NIBID's board. IFC has also three industrial invest-
ments in Greece, the amounts outstanding totalling about $3.6 million.
These are in General Cement Co., S.A. ($2,525,000 loan), Titan Cement Co., S.A.
($275,000 loan and $275,084 equity) and Aevol Industrial Company of Organic
Fertilizers, S.A. ($48o,ooo loan). NIBID participated in the financing of
the two cement companies.
PART II - DESCRIPTIONJ OF THE PROPOSED LOAN
Borrower:                   National Investment Bank for Industrial
Development, S.A. (NIBID).
Guarantor:                  The Hellenic State.
Beneficiaries:              Private enterprises in manufacturing, mining,
shipping and tourism.
Amount:                     Various currencies equivalent to $12.5 million.
Purpose:                    To assist in financing the foreign exchange
cost o-Z investments by beneficiary enterprises.
Amortization:               Semi-annual payment dates of February 1 and
August 1, beginning August 1, 1969 and ending
no later than August 1, 1979. The Bank and
NIBID will from time to time change the amor-
tization schedule to conform substantially
to the aggregate of the agreed repayment
schedules applicable to NIBID's loans and
investments financed out of the Loan.
Interest Rate:              1Ihen part of the Loan is credited to the Loan
Account in respect of a sub-project, the rate
of interest on that part will be the Bank's
current standard rate then in effect.
Commitment Charge:          3/8 of 1, per annumri.
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PmRT III - THE PROJECT
8.        A report entitled "Appraisal of the National Investment Bank
for Industrial Development S.A. (NIBID)" (DB-32a) on the proposed pro-
ject is attached (No. 2) -
9.        The main financial institutions in Greece are the Bank of
Greece, which is the central bank, a dozen commercial banks, a govern-
ment-owned development bank and two private industrial investment banks.
The National Bank of Greece (NBG) is the largest commercial bank and
controls about 63% of all banking assets in Greece;   it is also a major
source of funds for investments in manufacturing.
10.       The other investment banks in addition to NIBID are the
Hellenic Industrial Development Bank (HIDB), which is a government
organization, and the Investment Bank established in 1963 by the Com-
mercial Bank of Greece.    In 1966 industrial loan approvals by HIDB
amounted to Dr 345 million, those of the Investment Bank to Dr 150
million and those of NIBID to Dr 291 million.
11.       NIBID was established in 1963 by the NBG and ten foreign banks
and began operations in 1964.    Its present share capital is Dr 300
million ($10 million).   The NBG holds 55% of the share capital, thir-
teen foreign banks hold 38% and IFC 7%, equivalent to the holding of
the largest foreign shareholder.    NIBID's objects are the promotion of
enterprises engaged in manufacturing, mining, shipping, tourism and re-
lated activitiesby providing finance for the establishment of new pro-
ductive enterprises in the private sector and the modernization and ex-
pansion of existing ones; by the development of the capital market; by
facilitating joint ventures of Greek and foreign enterprises; and by
advising private enterprises on financial and technical matters.
12.       NIBID's business expanded rapidly through 1966 when approvals
reached Dr 291 million.    In the first half of 1967 business was rela-
tively slow because of a general slackening in investment, and appro-
vals totalled Dr 100 million.    Business has, however, been picking up
recently and is expected to reach Dr 250 million by the end of the year.
In 1966 its investments were equivalent to about 4-1/2% of the total
gross investment in industrial enterprises.    However, KIBID is still
in an early stage of its operations and, given its intention to promote
business, its share of industrial financing should increase further.
On this basis and on the assumption that the economy will continue to
grow at a reasonable rate, NIBID's approvals are expected to recover
their 1966 level next year and reach Dr 360 million in 1969.
13.       Most of NIBID's operations are in the form of loans;   only 6%
of investments as of June 1967 were in shares.    Loans normally carry a
basic rate of 8% to 8-1/2% plus a profit-tied interest increment that brings
the expected total yield to 10%; some of the loans have a dollar clause.
Loans are given for periods of 5 to 10 years.    Nearly 90% of loan ap-
provals were for manufacturing industry and 10% for tourist facilities.
14.       NTBID is a sound organization;   its top management and senior
staff are caoable and cost conscious.    Its disbursement and follow-up
procedures are satisfactory.    Project appraisal is satisfactory when
dealing with relatively small and routine types of projects.    While
financial analysis is comDetent, engineering appraisal needs to be im-
Proved, particularly for complicated projects. In association with an
internationally known firm of consultants having experience in European
countries, NIBID is oarticipating in a consulting company and exoects to
use it when needed for engineering services both for its clients and for
itself.   NIBID's close relations with foreign institutions afford good
prosnects of stimulating joint ventures and other forms of international
cooperation.   The management is also aware of the importance of devel-
oping a canital market in Greece and sees as one of its roles the crea-
tion of securities that might eventually be sold to the public.
15.       NIBID's resources total Dr 900 million, a third each from
Paid-in share capital and loans from NBG and the Bank of Greece.    The
loans will not be fully disbursed by the original closing dates and it
is a condition of effectiveness of the Bank loan that they be postponed
to December 31, 1971.    At the beginning of 1968 NIBID will have about
Dr 200 million in uncommitted resources.    Since its new commitments
are estimated to be about Dr 300 million in 1968 and Dr 360 million in
1969, NIBID will need substantial new funds.    NIBID's Policy Statement
limits its debt to four times its net worth; this is considered satis-
factory.
16.       NIBID is still in the early stages of building a portfolio.
It has had no low-cost money and little leverage.    Profitability has
been low; in 1966, its third year, earnings before taxes and provisions
for losses were .5   of net worth.    As business develops over the next
few years and leverage on share capital improves profitability should
increase.   Earnings before tax and provisions for losses are estimated
to be 6.8% of net worth in 1967 and to increase to 9-10% by 1969.
17.       NIBID's loans are being used to finance both imports and
local goods and services.    Since the drachma is freely convertible, no
distinction has been made in the utilization of the loans between for-
eign and local currency expenditures, but there are indications that
about 65% of NIBID's future loans would be utilized for financing imports.
On this basis, the proceeds of the Bank loan, which will be available
only to finance foreign exoenditures, would be committed in two to three
years.
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18.       Under the proposed loan NIBID would have a free limit on invest-
ments not exceeding Dr 6 million ($200,000). For investments exceeding
Dr 6 million, for which Bank funds are to be used, Bank approval will be
required, even if the Bank's share of the project is less than the total
of Dr 6 million.
PART IV - LEGAL INSTRUIENTS AND AUTHORITY
19.       The Draft Loan Agreement between the Bank and NIBID, the Draft
Guarantee Agreement between the Hellenic State and the Bank and the Report
of the Committee provided for in Article III, Section 4(iii) of the Articles
of Agreement are being distributed to the Executive Directors separately.
20.       The proposed Loan and Guarantee Agreements conform in general
to the pattern of loans of this type. As mentioned in paragraph 15 above,
the postponement of the closing dates of the loans NIBID has received from
NBG and from the Bank of Greece to December 31, 1971 is a condition of
ef-fectiveness (Section 7.01(c)).
21.       In accordance with statutory requirements of the Bank of Greece,
NIBID has pledged bonds in favor of the Bank of Greece as security for the
credit it is receiving. An agreement has accordingly been made under which
the Bank of Greece undertakes to share equally and ratably with the Bank
in the proceeds of any sale, realization or disposal of the NIBID security
held in pledge by the Bank of Greece. The loan from NBG is unsecured.
PARI V - THE ECONO1:1Y
22.       An economic memorandum entitled "Recent Developments in the
Economy of Greece" dated October 27, 1967 is attached (No. 1). It updates
the economic report entitled "Current Economic Position and Prospects of
Greece" (EA-166b) dated February 9, 1967, w-hich -w,Tas circulated to the
Executive Directors on February 13, 1967.
23.       After a fast rate of growth which averaged about 8% during 1963-
1965, expansion slowred down towards the end of 1966 as a result of a fall
in investments, particularly in residential construction. This trend was
reinforced by the political changes in April. In recent months, however,
investments have picked up again and although total capital formation in
1967 might fall short of that in 1966, industrial expansion is expected
to resume thereafter.  The growth in GNP, although slower this year than
in 1963-1966, is expected to be about 55.
24.       The balance of payments situation improved in 1966; the deficit
on current account (including private transfers) was $240 million compared
with $285 million in 1965. The deficit in 1967 is expected to be about the
same as last year.  ;Iternal public debt is about $475 million; debt service
this year is $35 million, about ,!j of forelgn exchange earnings.  Foreign
- 6 -
exchange reserves at the end of Sentember 1967 were $270 million, equivalent
to about 20% of imports of goods end services in 1966.
25.       Despite some difficulties in the first half of 1967, the general
economic performance has been adequate. Political uncertainties nersist,
but assuming reasonable stability, prospects for growth are good. At the
same time there will be a need for foreign capital. In view of its econ-
omic performance and its relatively small external debt, Greece can be
considered creditworthy for the proposed loan.   A statement by the Greek
authorities on the prewar debt is attached (No. 3).
PART VI - COMPLIANCE WITH ARTICLES OF AGREEMENT
26.       I am satisfied that the proposed loan would comply with the
Articles of Agreement of the Bank.
PART VII - RESOLUTION
27.       I recommend that the Executive Directors adopt the following
resolution:
RESOLUTION NO.
Approval of Loan to National Investment Bank for Industrial
Development S.A. in an amount equivalent to U.S. $12,500,000
to be gu,ranteed by the Hellenic State.
RESOLVED:
THAT the Bank shall grant a loan to National Investment Bank
for Industrial Development S.A. to be guaranteed by the Hellenic State,
in an amount in various currencies equivalent to twelve million five
hundred thousand United States dollars (U.S. $12,500,000), to mature on
and prior to the date or dates to be determined as set forth in the form
of Loan Agreement (Development Finance Corporation Project) between the
Bank and National Investment Bank for Industrial Development S.A., which
has been Dresented to this meeting, to bear interest at the rate or rates
of interest to be determined as set forth therein, and to be upon such
other terms and conditions as shall be substantially in accordance with
the terms and conditions set forth in said form of Loan Agreement and in
the form of Guarantee Agreement (Development Finance Corooration Project)
between the Hellenic State and the Bank, which have been presented to this
meeting.
George D. Woods
President
Attachments (3)
November 17, 1967

1968 March 18 First Funding for Greece First funding for Greece: Loan 0530 – National Investment Bank for Industrial Development. The loan was used to assist in the financing of the foreign exchange cost of investments by beneficiary enterprises.
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