Local Currency Market Diagnostic Study

Corporate Banking Products & Markets, Development Finance Institutions, Funding Solutions & Capital Markets, GBRW Consulting, GBRW Group, Strategic and Financial Planning, Sustainable & Development Finance, Treasury

Local currency loans terms and conditions in 19 emerging markets.

Development Finance Institutions (DFIs) are aware of the foreign exchange risks they push on their clients when they extend hard currency loans. They are exploring ways to use local currencies to finance their projects. The study provided an insight on how commercial banks priced their business loans in local currencies in 19 countries (Angola, Brazil, Colombia, China, Côte d’Ivoire, Egypt, Indonesia, Kazakhstan, Mexico, Morocco, Mozambique, Nepal, Nigeria, Pakistan, Philippines, Senegal, Ukraine, Uzbekistan, Vietnam). It covered the types of business loans extended, the maturities, the fees most commonly charged, the benchmarks used for interest rate in domestic currency (fixed/floating), the positioning of the banking loans against the bond market, the eventual competition from hard currency loans. It provided an overview of the methodologies used by commercial banks to calculate their cost of funding and credit margins in order to price their loans in local currency.

The data gathering was used to perform in-depth market analysis through the construction of credit curves, expressed as a spread over local benchmarks, for key business segments in the selected countries and an analysis of how such curves have changed overtime. It allowed to approach what DFIs needed to do to be additional when extending local currency loans.

Key deliverables:

- Market scoping of key lenders/investors (local, regional and international) in each segment (loans, bonds, etc.) and sectors (infrastructure, manufacturing, agribusiness, services and financial institutions)

- An extensive systematic interview process with key lenders and corporate borrowers to determine pricing methodologies (gathering on main terms of financing provided in each market including loan tenor, loan type, types of borrowers/issuers served, bilateral versus syndicated facilities, pricing, security requirements and other terms and conditions linked to local currency financing)

- Analysis of publicly executed loan and debt capital market transactions

- Construction of credit curves for each segment, expressed as spread over local benchmark, and provide analysis how such curve has changed over time

- Presentations of results and recommendations

Groups of people joining in discussions, business meetings, star