Supporting EU Objectives
In 2003, the European Investment Bank lent a total of EUR 42.3bn (2002: 39.6bn) for projects furthering the European Union's political objectives. Financing in the EU Member States reached EUR 34.2bn, while EUR 8.1bn was made available in non-EU countries. Lending in the future Member States of Central and Eastern Europe plus Cyprus and Malta ran to a record EUR 4.6bn and in the Mediterranean Partner Countries (including Turkey) to EUR 2.1bn. In the Western Balkan countries the Bank assisted reconstruction and development projects to the tune of EUR 372 million. Lending in support of EU development policy totalled EUR 1.1bn, of which EUR 463 million went to the ACP States (Africa, Caribbean, Pacific), EUR 260 million to South Africa and EUR 348 million to Asia and Latin America.
The European Investment Fund (EIF) - the EIB Group's specialised venture capital arm - took participations worth EUR 135 million in venture capital funds and provided a total of EUR 2.2bn in guarantees for SME financing.
To fund its lending the Bank launched 310 bond transactions on the international capital markets, raising an aggregate amount of EUR 42bn in 15 currencies.
As at 31 December 2003 the EIB's balance sheet total stood at EUR 235 bn. Outstanding lending amounted to EUR 207 bn and outstanding debt EUR 195 bn.
Economic and social cohesion and regional development in an enlarged EU
Promoting balanced regional development again featured as the top financing priority in 2003. Within the EU-15 countries, EUR 16.3bn was made available for projects in regional development areas in the form of individual loans and an estimated EUR 6.5bn as credit lines (global loans) to partner banks (for the financing of SME ventures and smaller-scale public investment). Including the future Member States, regional development projects attracted EUR 27.3bn in loans, corresponding to 70 % of the EIB's total lending in EU-15 and the future Member States in 2003.
Cooperation with the Commission was expanded. The Bank is actively involved in project appraisal and information exchange on major projects for which ERDF, Cohesion Fund or ISPA Fund grants are sought.
In the future Member States (including Bulgaria and Romania) financing climbed to a record EUR 4.6bn (2002: 3.6bn), consisting of 3.9bn in individual loans and 660 million in global loans. This further consolidated the EIB's position as the leading external source of finance for investment in the future Member States, where its total lending since 1990 comes to some EUR 25bn.
Transport and telecommunications infrastructure again took pride of place (accounting for 37% of aggregate lending in those countries). Increasing attention was focused on protecting the environment including water resource management (16%) in order to meet EU environmental standards. Loans for environmental and transport schemes were in many cases supplemented by grants from the EU's ISPA Programme. In the health and education sectors, where substantial infrastructural investment is also needed, lending was stepped up markedly (14%). Some 19% of loans were for investment in industry and the service sector, especially foreign direct investment, which contributes to the transfer of know-how and capital into the region. Particularly noteworthy here was investment by motor vehicle manufacturers and suppliers in the Czech Republic and Hungary. Global loans to partner banks (14%) provided finance for SMEs and for investment by local and regional authorities.
As from accession in May 2004, most countries previously benefiting from the Bank's pre-accession support will be eligible for financing under its priority regional development remit. All the new Member States will qualify as designated assisted areas. A joint working group with the Commission's DG REGIO is currently examining how best to coordinate the Bank's activity with the operations of the Structural Funds that will be available to the future Member States after accession and to blend EIB loans with European Commission grants. Internally, the Bank has adjusted its organisation so as to fully integrate the new members.
Innovative and knowledge-based European economy
Through its Innovation 2010 Initiative the EIB supports various objectives: the EU strategy for an information and knowledge-based economy adopted by the Lisbon European Council (2000); the target set by the Barcelona European Council (2002) of raising R&D expenditure to 3% of GNP; and the European Action for Growth agreed in December 2003.
Having originally pledged support for the Union's Lisbon strategy of strengthening Europe's economic vigour and competitiveness for the period 2000-2003, the EIB in June 2003 extended its commitment as far as 2010 (Innovation 2010 Initiative).
Loans totalling EUR 6.2bn were granted in 2003 under the Innovation 2010 Initiative (2002: 3.6bn). At 1.4bn, lending for the development of information and communications networks fell short of expectations for a revival of investment activity in this sector. Lending for R&D investment, at 2.1bn, remained at the previous year's level, while loans for educational infrastructure rose sharply to 2.7bn (2002: 900 million).
Financing under the Innovation 2010 Initiative was channelled to both the EU's existing and future Member States. Particular emphasis was placed on projects in structurally weak regions in order to help bring the less-developed regions into the knowledge-based economic fold.
The Action for Growth aims at strengthening Europe's growth potential through increased investment in trans-European transport, telecommunications and energy networks (TENs), in innovation and in research and development including environmental technologies. Part of the initiative is a Quick Start Programme. This comprises a list of priority projects capable of being implemented speedily and can be supplemented by further well-developed projects.
The intention is to mobilise private capital alongside public resources and EIB loans to finance such projects. To this end, the EIB will offer innovative financing instruments (guarantees, structured finance and loan securitisation).
In support of the Action for Growth, the EIB plans to lend up to EUR 40bn (including structured finance) to back R&D and innovation over the period to 2010. Lending of up to EUR 20bn is envisaged in the period to 2006 alone under Action for Growth, particularly for the Quick Start Programme and for projects in the future Member States.
The European Investment Fund supports the Innovation 2010 Initiative by taking equity stakes in venture capital funds. Last year it signed EUR 135 million in 17 operations, expanding its portfolio of participations to some EUR 2.5bn spread over 190 funds active in both the EU-15 and in the future Member States. The EIF operates as a fund of funds, with a bias towards funds specialising in early-stage financing and the hi-tech sector. It is now one of Europe's largest venture capital providers in this segment. Over 80% of the resources it has invested to date have been provided by the EIB, with further capital coming from the Commission. In 2003, the EIF was for the first time commissioned by a third party to invest venture capital on its behalf: the German Federal Ministry of Economics and Employment is making available a EUR 250 million ERP Facility (funded from the former European Recovery Programme). The resources of this facility, supplemented by a further EUR 250 million from the EIB/EIF, will be invested exclusively in venture capital funds focusing on German high-tech companies.
The EIF also assists the investment activity of SMEs indirectly by providing guarantees for the SME loan portfolios of financial institutions and public guarantee agencies. This back-up gives banks greater scope for lending to SMEs. In 2003 the EIF concluded 30 guarantee operations totalling EUR 2.2bn (2002: 1.2bn), bringing its guarantee portfolio to EUR 6.3bn. Over 250 000 SMEs have thereby indirectly benefited from EIF guarantees.
Trans-European and Access networks
In support of the Action for Growth and as part of a new TEN (Trans-European Network) Investment Facility, the EIB plans to provide some EUR 50bn in financing for TENs projects in the years 2004-2010. Up to EUR 25bn of the total will be made available over the coming three years for transport TENs, particularly for schemes under the Quick Start Programme. In special cases it will be possible for loans to be granted for up to 75% of the investment costs and for periods of up to 35 years, with flexible repayment terms.
The Bank has set itself the target of devoting 30-35% of its total annual individual loans in the present and future Member States to environmental projects. That level was comfortably exceeded in 2003, with individual loans in the EU-15 and the future Member States reaching a record EUR 11.6bn (2002: 10.5bn.), or 42%. Environmental projects financed encompassed schemes in the areas of local public transport, urban renewal, water and sanitation, waste disposal, energy saving and renewable energies.
In the environmental sector, the Bank and the European Commission are operational partners, combining their funds particularly in the future Member States, the Mediterranean countries and the ACP countries. The Bank published its first environmental report at the beginning of 2003 and continued its dialogue with environmental organisations.
The EIB recognises the strategic importance of climate change issues; and during 2003 the Bank stepped up its internal climate change activities. In December 2003, during the 9th Conference of the Parties to the Kyoto Protocol, the EIB proposed the following initiatives for contributing to sustainable development:
- A Dedicated Financing Facility of EUR 500 million, for commitment over 2-3 years, to provide structured loan finance for projects contributing to a reduction of greenhouse gas emissions, particularly for projects of promoters participating in the ETS or investing outside the EU. The Facility will be launched in 2004.
- A Technical Assistance Facility that provides conditional grant finance for the identification of projects in transition and developing countries that most likely would be linked to the EU ETS carbon credit market. The EIB might also contribute to the financing of the resulting projects. The EIB might provide initially up to EUR 5 million with matching grants from other sources, such as the Commission and some Member States. Discussion of this proposal is still ongoing.
In support of climate change policies, the Bank had set itself the target of stepping up the proportion of energy project lending that it devotes to renewable energy sources from 7 to 15%. Thanks to numerous wind power projects this has nearly been achieved, and to consolidate this positive result the Bank will expand its activity into other renewable energy areas. In 2005, the EU's Emissions Trading Scheme will start. This should help to increase the cost-effectiveness of renewable energy and facilitate bank financing of such projects.
Support for EU development and cooperation policies
In December 2003 the European Council also decided to enhance FEMIP, in view of the favourable results achieved since the Facility's creation in October 2002. A further review will be carried out in December 2006, in the light of experience gained and after consultation with the Mediterranean partners in the Barcelona process, to consider the case for setting up a Mediterranean Bank with the EIB as majority shareholder.
FEMIP enhancement involves:
- creating a special facility for higher-risk financing intended to promote investment in the private sector;
- establishing, with voluntarily contributed development aid resources and risk capital from EU and other countries, a Trust Fund to finance technical assistance and provide grants for priority infrastructure projects;
- developing FEMIP's existing Policy Dialogue and Coordination Committee into an annual meeting at ministerial level along with regular meetings of experts, with the aims of strengthening dialogue on structural reforms, fostering the private sector and coordinating co-financing operations.
In the past year the Bank has created the necessary organisation to enable it successfully to carry out its FEMIP activities and perform its growing role as a development bank with an expanded technical assistance input. This includes the opening of local representative offices - in Cairo already and in the Maghreb shortly.
The Cotonou ACP-EU Partnership Agreement entered into force in April 2003, replacing the Lomé IV Convention. The Member States have mandated the EIB to manage, over the next five years, a EUR 2.2bn Investment Facility to finance projects in the ACP countries. In addition, the EIB will make loans of up to EUR 1.7bn available over five years from its own resources. The main focus is on poverty alleviation. Priority is being given to smaller-scale investment in the private sector and to education and healthcare schemes. The Investment Facility is structured as a revolving fund, where capital repayments are ploughed back into financing new projects. Because of the developmental tasks, activity in the ACP States has also been brought together in a single operational unit.
Borrowing activities in 2003
The Bank strengthened its position as the largest and leading supranational bond issuer. The volume of borrowing increased by 11% to EUR 42 bn, raised through 310 transactions in 15 currencies. Issuance in EUR accounted for the largest share (EUR 17bn or 40% of the total). The Bank's three core currencies (EUR, GBP, USD) accounted for 88% of funding. Issuance in 12 additional currencies (12% of funding) involved the currencies of Acceding Countries (CZK, HUF, PLN, SKK), other European countries (CHF, SEK, NOK), Asia-Pacific/Japan (AUD, HKD, JPY, NTD) and Africa (ZAR). This underlines the continued strength of diversification in the EIB's funding activities. The EIB has garnered several awards for its funding performance in 2003.
In its funding strategy, the EIB continued to demonstrate consistency and innovation. This involved issuance of large liquid benchmarks in the three core currencies, while remaining responsive to opportunities for targeted and structured issuance across a diverse array of currencies.
Growth and innovation - The global reach of the EIB's funding activities, which span all major capital markets, was enhanced through growing penetration of key markets, including Asia/Japan and the US. Whilst benchmark issuance further improved the liquidity and range of maturities available to investors, issuance in structured format was the primary source of growth. Structured issuance grew strongly to EUR 9.3bn via 229 transactions (EUR 3.4bn via 129 transactions in 2002).
In EUR, where the Bank raised EUR 17bn, there was especially strong growth in structured issuance in the form of inflation-linked and callable bonds. The key EUR benchmark transactions were two new EUR 5bn Global issues, in maturities of 5 and 10 years respectively. The total volume of EUR benchmarks outstanding and traded on EuroMTS, a leading electronic trading platform for sovereigns and agencies, increased to 11 issues worth around EUR 60bn. In USD, the Bank raised over USD 13bn and the main area of growth was structured issuance. Sterling issuance reached close to GBP 5bn. Key developments in GBP included increased penetration of the retail market and growth in inflation-linked issuance. Such progress aided the EIB in extending its powerful lead in the non-gilt sector. The Bank further improved its presence in Asia/Japan, where JPY accounted for the largest share of issuance and grew strongly to JPY 291bn (EUR2.2bn) via 120 structured transactions (2002: JPY 146bn / EUR1.2bn).
Issuance in EU-Acceding country currencies more than doubled (compared with 2002) to the equivalent of EUR 1.3bn, cementing the EIB's position as the largest non-government issuer both in the region and in all four markets that it tapped (CZK, HUF, PLN and SKK).
This growth in local currency borrowing has supported continued lending growth and the EIB's position as the largest external lender in the region. Borrowing highlights included increased placements of innovative structured products and exceptionally long maturities (notably in CZK and SKK).Further details can be obtained from the briefing notes on the following topics:
- Economic and social cohesion in an enlarged EU
- EU Future Member States
- Environmental protection and improvement
- Implementation of the Innovation 2010 Initiative (i2i)
- Development of the Trans-European and access networks
- FEMIP - Mediterranean Partner Countries
- Western Balkan region
- ACP Countries
- Asia and Latin America
- European Investment Fund