Risk sharing with Multilateral Financial Institutions in infrastructure and energy project financing : effect on capital relief for commercial banks

(Matsukawa and Habeck, 2007) analyse the main instruments for risk mitigation in infrastructure financing with Multilateral Financial Institutions (MFIs). Their review coincided with the global financial crisis of 2007-08, and is highly relevant in current times considering the sovereign debt crisis, the lack of available capital and the increases in bank regulation in Western economies. The current macroeconomic environment has seen a slowdown in the level of finance for infrastructure projects, as they pose a higher credit risk given their requirements for long term investments. The rationale for this work is to look for innovative solutions that are focused on the credit risk mitigation of infrastructure and energy projects whilst optimizing the economic capital allocation for commercial banks. This objective is achieved through risk-sharing with MFIs and looking for capital relief in project finance transactions. This research finds out the answer to the main question: "What is the impact of risk-sharing with MFIs on project finance transactions to increase their efficiency and viability?", and is developed from the perspective of a commercial bank assessing the economic capital used and analysing the relevant variables for it: Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). An overview of project finance for the infrastructure and energy sectors in terms of the volume of transactions worldwide is outlined, along with a summary of risk-sharing financing with MFIs. A review of the current regulatory framework beneath risk-sharing in structured finance with MFIs is also analysed. From here, the impact of risk-sharing and the diversification effect in infrastructure and energy projects is assessed, from the perspective of economic capital allocation for a commercial bank. CreditMetrics (J. P. Morgan, 1997) is applied over an existing well diversified portfolio of project finance infrastructure and energy investments, working with the main risk capital measures: economic capital, RAROC, and EVA. The conclusions of this research show that economic capital allocation on a portfolio of project finance along with risk-sharing with MFIs have a huge impact on capital relief whilst increasing performance profitability for commercial banks. There is an outstanding diversification effect due to the portfolio, which is combined with risk mitigation and an improvement in recovery rates through Partial Credit Guarantees issued by MFIs. A stress test scenario analysis is applied to the current assumptions and credit risk model, considering a downgrade in the rating for the commercial bank (lender) and an increase of default in emerging countries, presenting a direct impact on economic capital, through an increase in expected loss and a decrease in performance profitability. Getting capital relief through risk-sharing makes it more viable for commercial banks to finance infrastructure and energy projects, with the beneficial effect of a direct impact of these investments on GDP growth and employment. The main contribution of this work is to promote a strategic economic capital allocation in infrastructure and energy financing through innovative risk-sharing with MFIs and economic pricing to create economic value added for banks, and to allow the financing of more infrastructure and energy projects. This work suggests several topics for further research in relation to issues analysed. (Matsukawa and Habeck, 2007) analizan los principales instrumentos de mitigación de riesgos en las Instituciones Financieras Multilaterales (IFMs) para la financiación de infraestructuras. Su presentación coincidió con el inicio de la crisis financiera en Agosto de 2007, y sus consecuencias persisten en la actualidad, destacando la deuda soberana en economías desarrolladas y los problemas capitalización de los bancos. Este entorno macroeconómico ha ralentizado la financiación de proyectos de infraestructuras. El actual trabajo de investigación tiene su motivación en la búsqueda de soluciones para la financiación de proyectos de infraestructuras y de energía, mitigando los riesgos inherentes, con el objeto de reducir el consumo de capital económico en los bancos financiadores. Este objetivo se alcanza compartiendo el riesgo de la financiación con IFMs, a través de estructuras de risk-sharing. La investigación responde la pregunta: "Cuál es el impacto de risk-sharing con IFMs, en la financiación de proyectos para aumentar su eficiencia y viabilidad?". El trabajo se desarrolla desde el enfoque de un banco comercial, estimando el consumo de capital económico en la financiación de proyectos y analizando las principales variables del riesgo de crédito, Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). La investigación presenta las cifras globales de Project Finance en los sectores de infraestructuras y de energía, y analiza el marco regulatorio internacional en relación al consumo de capital económico en la financiación de proyectos en los que participan IFMs. A continuación, el trabajo modeliza una cartera real, bien diversificada, de Project Finance de infraestructuras y de energía, aplicando la metodología CreditMet- rics (J. P. Morgan, 1997). Su objeto es estimar el consumo de capital económico y la rentabilidad de la cartera de proyectos a través del RAROC y EVA. La modelización permite estimar el efecto diversificación y la liberación de capital económico consecuencia del risk-sharing. Los resultados muestran el enorme impacto del efecto diversificación de la cartera, así como de las garantías parciales de las IFMs que mitigan riesgos, mejoran el recovery rate de los proyectos y reducen el consumo de capital económico para el banco comercial, mientras aumentan la rentabilidad, RAROC, y crean valor económico, EVA. En escenarios económicos de inestabilidad, empeoramiento del rating de los bancos, aumentos de default en los proyectos y de correlación en las carteras, hay un impacto directo en el capital económico y en la pérdida de rentabilidad. La liberación de capital económico, como se plantea en la presente investigación, permitirá financiar más proyectos de infraestructuras y de energía, lo que repercutirá en un mayor crecimiento económico y creación de empleo. La principal contribución de este trabajo es promover la gestión activa del capital económico en la financiación de infraestructuras y de proyectos energéticos, a través de estructuras innovadoras de risk-sharing con IFMs y de creación de valor económico en los bancos comerciales, lo que mejoraría su eficiencia y capitalización. La aportación metodológica del trabajo se convierte por su originalidad en una contribución, que sugiere y facilita nuevas líneas de investigación académica en las principales variables del riesgo de crédito que afectan al capital económico en la financiación de proyectos.

Infrastructure Finance in Developing Countries by State and Multilateral Development Banks

Infrastructure concession is an alternative widely used by governments to increase investment. In the case of the road sector, the main characteristics of the concessions are: long-term projects, high investments in the early years of the contract and high risks. A viability analysis must be carried out for each concession and consider the characteristics of the project. When the infrastructure is located in a developing country, political and market growth uncertainties should be add in the concession project analysis, as well as economic instability, because they present greater risks. This paper is an analysis of state bank participation in road infrastructure finance in developing countries. For this purpose, we studied road infrastructure financing and its associated risks, and also the features of developing countries. Furthermore, we considered the issue of state banks and multilateral development banks that perform an important role by offering better credit lines than the private banks, in terms of cost, interest and grace period. Based on this study, we analyzed the Brazilian Development Bank - BNDES – and their credit supply to road infrastructure concessions. The results show that BNDES is the main financing agent for long-term investment in the sector, offering loans with low interest rates in Brazilian currency. From this research we argue that a single state bank should not alone support the increasing demand for finance in Brazil. Therefore, we conclude that there is a need to expand the supply of credit in Brazil, by strengthening private banks in the long-term lending market.

Integrated economic-hydrologic analysis of policy responses

Water is a vital resource, but also a critical limiting factor for economic and social development in many parts of the world. The recent rapid growth in human population and water use for social and economic development is increasing the pressure on water resources and the environment, as well as leading to growing conflicts among competing water use sectors (agriculture, urban, tourism, industry) and regions (Gleick et al., 2009; World Bank, 2006). In Spain, as in many other arid and semi-arid regions affected by drought and wide climate variability, irrigated agriculture is responsible for most consumptive water use and plays an important role in sustaining rural livelihoods (Varela-Ortega, 2007). Historically, the evolution of irrigation has been based on publicly-funded irrigation development plans that promoted economic growth and improved the socio-economic conditions of rural farmers in agrarian Spain, but increased environmental damage and led to excessive and inefficient exploitation of water resources (Garrido and Llamas, 2010; Varela-Ortega et al., 2010). Currently, water policies in Spain focus on rehabilitating and improving the efficiency of irrigation systems, and are moving from technocratic towards integrated water management strategies driven by the European Union (EU) Water Framework Directive (WFD).

An extended approach for service innovation study: an empirical research

Initially, service sector was defined as complementary to manufacturing sector. This situation has changed in recent times; services growth has resulted in a dominance of employment and economic activity in most developed nations and is becoming a key process for the competitiveness of their industrial sectors. New services related to commodities have become a strategy to differentiate their value proposition (Robinson et al., 2002). The service sector's importance is evident when evaluating its share in the gross domestic product. According to the World Bank (2011), in 2009, 74.8% of GDP in the euro area and 77.5% in United States were attributed to services. Globalization and use of information and communication technology has accelerated dissemination of knowledge and increasing customer expectations about services available worldwide. Innovation becomes essential to ensure that service organizations respond with appropriate products and services for each market segment. Customized and placed on time-tomarket new services require a more developed innovation process. Service innovation and new service development process are cited as one of the priorities for academic research in the following years (Karniouchina et al., 2005) This paper has the following objectives: -To present a model for the analysis of innovation process through the service value network, -To verify its applicability through an empirical research, and -To identify the path and mode of innovation for a group of studied organizations and to compare it with previous studies.

A robust numerical framework for the analysis of material failure of fibre reinforced soft tissue

In this work, robustness and stability of continuum damage models applied to material failure in soft tissues are addressed. In the implicit damage models equipped with softening, the presence of negative eigenvalues in the tangent elemental matrix degrades the condition number of the global matrix, leading to a reduction of the computational performance of the numerical model. Two strategies have been adapted from literature to improve the aforementioned computational performance degradation: the IMPL-EX integration scheme [Oliver,2006], which renders the elemental matrix contribution definite positive, and arclength-type continuation methods [Carrera,1994], which allow to capture the unstable softening branch in brittle ruptures. The IMPL-EX integration scheme has as a major drawback the need to use small time steps to keep numerical error below an acceptable value. A convergence study, limiting the maximum allowed increment of internal variables in the damage model, is presented. Finally, numerical simulation of failure problems with fibre reinforced materials illustrates the performance of the adopted methodology.

Particle methods parallel implementations by GP-GPU strategies

This paper outlines the problems found in the parallelization of SPH (Smoothed Particle Hydrodynamics) algorithms using Graphics Processing Units. Different results of some parallel GPU implementations in terms of the speed-up and the scalability compared to the CPU sequential codes are shown. The most problematic stage in the GPU-SPH algorithms is the one responsible for locating neighboring particles and building the vectors where this information is stored, since these specific algorithms raise many dificulties for a data-level parallelization. Because of the fact that the neighbor location using linked lists does not show enough data-level parallelism, two new approaches have been pro- posed to minimize bank conflicts in the writing and subsequent reading of the neighbor lists. The first strategy proposes an efficient coordination between CPU-GPU, using GPU algorithms for those stages that allow a straight forward parallelization, and sequential CPU algorithms for those instructions that involve some kind of vector reduction. This coordination provides a relatively orderly reading of the neighbor lists in the interactions stage, achieving a speed-up factor of x47 in this stage. However, since the construction of the neighbor lists is quite expensive, it is achieved an overall speed-up of x41. The second strategy seeks to maximize the use of the GPU in the neighbor's location process by executing a specific vector sorting algorithm that allows some data-level parallelism. Al- though this strategy has succeeded in improving the speed-up on the stage of neighboring location, the global speed-up on the interactions stage falls, due to inefficient reading of the neighbor vectors. Some changes to these strategies are proposed, aimed at maximizing the computational load of the GPU and using the GPU texture-units, in order to reach the maximum speed-up for such codes. Different practical applications have been added to the mentioned GPU codes. First, the classical dam-break problem is studied. Second, the wave impact of the sloshing fluid contained in LNG vessel tanks is also simulated as a practical example of particle methods

Design energy spectra for Turkey

This work proposes design energy spectra in terms of velocity, derived through linear dynamic analyses on Turkish registers and intended for regions with design peak acceleration 0.3 g or higher. In the long and mid period ranges the analyses are linear, taking profit of the rather insensitivity of the spectra to the structural parameters other than the fundamental period; in the short period range, the spectra are more sensitive to the structural parameters and nonlinear analyses would be required. The selected records are classified in eight groups according to the design input acceleration, the soil type, the earthquake magnitude and the near-source effects. For each of these groups, median and characteristic spectra are proposed (50% and 95% percentiles). These spectra have an initial linear growing branch in the short period range, a horizontal branch in the mid period range and a descending branch in the long period range.

A robust numerical framework to the analysis of material failure of fibre reinforced soft tissue

In this work, robustness and stability of continuum damage models applied to material failure in soft tissues are addressed. In the implicit damage models equipped with softening, the presence of negative eigenvalues in the tangent elemental matrix degrades the condition number of the global matrix, leading to a reduction of the computational performance of the numerical model. Two strategies have been adapted from literature to improve the aforementioned computational performance degradation: the IMPL-EX integration scheme [Oliver,2006], which renders the elemental matrix contribution definite positive, and arclength-type continuation methods [Carrera,1994], which allow to capture the unstable softening branch in brittle ruptures. The IMPL-EX integration scheme has as a major drawback the need to use small time steps to keep numerical error below an acceptable value. A convergence study, limiting the maximum allowed increment of internal variables in the damage model, is presented. Finally, numerical simulation of failure problems with fibre reinforced materials illustrates the performance of the adopted methodology.

Design energy input spectra for high seismicity regions based on Turkish registers

This work proposes design energy spectra in terms of an equivalent velocity, intended for regions with design peak acceleration 0.3 g or higher. These spectra were derived through linear and nonlinear dynamic analyses on a number of selected Turkish strong ground motion records. In the long and mid period ranges the analyses are linear, given the relative insensitivity of the spectra to structural parameters other than the fundamental period; conversely, in the short period range, the spectra are more sensitive to the structural parameters and, hence, nonlinear analyses are required. The selected records are classified in eight groups with respect to soil type (stiff or soft soil), the severity of the earthquake in terms of surface magnitude Ms(Ms≤ 5.5 and Ms> 5.5) and the relevance of the near-source effects (impulsive or vibratory). For each of these groups, median and characteristic spectra are proposed; such levels would respectively correspond to 50 and 95 % percentiles. These spectra have an initial linear growing branch in the short period range, a horizontal branch in the mid period range and a descending branch in the long period range. Empirical criteria for estimating the hysteretic energy from the input energy are suggested. The proposed design spectra are compared with those obtained from other studies.

Managing team learning in a Spanish commercial bank

Purpose – The purpose of this paper is to analyze how team management affects team-learning activities. Design/methodology/approach – The authors empirically study 68 teams as they operate in the natural business context of a major Spanish bank. Quantitative research utilizing multiple regression analyses is used to test hypotheses. Findings – The leadership behaviour (consideration, initiation of structure) displayed by the team leader plays a key role in facilitating team learning. Team leader behaviour characterised by consideration and in particular by initiation of structure are both positively related to team-learning activities. Cross-training of team members also contributes to team-learning behaviour. Research limitations/implications – A specific setting may limit the generalizability of findings. Further research may accordingly investigate to what extent these results can be generalized to other settings or other aspects of team learning. Practical implications – The leadership style adopted by the team leader, as well as cross-training of members, affect team-learning activities. These results link leadership theory to collective learning in teams and organizations, and suggest ways leaders can contribute to improved learning. Originality/value – The study provides new insight into how management of teams facilitates team-learning activities. While consideration is somewhat related to team learning, initiation of structure as well as cross-training appear as key variables.