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Asia-PacificMay 27 2010

JBIC looks to integrate Asian demands into its operations

Japanese development bank, the Japan Bank for International Co-operation, is tasked with integrating broader Asian demands into its operations. Environmental finance and capital markets support are two areas of increasing prominence for the bank.
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Hard-hit by the disastrous global slump in demand that battered several export-driven economies during the end of 2008 and the first quarter of 2009, Japan has spent the past year mapping out a new strategy for future growth.

As the country seeks to diversify its economic base and stimulate domestic demand, Japan's development bank, Japan Bank for International Co-operation (JBIC), is confronted with a fundamental challenge, according to Hiroshi Watanabe, JBIC's president and CEO: how to integrate the demands of the ever-buoyant Asia region into its operations.

Environmentalism and climate change prevention feature heavily in Japan's emerging economic growth strategy, and JBIC's legal charter has been revised to reflect this new priority. The bank's recently acquired fourth 'mission', as it describes it, includes promoting and providing support for environmental projects being undertaken in developing countries.

Although JBIC has long-supported the environmental sector, only projects directly aiming to maintain and improve the international competitiveness of Japanese industries were traditionally eligible for JBIC financing. Armed with its new charter, however, JBIC is now free to finance a broad range of clean energy and climate change adaptation projects, particularly those focusing on greenhouse gas (GHG) reduction, says Mr Watanabe. "We are ready to provide funds and we have both tied and untied operations - so we have two vehicles to promote climate change prevention. That is a big new change," he says.

In a last-ditch attempt to save the foundering climate change summit in Copenhagen last year, Japan pledged $15bn to GHG reduction projects in developing economies, with JBIC allocating $4bn of this total. "That money is going mainly to emerging and developing countries, with power generation one of the most important issues," says Mr Watanabe. Another area of growing importance for JBIC, however, is global water resources, in particular the financing of water treatment facilities such as sewage and desalination plants, he adds.

Funding gaps

Despite its wholly state-owned status, JBIC has not entirely escaped the clutches of the global financial crisis. Between 2007 and 2008 the bank was running a syndicate including Japanese and European financial institutions to finance a project in the Gulf. "Unfortunately, by the end of 2007 and beginning of 2008, European institutions were having some liquidity problems and could not participate, so 20% of the committed money could not be provided. In that instance, we faced big difficulties," says Mr Watanabe.

As a result, JBIC has been forced to beef up what remains a relatively small operation. Historically, the bank has invested about $10bn annually but in 2008 it expanded its operations by 50% to hit $15bn, which doubled in 2009 reaching $30bn. As the global economy picks up, Mr Watanabe says JBIC is retrenching to a $20bn target.

In something of a departure from the bank's traditional investment role, the global financial crisis has also prompted JBIC to dramatically step up its efforts in Asia's laggard bond markets. "JBIC is not just providing transaction support, but we are starting to have a much broader operation to enhance the financial market," says Mr Watanabe.

At the Asian Development Bank (ADB) meeting in May, Japan, China, South Korea and the Association of South-east Asian Nations (the ASEAN +3) agreed to establish a $700m facility to guarantee local currency bonds issued by Asian companies across the ASEAN +3 region. JBIC will provide some $200m to the credit guarantee and investment facility, which will focus on guaranteeing issues by organisations involved in regional infrastructure projects. "There are names lacking confidence from investors and in that case the fund is going to provide a guarantee to support the issue," says Mr Watanabe.

Rescue mission

But JBIC's most extensive effort to boost Asia's capital markets is found at home in the beleaguered Samurai market, which has experienced a prolonged slump since a three-month shutdown following the collapse of Lehman Brothers. "In the past three years, the international capital markets have shrunk, and the yen-denominated and Samurai market have been seriously damaged," says Mr Watanabe.

In late April, JBIC launched the Guarantee and Acquisition Toward Tokyo Market Enhancement (GATE) facility, by which JBIC will provide partial guarantees on Samurai bonds and acquire those bonds where appropriate. The bank has been supporting the issuance of Samurai bonds by foreign governments since May last year, allowing Indonesia and the Philippines, as well as Mexico and Colombia, to regain access to the international markets amid the financial turmoil.

The bank hopes its latest move, which will expand JBIC's support to Samurai bonds issued by government-backed agencies such as Asian export-import banks, will attract long-time foreign issuers to the Tokyo bond market. Turkey has shown an interest in the market, and some Latin American countries may also be in the pipeline, he says. "That will be another enhancement of the Japanese capital markets," he continues. "Such support for capital markets is another [area where] JBIC can play a much more important role. I've always said that JBIC should be an institution that lends an umbrella in the rainy days - that is important."

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