The Bank's normal loan approval procedure is that the Management Committee accepts a proposed loan operation from the lending departments and recommends it to the Board of Directors, which, in turn, approves the actual loan operation. The exception to this procedure is the use of a two-stage approach, e.g. where the procurement is based on a BAFO stage:
- The Management Committee initially recommends the loan to the Board of Directors, based on OPS' analysis of the likely credit structure of the project and all of the BAFO bidders, and PJ's techno-economic analysis.
- If this proposal is approved by the Board, authority to approve the final details is delegated to the Management Committee.
- Once the Provider has been selected and the deal is approaching Financial Close, the final deal is re-appraised by OPS, PJ and CRD and a Final Note to the Management Committee is prepared. If the operation is satisfactory, the Management Committee has the power to authorise OPS to negotiate the final contracts.
This should be an efficient and reasonable procedure. However, in practice, the Board of Directors often has to take its decision based on limited information about the risks the Bank will be taking. The Board often does not know:
- The terms of other finance being provided to the Provider;
- Key risk issues such as the amount of standby debt or equity funding;
- The financial value-added4 of EIB funding;
- The extent to which the financial benefit would be passed through to the public sector.
In a commercial bank, the credit decision would normally be taken by an operational credit committee, or by a named individual or hierarchical position under delegated authority. Decisions are taken very close to the operational level which is negotiating the loan and guarantee structures. Within the Bank, the Management Committee, which will make the credit decision on BAFO deals, is hierarchically separated from the operations staff and meets weekly. The Board, which takes all other credit decisions, is made up of non-executive Directors and meets ten times a year. On PPPs, the period running up to financial close is very time-sensitive. It might therefore be desirable to increase the degree of operational flexibility. The Bank employs well-qualified, responsible, experienced staff thus, always within a prudent credit framework established by the Board and Management Committee, the delegation of some decisions could make the process more effective and efficient.
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4 Procedures have now been established to quantify the value-added and a standard fiche will be presented to the Management Committee for all proposed loans after September 2004. However, this only tracks the financial value-added to "the Customer", which for PPPs is the private sector. It does not identify what proportion of the financial benefit is going to the public sector.