IBRD Financial Products

Financial Risk Management

  • For borrowers of IBRD Flexible Loan (IFL), the interest rate and currency conversion options are already embedded into the loan agreement to help clients manage their financial risks. 

    Non-IBRD exposures to currency and interest rate risks can be hedged similarly to IFL loans using free standing derivatives. Hedging Non-IBRD exposure requires a client to have an ISDA Master Derivatives Agreement with IBRD.

    Interest Rate Conversions & Swaps

    Clients can transform the interest rate basis of a loan obligation from a fixed to floating rate or vice versa. To access built-in conversion options into the IFL, simply request the desired type and terms of the conversion. For IBRD loans without embedded options or debt owed to creditors other than IBRD, access swaps by signing a Master Derivatives Agreement with IBRD.

    Borrowers can limit interest rate variability with a cap or a collar. Caps set an upper limit on the variable interest rate of the loan. Collars set an upper limit (a cap) and a lower limit (a floor) on the interest rate of the loan. Both require payment of an up-front premium to purchase the interest rate protection. For IBRD loans without embedded options or for debt owed to creditors other than IBRD, access caps and collars by signing a Master Derivatives Agreement with IBRD.

    Currency Conversions & Swaps

    Clients can alter the currency terms of a loan obligation if risk management requirements have changed since the initial choice of loan currency. Clients can convert currency of an IFL between the four lending currencies, USD, EUR, GBP, JPY, using options embedded in the loan agreement. To access the IFL built-in conversion options simply request the desired type and terms of the conversion. For IBRD loans without embedded options or debt owed to creditors other than IBRD, access swaps by signing a Master Derivatives Agreement with IBRD. Availability of currency hedging products presupposes a sufficiently liquid swap market in the desired currency.

    IBRD Local Currency Financing

    IBRD offers local currency financing through (i) loan conversion options, and (ii) free-standing local currency swaps into 25 liquid local currencies.

    • Local currency conversion option: The conversion option is included in the loan agreement to enable borrowers to convert current disbursements (Automatic Conversion of Loan Currencies or ACLC) and disbursed and outstanding loan balances (DOB) into local currency, all subject to market availability. IBRD may provide the conversion by hedging through swap market transactions, or funding through local currency bond issuance. 
    • Free-standing local currency swaps: The free-standing currency swap enables borrowers to convert disbursed and outstanding balances of existing IBRD loans into local currency without changing the terms of the underlying loan. It is subject to market availability and borrowers wishing to transact free-standing swaps with the Bank need to enter into a Master Derivatives Agreement with the Bank. Freestanding swaps for local currencies are also available on liabilities contracted with Third Parties (non-IBRD) and assets. 

     

  • IBRD commodity swaps give clients an opportunity to manage exposure to commodity prices by linking repayment obligations on IBRD loans to the commodity price. For example, an oil-importing country exposed to the risk of commodity price increases can structure a commodity swap so that repayment of the principal and/or interest rate on the IBRD loan will decrease if commodity prices increase. Conversely, for an oil-producing country exposed to the risk of commodity price declines, the commodity swap can be structured so that repayment of the principal and/or interest rate would decrease if commodity prices decrease.

    Commodity swaps

    Clients can link IBRD debt service payments to the prices of a particular commodity or commodities in order to reduce commodity price risk. One set of cash flows is linked to the market price of a commodity or index. The other is a fixed cash flow or a cash flow based on a variable rate of interest. In this way, a commodity swap is a hybrid, spanning interest rate swap and commodity swap markets. IBRD commodity swaps are individually negotiated transactions provided on a case-by-case basis.

    The World Bank Treasury also provides comprehensive advisory services to help clients initiate and maintain commodity hedging programs. Please read more about our offerings on our Commodity Price Risk Management Advisory overview at the link below: 

    https://treasury.worldbank.org/en/about/unit/treasury/client-services/commodity-price-risk-management-advisory

  • Guidelines for Using IBRD Hedging Products

    These guidelines outline procedures for requesting, accepting and executing free-standing hedges between IBRD and a borrower in connection with an IBRD loan made to the borrower under a loan agreement, within the framework of a Master Derivatives Agreement (MDA).

    Hedge Request Forms

    Please refer to the Guidelines for Using IBRD Risk Management Products for procedures on requesting, accepting and executing free-standing hedges between IBRD and a borrower in connection with an IBRD loan made to the borrower under a loan agreement.

    After downloading the file(s), complete the form electronically and then print the appropriate PDF form(s) (providing the information in the required fields) and fax to the number provided on the form(s).

    • For each Interest Rate Swap request related to a VSL or FSCL, complete, sign and submit the request form.

    • For each Currency Swap request related to a VSL, FSCL, CPL, or SCP, complete, sign and submit the request form.

    • For each Interest Rate Cap or Collar request related to a VSL or FSL, complete, sign and submit the request form.

    • For each Interest Rate Swap request related to sovereign debt from creditors, other than the IBRD, complete, sign and submit the request form.

    • For each Currency Swap request related to sovereign debt from creditors, other than the IBRD, complete, sign and submit the request form.