Annual Report 2018

INVESTING FOR IMPACT

Find out more
www.ndb.int
 40

Contents

4 Message from the President

42
7 Overview
8 A brief history of the NDB and key milestones
9 NDB’s mandate
10 NDB in 2018
11 Key events in 2018
14 NDB in numbers
15 Snapshot: Expected development results
16 Enhancing partnerships for stronger impact
18 Membership and capital structure
44
19 Governance
20 Board of Governors
22 Board of Directors
24 Committees
25 Meetings of the BoG, BoD and Committees in 2018
26 Senior Management
28 Human resources
29 Risk management

31 Operations
46
32 NDB’s operating context
36 Expected development results of NDB’s operations
40 Brazil: Pará Sustainable Municipalities Project
42 Russia: Volga River Project
44 India: Bihar Rural Roads Project
46 China: Guangdong Offshore Wind Power Project
48 South Africa: Transnet Project
50 Project Preparation Fund (PPF)
51 2019: Looking ahead
52 NDB’s regional offices and new headquarters

48 55 Management discussion & analysis

63 Financial statements
64  NDB: Annual financial statements for the year ended
December 31, 2018
103 PPF: Financial statements from January 20, 2017
to December 31, 2018
118 List of acronyms and definitions

Read about how NDB is generating

positive social, environmental and
economic benefits for the citizens
of our member countries.

New Development Bank | Annual Report 2018 1

2 New Development Bank | Annual Report 2018
 Investing for impact

This 2018 Annual Report sets out the growth the

New Development Bank (the Bank or NDB) has witnessed
in delivering on its core mandate of mobilising resources
for infrastructure and sustainable development. The year
2018 has also been a year where impact investing has
gathered global momentum. It is within this context
that NDB has embraced this concept to invest in a
way that brings a range of positive and broad-based
benefits to its member countries.

New Development Bank | Annual Report 2018 3

 Message from
the President
MR. K.V. KAMATH

A
s the New Development Bank enters the fourth
year of its operations, it is indeed a pleasure to
share with our stakeholders our performance
in 2018 as well as some thoughts about the evolution
of the Bank going forward.

Last year, we stated that sustainability remains the bedrock

of our mission and that we would use 2018 as a springboard
to build on our foundational focus on sustainable infrastructure
financing. We committed ourselves to exploring new
opportunities in sustainable development with our members.
We foresaw the need to be imaginative and adaptable in our
evolution. And we promised that as we moved forward, we
would focus on “…leaner, lighter, cheaper technology and a
significantly lower staff footprint”.

I am happy to say that we have made good progress in all of

these areas.

Sustainability continues to be at the core of everything we do.

Our members reaffirmed in the Johannesburg Declaration, in
July 2018, their commitment to fully implementing the 2030
Sustainable Development Goals (SDGs) to provide equitable,
inclusive, open, innovation-driven and sustainable development
in the economic, social and environmental dimensions, in a
balanced and integrated manner, towards the ultimate goal
of eradicating poverty by 2030. The Bank continues to support
these commitments.

Building on a base of 13 loans for USD 3.4 billion at the end

of 2017, the Bank approved 17 more loans totaling about
USD 4.6 billion in 2018, bringing the total loan book of the
Bank to 30 projects, aggregating about USD 8 billion. Of this,
in response to the need for non-sovereign lending in our
member countries, the Bank approved four non-sovereign
loans aggregating USD 1 billion in three countries in 2018,
taking its total non-sovereign portfolio to USD 1.4 billion.
Our lending now covers key areas of operations including:

– transport (27%);
– clean energy (27%);
– irrigation, water management and sanitation (18%);
– urban development (14%);
– environmental efficiency (8%); and
– social infrastructure (6%).

We have also invested in building a strong pipeline of projects

for 2019 across a broader range of sectors with more
diversification across our members.

The Bank received a AA+ international credit rating during

the year, thereby joining the group of highly rated multilateral

4 New Development Bank | Annual Report 2018

 development banks (MDBs). This rating is a recognition of the
well-struck balance between growth and prudence in the
Bank’s future plans and enables us to mobilise financing
Impact investing from global and domestic capital markets at competitive
rates and pass on the benefits to our clients.
aims to generate
We remain lean, efficient, and fit-for-purpose in our staffing
positive social in all areas. We are rapidly progressing towards implementing
and environmental a fully cloud-based IT environment in the Bank, with several
systems already in place and more in the process of being
benefits alongside implemented. The Africa Regional Centre in Johannesburg
is fully operational and we plan to open offices in Brazil and
financial and Russia this year.

economic returns. Ongoing guidance and support from the Bank’s Governors
and Directors and member country governments, for which
The Bank is well we are deeply appreciative, has played a major role in our
progress thus far. I also thank the Bank’s staff, whose hard
placed to embrace work has made our progress possible, for their commitment
and dedication.
impact investing and
contribute towards its Our members’ focus on sustainable development is built
on the recognition that while their share of global GDP in
standardisation and purchasing power parity (PPP) terms increased from 27%
to 33% in the 2010-18 period despite global and domestic
mainstreaming. challenges, concomitant pressures caused by growth on
their natural resources and environment have also increased.
Explicit acknowledgement of these problems is leading our
members to invest both in sustainable infrastructure going
forward as well as in undoing some of the damage that has
come along with past rapid economic development. And the
Bank is being called upon to assist.

We are responding. Since inception, the Bank has based

its lending on a long-term, broad assessment of economic,
environmental, social, and climate change impacts. The Bank’s
initial projects were all in the renewable energy sector. This
was more than a symbolic gesture; it conveyed the message of
our founders that we are committed to a better and sustainable

USD 4.6 bn future for our member countries. The Bank looks to expand on
the “do-no-harm” approach to incorporate a more transformative
approach towards development. We are building in measurement
Approved loans in 2018 and monitoring of the development impact of our lending into
our projects.

USD 1bn
We would now like to take this a step further and embrace the
concept of “impact investing” in our project portfolio. Impact
investing aims to generate positive social and environmental
benefits alongside financial and economic returns. It aims to
Aggregate of four non-sovereign assess all the returns associated with a project, taking into
loans in three countries in 2018 account positive and negative externalities in addition to the
project’s intrinsic returns. With its more holistic considerations

New Development Bank | Annual Report 2018 5

 Message from
the President

in investment decisions and primary attention to “net positive As we increase focus on development impact as the cornerstone
impacts”, impact investing offers a hopeful alternative path to and key metric of our success, we will need to look differently
the traditional approach and its growth trajectory has already at projects that we finance as well as develop a whole new set
shown significant momentum, with the industry growing of skills in areas ranging from due diligence to project design
fivefold between 2013 and 2017. Through our investments, to impact reporting. We will further strengthen these skills in
we would like to contribute to its further growth. Within the our own staff and contribute to helping achieve scale through
context of its mandate, the Bank is well placed to embrace our investments.
impact investing and contribute towards its standardisation
and mainstreaming. The Bank’s current approach to its The Bank will join the community of MDBs to help deliver on
portfolio is largely in line with the practices of the impact the billions-to-trillions agenda. We are well aware that even
investing community and we look forward to building on this. working together, MDBs can directly offer only a small part
of the total resources required to achieve the SDGs that our
Looking ahead, I am excited about developments in several members have signed on to. Crowding-in other investors,
areas that will influence our future work. in particular the private sector, is critical if we are to make
a significant contribution. To achieve this, designing new
Last year, I had touched upon the possibilities of the Fourth products that are appropriate for a broad spectrum of investors
Industrial Revolution and likely transformations that could is essential. Also worth considering is the creation of robust
be brought about by technology-led disruption. Some of secondary markets in our member countries, that will help
these changes are already visible. Artificial Intelligence (AI) meet the current demand for projects that suit investors’ needs.
and machine learning are now a growing reality in our everyday MDBs could act as originators of projects, play their important
lives and their spheres of influence are growing exponentially. role in de-risking such projects, and take these projects to
5G rollouts have already begun and, consequently, a ubiquitous private investors in the market, thereby enabling recycling
Internet of Things is now a matter of when, not if. These of their scarce capital. The Bank has set itself up to do this
technological developments are revolutionising finance, and will work with partners to contribute to this process.
tele-medicine, education, and public services. Innovations to
further green the global economy such as highly energy-efficient The Bank is of the view that making a consistent and
and driverless automobiles are now beginning to reach the determined contribution to societal well-being is a matter
mass market, even as the world grapples with the challenges of existential importance. We are committed to doing so in our
of climate change. In the near future, is it conceivable that the member countries. We are on an exciting journey to contribute
auto-insurance industry, as we know it today, will cease to exist? to making the world a better place for future generations and
Or that a significant fraction of healthcare is delivered remotely? we look forward to partnering with interested stakeholders in
Or that children will have near-universal access to high-quality this journey.
internet-based education? I believe it is.

These changes have far-reaching consequences, and require

a new way of thinking about the underlying infrastructure Mr. K.V. Kamath
and our role in financing it. We need to take the opportunities President of NDB
presented by technological advances and make our infrastructure
smarter, more sustainable, and climate resilient. We will actively
explore avenues through which we can support our members in
these areas and contribute to thought leadership on this issue.

6 New Development Bank | Annual Report 2018

 Overview

Overview
KEY INFORMATION ABOUT NDB AND
THE BANK’S PERFORMANCE IN 2018.

New Development Bank | Annual Report 2018 7

 A brief history of NDB
and key milestones

FEBRUARY 2016
Headquarters
agreement with China
and MoU with the
Shanghai Municipal
People’s Government
are signed

APRIL 2016
First batch of projects,
JULY 2015
in the amount of
The AoA enter
USD 811 million
into force
is approved by the
JULY 2015 Board of Directors
The inaugural
APRIL 2016
meeting of the Board
First local currency
of Governors (BoG)
project is approved to
is held in Moscow
Lingang Distributed
JULY 2015 Solar Power in the
The inauguration amount of RMB 525
MARCH 2012 ceremony for NDB million
At the New Delhi is held in Shanghai
Summit, the BRICS
leaders direct their JULY 2015 JULY 2016
finance ministers NDB officially starts AAA credit rating is
to examine the operations in Shanghai received from China
feasibility and viability Chengxin International
of setting up a new Credit Rating Co. Ltd
SEPTEMBER 2015
development bank and China Lianhe
JULY 2014 First Memorandum of
to support economic Credit Rating Co., Ltd
The Articles Understanding (MoU)
growth in the BRICS MARCH 2013 of Agreement is signed with Brazilian JULY 2016
and other emerging BRICS leaders agree (AoA or Agreement) National Bank for First green bond is
economies and to establish NDB at are signed at the Economic and Social issued in the Chinese
developing countries the Durban Summit Fortaleza Summit Development (BNDES) interbank bond market

2012 2013 2014 2015 2016

8 New Development Bank | Annual Report 2018

 NDB’s mandate

Overview
N
JANUARY 2017
DB is mandated to mobilise resources for
The establishment of infrastructure and sustainable development
the Project Preparation projects in BRICS and other emerging economies
Fund (PPF) is approved and developing countries. In order to deliver on
its mandate, NDB seeks to establish a relationship
of equality and mutual trust with its shareholders.
APRIL 2017
The terms, conditions
and procedures for This principle pervades the Bank’s policies and operations,
the admission of new gearing the Bank’s focus towards supporting its member
members is approved APRIL 2018 countries to achieve their development aspirations, especially
PPF Contribution those articulated in the UN’s 2030 Agenda for Sustainable
Agreement is signed Development and the 2015 Paris Agreement on Climate Change.
JUNE 2017
with India
General Strategy: The Bank also strives to bring a variety of positive externalities,
2017-2021 such as enhancing productivity, contributing to the development
JULY 2018
is approved of domestic capital markets and promoting overall trade and
Agreement on the
hosting of NDB’s investment opportunities. As the operations of the Bank expand,
AUGUST 2017 Americas Regional they will also act as a counter-cyclical force in sustaining
The Africa Regional Office (ARO) in São the funding of infrastructure and sustainable development
Centre (ARC) is Paulo and Brasília investments, moderating the negative effects of economic
officially opened is signed cycles and growth volatility.

SEPTEMBER 2017 AUGUST 2018

Ground breaking AA+ credit rating is
ceremony for received from Fitch
the permanent and Standard & Poor’s
headquarters in (S&P) Global Ratings
Shanghai is held
DECEMBER 2018
OCTOBER 2017
PPF Contribution
30 projects approved
by NDB totaling about NDB seeks to establish
Agreement is signed
with China
USD 8 bn by the end
of 2018
a relationship of equality
and mutual trust with its
2017 2018
shareholders.

New Development Bank | Annual Report 2018 9

 NDB in 2018

T
he year 2018 marked the third consecutive Having received a AA+ rating from S&P and Fitch ratings
successful year for NDB since its establishment. agencies in August 2018, NDB will be able to diversify its
sources of funding with access to the international bond
While continuously building its institutional
market. Significant progress has also been made in funding
capacity with a focus on quality and technical rigour, in local currency. After successfully issuing its first onshore
this year NDB approved 17 projects in all member bond in China in 2016, NDB has been working to register local
countries, more than the total number of projects currency programmes with the aim of obtaining necessary
approved during the preceding two-and-a-half years. approvals to become a qualified bond issuer in the currencies
The Bank’s overall portfolio expanded to 30 projects, of all member countries1.
valued at about USD 8 billion.
Against the backdrop of rapid technology development,
NDB’s General Strategy: 2017-2021 places great emphasis NDB continues to strengthen its internal systems and
on mobilising resources for infrastructure and sustainable processes in accordance with global best practice. The Bank’s
development projects. To meet this demand from shareholders, IT infrastructure allows it to act efficiently and to manage
the Bank is enhancing its development impact planning and the increasing complexity in its operations. In 2018, NDB
operational approach. This will also enhance the Bank’s implemented a treasury management system, SWIFT, risk
contribution to members’ development efforts in line with the management monitoring, compliance and internal audit
principles embodied in the United Nations (UN) 2030 Agenda systems. Quantitative and analytical capabilities continue
for Sustainable Development. to evolve with the implementation of loan pricing tools and
business intelligence instruments for data-sharing and
As a result, NDB is intensifying its focus on different areas visual analytics.
of sustainable infrastructure development that maximise
development impact in line with the SDGs. This approach has During its relatively short period of operations, NDB has evolved
allowed the Bank to enlarge its investment beyond renewable from a concept into a solid, dynamic and reliable institution.
energy to vital areas such as: The Bank’s achievements thus far have been the culmination
of a number of favourable factors, including the continuous
– ecosystem restoration, support of its member countries, clear and decisive guidance
– water supply, irrigation restructuring and from the Boards, conscientious efforts of Senior Management
– energy conservation. and commitment and hard work of all staff. The goal of NDB is
to be a 21st century institution; one that acts through innovative
Throughout 2018, the Bank’s portfolio has become increasingly thinking, products and processes, guided by the development
diversified. The Board of Directors (BoD) approved four non- commitments made by member countries.
sovereign projects in South Africa, Russia and Brazil. The Bank
has also started to develop policies and procedures to provide
infrastructure guarantees and engage in equity investments.

17 projects
Approved in 2018

USD 8 bn
Overall value of the Bank’s project
portfolio (30 projects in total)
1 On January 9, 2019, the Bank registered a RMB 10 billion bond in the China interbank
bond market and successfully placed RMB 3 billion on February 25, 2019 in this market.

10 New Development Bank | Annual Report 2018

 Key events in 2018

Overview
NDB THIRD ANNUAL MEETING
PROGRESS UPDATE

T
he Third Annual Meeting of the BoG was held
The BoG received a progress update
on the following:
in Shanghai, China on May 28, 2018, under the
theme Innovative Approaches for Development
–e
 nhanced representation of Financing. The BoG elected the Governor from South
staff from all member countries, Africa as Chairperson and the Governor from Brazil
as Vice Chairperson for 2019.
–p
 rogress in institutional development
and operations, such as the ARC The operational targets for 2019 were also presented to the BoG.
being fully operational and plans
to open the ARO, The BoG encouraged the Bank to deepen dialogues and
– c onstruction of the new Shanghai strengthen support to enhance domestic resource mobilisation
headquarters building, in member countries, using innovative approaches to further
develop its financing and investment operations.
– new project approvals and
– t he contributions received to date The BoG also elaborated on plans to support the expansion
since the establishment of the PPF of NDB’s business in line with its mandate and agreed on the
in January 2017. importance of being part of redefining the future; not just in
BRICS but all emerging economies and developing countries.

Three seminars held during the meeting included:

The theme for the – Development Financing in a Changing Global Environment,
Third Annual Meeting was – Innovative Approaches for Mobilising Finance for Sustainable
Infrastructure Development and
Innovative Approaches for – Social Aspects of the Fourth Industrial Revolution and
Development Financing. Digital Economy.

Official group photo:

NDB Third Annual Meeting, Shanghai.

New Development Bank | Annual Report 2018 11

 Key events 2018

Through its active NDB PARTICIPATION AT THE TENTH BRICS SUMMIT HELD
IN SOUTH AFRICA
participation in the BRICS
N
DB showcased its growing support to fund
Summit, the Bank reaffirmed infrastructure and sustainable development
projects in the BRICS countries, during
its determination to expand the Tenth BRICS Summit which took place in
its role as an innovative and Johannesburg, South Africa from July 25-27, 2018.
Over the course of the three-day summit, the Bank
reliable development partner participated in a series of high-profile meetings and
to all BRICS countries in sessions with BRICS nations’ leaders and the wider
BRICS business community.
the year ahead, increasing
NDB president, Mr. K.V. Kamath and senior NDB officials met with
its support to all member South Africa’s President, Mr. Cyril Ramaphosa, in Johannesburg
nations to achieve their to discuss the future development role of the Bank in South Africa,
including the expansion of the project pipeline and the work of the
development agendas. ARC in Johannesburg.

Mr. K.V. Kamath, Mr. Aloysio Nunes Ferreira, the Minister of

Foreign Affairs of Brazil and Mr. Eduardo Refinetti Guardia, the
Minister of Finance of Brazil and Vice-Chairman of the Bank’s
Board of Governors, signed the agreement to host the ARO in
São Paulo and Brasília.

Further to this, Mr. K.V. Kamath delivered updates to BRICS

business leaders on key projects and other announcements,
including the approval of two projects in China and South Africa.
Through its active participation in the BRICS Summit, the Bank
reaffirmed its determination to expand its role as an innovative
and reliable development partner to all BRICS countries in the
year ahead, increasing its support to all member nations to
achieve their development agendas.

NDB President Mr. K.V. Kamath met South

African President Mr. Cyril Ramaphosa
during the 2018 BRICS Summit.

12 New Development Bank | Annual Report 2018

 Overview
SOLIDIFYING TIES WITH MEMBER COUNTRIES
1

A
core value on which NDB was founded was
to create relationships based on reciprocated
respect and trust. Throughout the year,
Mr. K.V. Kamath met with high-level officials to
continue strengthening the Bank’s relationships
with its members.

On March 9, 2018, Mr. K.V. Kamath met the Prime Minister of

India, Mr. Narendra Modi, in New Delhi. During the meeting, the
progress of the Bank and the current status of different projects
2
approved by the Bank in India was discussed. Mr. K.V. Kamath
thanked the Prime Minister for all the support the Bank has
received from the Government of India and committed that the
Bank stands ready to support projects of about USD 1.5 billion
annually in India in the coming years.

On November 5, 2018, Mr. K.V. Kamath had a meeting with

Mr. Dmitry Medvedev, Prime Minister of the Russian Federation
in Shanghai. The President and the Prime Minister discussed
the Bank’s support of the Russian government’s developmental
1. NDB President Mr. K. V. Kamath met Chinese agenda and infrastructure programmes. In addition to this,
Vice Premier Mr. Zheng Han in Beijing. plans to open a regional office in Russia in 2019 to strengthen
2. NDB President Mr. K. V. Kamath met Russian the Bank’s project pipeline was also discussed.
Federation Prime Minister Mr. Dmitry Medvedev
in Shanghai. On November 13, 2018, Mr. K.V Kamath and the Senior
Management team met Chinese Vice Premier, Mr. Zheng Han,
in Beijing. Mr. K.V. Kamath briefed Mr. Han on NDB’s progress
in establishing itself as a trusted development partner and
expressed the Bank’s willingness to support the three city
clusters surrounding Beijing, Shanghai and Shenzhen in their
infrastructure investment.

SECOND ANNUAL CIVIL SOCIETY ORGANISATION MEETING

O
n November 22, 2018, the Bank held its second
meeting with civil society organisations at NDB’s
headquarters in Shanghai.

The importance The meeting, which brought together international and national
civil society organisations from BRICS countries, provided an
of the development opportunity for important discussions on topics related to NDB’s
operations and institutional development. The importance of the
impact of projects development impact of projects was a central theme.
was a central theme.

New Development Bank | Annual Report 2018 13

 NDB in numbers

Financial Performance Operations

USD m As at December 31 USD m As at December 31 2018 2017

Approved loans 8,078 3,419

166 Cancelled loans 2501 –
158
Disbursed loans 625 24
Loans funded through
green bond proceeds 436 12

72
Asset quality
31 As at December 31 2018 2017

2017 2018 2017 2018

Average rating of treasury liquid assets A+ A+
Operating profit Total comprehensive Average maturity of treasury assets 6 mths 7 mths
income Average rating of sovereign operations A- A-
Average rating of non-sovereign operations BBB- BB+
Average rating of total operations BBB+ A-
Funding
USD m As at December 31
Liquidity
As at December 31 Metric 2018 2017
10,224 10,402
Overall liquidity ratio % 626 1,148

Member contributions
456 458
Cumulative paid-in
USD m Financial Year ending capital received

December 31, 2016 2,200

December 31, 2017 3,800
2017 2018 2017 2018 December 31, 2018 4,991
Total assets Total liabilities

Project Preparation Fund (PPF)

USD’000 As at December 31
Contributions received

Human Resources

6,500
4,500

2017 2018
56 females 88 males
As at December 2018 As at December 2018
(2017: 43) (2017: 63)

1 Related to the USD 250 million loan to Canara Bank for its Renewable Energy Financing Scheme,
approved in 2016 and cancelled in 2018.

14 New Development Bank | Annual Report 2018

 Snapshot

Overview
EXPECTED DEVELOPMENT RESULTS IN SELECTED AREAS OF NDB’S OPERATION.
NDB collaborated with or participated in projects related to transport infrastructure, clean energy, urban
development, irrigation, water resource management and sanitation, that are expected to result in:

Additional
150,000 hectares
of land to be
brought under
irrigation 3 million +1,000 km
people to benefit from of canal infrastructure
improved access to safe to be built or upgraded
systems of water supply

Over 1.5 million tons

of C02 to be avoided 80 km
per year of metro rail to be built

350 bridges 30 cities to benefit

from sustainable
to be constructed or reconstructed urban development

7,800 km One port to be

developed and
of roads to be built or upgraded
rehabilitated,
increasing its
A new airport to be built with: handling capacity
22 million by 500,000 twenty-
foot equivalent +1,500 MW
annual passenger through-put
and annual freight through-put
units (TEU) of renewable energy capacity
to be installed
of 200,000 tons

New Development Bank | Annual Report 2018 15

 Enhancing partnerships
for stronger impact

S
uccessful delivery of a sustainable STRENGTHENING COLLABORATION WITH THE UN AND ITS
development agenda requires active SPECIALISED AGENCIES
collaboration between institutions that
NDB Granted United Nations General Assembly (UNGA)
share common principles and objectives. The drive Observer Status
to revitalise global partnerships is embodied in
SDG 17 – a goal that recognises the importance In December 2018, NDB was granted observer status at the
of co-operation to mobilise and share knowledge, UNGA, which will help establish a firm basis for active and
fruitful co-operation with the UN and its specialised agencies.
expertise, technology and financial resources, to
As an observer, NDB joins a range of other international
support the achievement of the SDGs across the
organisations, including MDBs, working together with the
world. In the spirit of SDG 17, NDB is proactively UN system to promote sustainable development globally.
working together with other institutions to support
the development efforts of its member countries. NDB Builds Stronger Partnership with Food and Agriculture
Organization of the United Nations (FAO)
In October 2018, NDB and FAO discussed opportunities for joint
initiatives in areas of common interest, including the promotion
of rural development, water management and irrigation to
support global growth and development. Throughout 2018,
NDB and FAO fostered ever closer ties and developed plans
for collaboration, beginning with activities to share technical

USD 380 m knowledge on the topics of delivering development impact

and helping countries achieve the SDGs.

Committed to co-finance and parallel

finance infrastructure projects with
partner institutions in 2018 BUILDING AND IMPLEMENTING PARTNERSHIPS

NDB continues to collaborate with MDBs, national financial

28 MoUs
institutions (NFIs), commercial banks, international organisations,
academic institutions and think tanks across different functions
to better deliver on its mandate to mobilise resources for
infrastructure and sustainable development projects.
Signed in total
In its effort to maximise finance for development, NDB
committed over USD 380 million in co-finance and parallel
finance infrastructure projects with partner institutions. MoUs
that NDB signs with partners lay the groundwork for such
co-operation. In 2018, NDB signed four MoUs, bringing the
total number to 28

Banco Santander (Brasil) S.A.

On January 10, 2018, the NDB and Banco Santander (Brasil) S.A.
signed an MoU on strategic co-operation to promote collaboration
and joint provision of financial services. The agreement, which
promotes knowledge sharing and staff exchange initiatives, is
the first formal partnership between NDB and a private bank
in Brazil.

IDB and IDB Invest

The MoU signed with IDB and IDB Invest on April 19, 2018
establishes a framework for co-operation across various areas
and services, including knowledge sharing, joint participation
in sustainable infrastructure projects and support for the
development of clean transportation and renewable energy.

16 New Development Bank | Annual Report 2018

 1

Overview
The Development Bank of Southern Africa (DBSA)
2
The MoU signed with DBSA on May 28, 2018 promotes
general co-operation between the two institutions and
fosters opportunities for operational partnerships, treasury
management and exchange of knowledge and expertise.

The State Bank of India

The MoU signed with the State Bank of India on May 28, 2018
supports knowledge exchanges and collaboration in loan
management services, settlement agency business, cash
management, personal finance and other technical areas. 1 & 2. NDB meeting with Food and Agriculture
Organization of the United Nations.

ADHERING TO AGREEMENTS AND JOINT DECLARATIONS

WITH DEVELOPMENT PARTNERS

In March 2018, the Bank and the International Solar Alliance

(ISA) signed a Joint Declaration for the Promotion of Solar
Energy Globally. The two institutions agreed to consider a
roadmap for the mobilisation of financing to promote solar
energy in countries of common interest and to explore
mechanisms for supporting solar energy development.

In April 2018, the NDB and the International Finance

Corporation (IFC) signed a Master Cooperation Agreement
(MCA). The MCA streamlines the work between NDB and IFC
to co-finance projects. It also standardises the procedures for
co-financing through syndicated parallel loans and provides
documentation templates.

In December 2018, NDB issued a joint declaration with other NDB is proactively
MDBs which sets up a framework for aligning their activities
with the goals of the Paris Agreement, reinforcing the Bank’s
working together with
commitment to combat climate change. other institutions to
Following the Global Infrastructure Forum 2018 (GI Forum) support the development
in October 2018, the NDB endorsed the MDBs’ “Outcome
Statement”, which also reaffirms the institution’s pledge to efforts of its member
support resilient, sustainable infrastructure development.
countries.

ENHANCING ENGAGEMENT WITH INSTITUTIONS IN MEMBER

COUNTRIES

NDB actively engaged in BRICS forums throughout 2018. In March

2018, the Bank’s Senior Management participated in the 2018
mid-term meeting of the BRICS Business Council in Shanghai
to discuss joint initiatives. In July 2018, NDB took part in the
annual meeting of the BRICS Business Council and the BRICS
Business Forum in Johannesburg. To enhance knowledge
sharing, the Bank engaged with counterparts from its member
countries at the BRICS Think Tank Symposium in Guangzhou in
April 2018, the BRICS Academic Forum in May 2018 and the
Think Tank International Conference in Shanghai in June 2018.
New Development Bank | Annual Report 2018 17
 Membership and
capital structure

N
Member contributions schedule DB currently has five member countries
that are also the founding members,
Paid-in capital Cumulative
due from paid-in namely the Federative Republic of Brazil,
USD m Due date each member capital due the Russian Federation, the Republic of India, the
Instalment People’s Republic of China and the Republic of
1 January 3, 2016 150 750 South Africa. In accordance with the AoA, the initial
2 January 3, 2017 250 2,000 subscribed capital is USD 50 billion, with each of the
3 January 3, 2018 300 3,500 five countries subscribing equally to shares worth
4 January 3, 2019 300 5,000 USD 10 billion. The voting power of each member
5 January 3, 2020 300 6,500 is equal to the proportion of its subscribed shares
6 January 3, 2021 350 8,250 in the capital stock of NDB, thus all the founding
7 January 3, 2022 350 10,000 members have equal voting power.

USD 10 billion of the subscribed capital of USD 50 billion is

paid-in capital and USD 40 billion callable. The paid-in capital
is receivable over seven annual instalments by each of the
Member contributions schedule member countries. By December 31, 2018, USD 5 billion had
been received in accordance with the payment schedule set
USD m
out in the AoA. Additionally, USD 300 million was received
Cumulative paid-in capital due 10,000 from Russia related to its fifth instalment, which is not due
Cumulative paid-in capital received until January 3, 2020. The timely receipt of capital contributions
10,402
8,250 demonstrates the commitment and support NDB receives
from its members.
6,500

4,991 5,000 NDB currently operates in all five member countries.

3,800 3,500 Expansion of membership beyond the founding members is
a strategic focus of the Bank designed to extend NDB’s reach
2,200 2,000 and development impact across the BRICS countries and other
750 emerging markets and developing economies. Recognising
this, in April 2017, the BoG approved the terms, conditions
2016 2017 2018 2019 2020 2021 2022 and procedures for the admission of new members.

The timely receipt of

capital contributions
demonstrates the
commitment and
support NDB receives
from its members.

18 New Development Bank | Annual Report 2018

 Governance

Governance
THE GOVERNANCE STRUCTURE SUPPORTS NDB’S COMMITMENT TO OPERATING
IN A PRUDENT MANNER AND PROVIDES OVERSIGHT, CONTROL AND GUIDANCE.

New Development Bank | Annual Report 2018 19

 Board of Governors

N
DB functions under the Mr. Eduardo Refinetti Guardia 1 Mr. Anton Siluanov
strategic guidance of Governor of NDB Governor of NDB
the BoG, whilst operational
Minister of Finance Minister of Finance
oversight is provided by the BoD
Federative Republic of Brazil Russian Federation
and is managed by the President
and four Vice Presidents.

The BoG, BoD and Senior Management Mr. Guardia was the Finance Minister Mr. Siluanov was appointed as Finance
have extensive experience in dealing in Brazil from April 2018 to December Minister in Russia from September 2011
with and managing MDBs and are 2018. He served as the Executive to December 2011 and was reappointed
dedicated to building an organisation Secretary of the Ministry of Finance in May 2012. Mr. Siluanov has a long
that holds itself to the highest standards from June 2016 to April 2018. Mr. Guardia history of working at the Russian Finance
of corporate governance and operational held the positions of Chief Product Ministry starting as an economist in
effectiveness. The BoG is the highest Officer and Chief Financial, Corporate August 1985 to becoming a member of
decision-making authority of the Bank. and Investor Relations Officer at BM&F the Board on March 22, 2001. From July
Each member country appoints one BOVESPA. Mr. Guardia also held the 2003 to December 2011, Mr. Siluanov
governor at ministerial level and one positions of Secretary of the Treasury served in various positions including
alternate governor. The Third Annual of the State of São Paulo, Secretary of Deputy Finance Minister of the Russian
Meeting of the BoG was held in Shanghai the National Treasury, Deputy Secretary Federation; Director of the Department
on May 28, 2018. of Economic Policy of the Ministry of of Intergovernmental Fiscal Relations at
Finance and chaired the Board of the Finance Ministry; and Acting Finance
Directors of Banco do Brasil. Minister of the Russian Federation.

KEY RESPONSIBILITIES INCLUDE, GOVERNANCE

AMONGST OTHERS:

– The approval of the general strategy

BOARD OF GOVERNORS
– Expansion of membership
– Decision to increase or decrease
the capital stock BOARD OF DIRECTORS

– Authorising the conclusion

of general agreements for BUDGET, HUMAN
ARC COMMITTEE
co-operation with other RESOURCES AND
international organisations COMPENSATION
COMMITTEE
– Approving the annual accounts. CREDIT AND FINANCE COMMITTEE
INVESTMENT
COMMITTEE

20 New Development Bank | Annual Report 2018

 Governance
Mr. Arun Jaitley Mr. Kun Liu2 Mr. Tito Mboweni 3
Governor of NDB Governor of NDB Governor of NDB, Chairperson
Chairperson of BoG of BoG starting May 28, 20184
Minister of Finance,
until May 28, 2018
Corporate Affairs and Minister of Finance
Information & Broadcasting Minister of Finance Republic of South Africa
Republic of India People’s Republic of China

Mr. Jaitley has been Finance Minister Mr. Liu has been Finance Minister of Mr. Mboweni has been Finance Minister
and Minister of Corporate Affairs since China since March 2018. From December of South Africa since October 2018 and
May 2014. Before serving in this role, 2016 to March 2018, Mr. Liu served he was the eighth Governor of the South
Mr. Jaitley was Union Minister of as director of the Budgetary Affairs African Reserve Bank from 1999 to 2009.
Defence. Mr. Jaitley has over 20 years Commission of the National People’s Mr. Mboweni joined the Reserve Bank in
of experience in various ministerial Congress. From May 2013 to December July 1998 as Advisor to the Governor.
leadership roles. Mr. Jaitley is also 2016, Mr. Liu served as Vice-Minister Prior to this, Mr. Mboweni was Minister
India’s Governor on the boards of of Finance. From 1982 to July 2010, of Labour from May 1994 to July 1998
governors of several MDBs, such as Mr. Liu held various posts in Guangdong and before that, he was Deputy Head of
IBRD, IMF, ADB and AIIB. Mr. Jaitley is Provincial Government, including vice- the Department of Economic Policy in the
a lawyer and prominent leader of the governor of Guangdong province from African National Congress. Mr. Mboweni
Bharatiya Janata Party. In his prolific July 2010 to May 2013. also represented the ANC on several
career as a lawyer, Mr. Jaitley was domestic and international platforms.
designated as Senior Advocate in 1989
and has made significant contributions
in the areas of economic liberalisation
and legal reforms.

1 Mr. Eduardo Refinetti Guardia was appointed Governor in April 2018 replacing
Mr. Henrique de Campos Meirelles.
2 Mr. Kun Liu was appointed Governor in March 2018 replacing Mr. Jie Xiao.
3 Mr. Tito Mboweni replaced Mr. Nhlanhla Nene when Mr. Mboweni was appointed Governor of South
Africa in November 2018. Mr. Nene was appointed Governor in March 2018 replacing Mr. Malusi Gigaba.
4 The Governor of South Africa was elected as the BoG chairperson on May 28, 2018 and will hold this
office until April 2, 2019, the end of the Fourth Annual Meeting of the BoG.

New Development Bank | Annual Report 2018 21

 Board of Directors

T
he BoD is responsible for Mr. Marcello de Moura Mr. Sergei Storchak
the general operations of Estevão Filho Director of NDB
the Bank, including decisions Director of NDB – Chairperson
Deputy Minister of Finance
on business and country strategies, of the Board of Directors
Russian Federation
loans, guarantees, equity investments, Secretary for International
borrowing, operational policies and Affairs, Ministry of Finance
procedures, technical assistance as Federative Republic of Brazil
well as budget review and approval.
Mr. Estevão was the Secretary for Mr. Storchak has been the Deputy
Each of the founding members appoints International Affairs at the Ministry of Finance Minister of the Russian
one Director and one alternate for a term Finance in Brazil from December 2016 to Federation since November 2005. Mr.
of two years. As per NDB’s AoA, Directors December 2018. Previously, Mr. Estevão Storchak served in the Soviet Army from
may be re-elected. The chairperson of worked as an economist in the Federal November 1972 to November 1974. Mr.
the BoD is appointed by the Directors for Reserve Board between 1995 and 2000 Storchak held various positions at the
a period of four years. The Chairperson in Washington. Mr. Estevão was also a Institute of World Economy and Foreign
of the BoD is the Director for Brazil, chief economist in the Tudor Investment Affairs of the Academy of Sciences of the
Mr. Marcello de Moura Estevão Filho. Corporation from 2013 to 2015 in London USSR from August 1981 to November
and Greenwich. From 2004 to 2007, 1988. From December 1988 to October
NDB has a non-resident Board which, Mr. Estevão worked for the IMF as an 2005, Mr. Storchak served in various
according to the Bank’s AoA, meets at Economist and Senior Economist; Deputy positions in government and other
least quarterly. However, Directors may Chief, North American Division (United international organisations including
also hold as many virtual meetings as States and Canada, 2008 to July 2011); the Second Secretary of the USSR
needed. This innovative format enables Mission Chief to Barbados (2009 to Permanent Mission to the UN Office,
a swift, flexible and cost-effective decision- 2010); Mission Chief to Nicaragua (July Director of Division of the Foreign Credit
making process. In 2018, the BoD held 2011 to April 2013); Deputy Chief, and External Debt Department, Deputy
five meetings. In order to ensure full Regional Studies Division (June 2015 to Chairman of the Bank for Foreign
transparency and effective governance, October 2015) and Mission Chief to Peru Economic Affairs of the USSR and
NDB’s Corporate Secretary reports (2015 to 2016). Director of the International Finance
directly to the BoD. Relations, State Debt and State Financial
Assets Department of the Finance
Ministry of the Russian Federation.

KEY RESPONSIBILITIES

– General operations of the Bank – Strategic direction to Senior

Management to achieve the
– Budget review and approval
Bank’s organisational objectives
– Project management
– Oversees the development of
its operations.

22 New Development Bank | Annual Report 2018

 Governance
Mr. K. Rajaraman1 Mr. Shixin Chen Mr. Dondo Mogajane
Director of NDB Director of NDB Director of NDB
Additional Secretary, Director General of Director-General of
Department of Economic Affairs, the Ministry of Finance the National Treasury
Ministry of Finance People’s Republic of China Republic of South Africa
Republic of India

Mr. Rajaraman was appointed as Mr. Chen was appointed as the Director Mr. Mogajane was appointed as
Additional Secretary, Investment & General of the Department of International the Director-General of the National
International Economic Relations in Economic and Financial Cooperation, Treasury on June 8, 2017. Mr. Mogajane
the Department of Economic Affairs, Ministry of Finance of China in August joined National Treasury in 1999 as
Ministry of Finance in September 2018. 2016. He served in various senior a Deputy Director and has worked
Mr. Rajaraman started his career as positions at the Ministry of Finance of in various areas including, amongst
a Design Engineer in Bharat Heavy China: Division Chief and Deputy Division others, the Intergovernmental Relations,
Electricals Limited, Trichy in 1986. Chief at Budget Department (until 2005); Provincial Budget Analysis and the
After joining the Indian Administrative Deputy Director General of Tax Policy International Economic Relations
Service in 1989, Mr. Rajaraman has held Department (2005 to 2007); and Deputy divisions. Between 2007 and 2010,
administrative positions in the areas of Director General of International Mr. Mogajane represented South Africa
Investment Promotion, Public Sector Department (2007 to 2013). Mr. Chen at the Executive Board of the World
Undertakings, Industrial Infrastructure, was Executive Director for China at World Bank as senior advisor for Africa Group
Urban Transportation, VAT Administration. Bank Group from 2013 to 2016, where 1 countries. Mr. Mogajane served as the
Mr. Rajaraman was previously the he was a member of the Audit Committee Chief of Staff in the Ministry of Finance
Managing Director of Chennai Metro and the Committee on Governance and from 2010 to May 2014; acting Chief
Railways for approximately four Administrative Matters (COGAM) under Operating Officer from May 2014 to
years, during its construction phase, the Board of Executive Directors. May 2015 and Deputy Director-General
Commissioner for Commercial Taxes responsible for the Public Finance Division
in State Government of Tamil Nadu at National Treasury from June 2015 to
and Joint Secretary Expenditure in June 2017.
Government of India.

30 projects 1 Mr. K. Rajaraman was appointed as the Director for India in October 2018, replacing
Mr. M. M. Kutty. Mr. Kutty was the Director for India from December 2017 to June 2018
Approved since NDB was established replacing Mr. Dinesh Sharma.

New Development Bank | Annual Report 2018 23

 Committees

T
he Bank’s AoA state AUDIT, RISK AND COMPLIANCE The ARC Committee, in reliance on the
that the BoD shall appoint COMMITTEE (ARC COMMITTEE) review and discussions conducted with
Senior Management and the independent
any committee it deems auditors pursuant to the requirements
CHAIRPERSON OF THE ARC COMMITTEE
necessary for carrying out the Mr. Dondo Mogajane, above, provides its opinion as to whether
general operations of the Bank. Director for South Africa the Bank’s financial statements are fairly
Consequently, the BoD has presented in conformity with International
approved the constitution of COMPRISES Financial Reporting Standards in all
four committees to assist it in All members of the BoD material respects.
accomplishing its oversight and
MEETINGS PER YEAR In 2018, the ARC Committee held four meetings
decision-making responsibilities.
At least four times a year and has satisfied its responsibilities in
compliance with its terms of reference.
KEY RESPONSIBILITIES
Assists the BoD to fulfil its corporate
governance responsibilities including,
among others, assessing the integrity BUDGET, HUMAN RESOURCES
of the financial statements and reporting AND COMPENSATION COMMITTEE
procedures, reviewing reports from the (BHRC COMMITTEE)
external auditors, ensuring the existence of
adequate and effective internal controls and CHAIRPERSON OF THE
approving the risk management framework; BHRC COMMITTEE
Mr. Shixin Chen, Director for China
The ARC Committee reviews the
audited financial statements with Senior COMPRISES
Management, including a discussion on All members of the BoD
the quality of the accounting principles as
applied and significant judgements affecting MEETINGS PER YEAR
the Bank’s financial statements; At least quarterly, or as needed

The independent auditors discuss with the KEY RESPONSIBILITIES

ARC Committee their judgements of the The committee’s purpose is to assess
quality of those principles as applied and the approval of the budget and human
judgements referred to above under the resources and compensation-related
circumstances; activities.

The members of the ARC Committee In 2018, the BHRC Committee held
discuss amongst themselves, without four meetings and has satisfied its
Senior Management or the independent responsibilities in compliance with
auditors being present, the information its terms of reference.
disclosed to the Committee as described
above; and

24 New Development Bank | Annual Report 2018

 Meetings of the
BOG, BOD and Board

Governance
Committees in 2018

CREDIT AND INVESTMENT FINANCE MARCH 2018

COMMITTEE (CIC) COMMITTEE
MARCH 1
CHAIRPERSON OF THE CIC CHAIRPERSON OF THE 6th ARC Committee Meeting
Mr. K.V. Kamath, President of NDB FINANCE COMMITTEE
Mr. K.V. Kamath, President of NDB MARCH 1
COMPRISES 1st BHRC Committee Meeting
The President and the four Vice Presidents COMPRISES
The President and the four Vice Presidents MARCH 2
MEETINGS PER YEAR 13th BoD Meeting
Monthly, or as needed MEETINGS PER YEAR
Monthly, or as needed
KEY RESPONSIBILITIES MAY 2018
The purpose is to assist the BoD in KEY RESPONSIBILITIES
fulfilling its responsibilities regarding the The committee provides oversight MAY 28
credit activities of the Bank and to make responsibility on financial and 7th ARC Committee Meeting
appropriate project recommendations to risk-related matters pertaining
the BoD. to operations and treasury; and MAY 28
2nd BHRC Committee Meeting
In 2018, the CIC held eight meetings and has The committee is responsible for the
satisfied its responsibilities in compliance oversight of and recommendations to MAY 28
with its terms of reference. the BoD in the areas of financial policies 14th BoD Meeting
and guidelines, financial operations
including loan loss provisioning, asset MAY 28
and liability management and financial 3rd Annual BoG Meeting
risk management.

In 2018, the Finance Committee held JULY 2018

six meetings and has satisfied its
responsibilities in compliance with JULY 20
its terms of reference. 15th BoD Meeting

SEPTEMBER 2018

SEPTEMBER 17
8th ARC Committee Meeting

SEPTEMBER 17
3rd BHRC Committee Meeting

SEPTEMBER 18
16th BoD Meeting

NOVEMBER 2018

NOVEMBER 15
9th ARC Committee Meeting

NOVEMBER 15
4th BHRC Committee Meeting

NOVEMBER 16
17th BoD Meeting

New Development Bank | Annual Report 2018 25

 Senior Management

T
he Senior Management team Mr. K.V. Kamath Dr. Sarquis José Buainain Sarquis
is composed of the President President Vice President and
and four Vice Presidents. Chief Risk Officer
In 2015, the BoG appointed Mr. K.V.
Kamath from India as the first Mr. Kamath has over 40 years’ Mr. Sarquis combines over 20 years
experience in the banking sector, of public sector experience. He has
President of NDB. The President
including project finance, credit and held several positions at the Ministry
is also a member of the BoD, but venture capital. In 1988, Mr. Kamath of External Relations in Brazil,
has no voting rights except when joined the ADB in the private sector including Head of International
the outcome of a vote taken by the department. Before joining NDB, Economic Organisations and advisor
BoD requires a deciding vote. The Mr. Kamath served as Managing Director on international finance, investment,
Vice Presidents, from each of the and Chief Executive Officer and then trade and development. Before joining
founding member countries, are as the non-executive Chairman of ICICI NDB, Mr. Sarquis served as Minister-
appointed by the BoG, based on the Bank. Mr. Kamath also served as a board Counsellor for the Organisation for
recommendation of the President. member of Schlumberger Ltd and as Economic Co-operation and Development
Chairman of Infosys Ltd., India’s largest affairs at the Embassy in Paris and
software company. Deputy Chief of Mission at the Brazilian
embassy in Tokyo. He received his MSc
and PhD in Economics from the London
School of Economics and has researched,
published and taught in the areas of
macro-economics and economic finance.

26 New Development Bank | Annual Report 2018

 Governance
Mr. Vladimir Kazbekov Mr. Xian Zhu Mr. Leslie Maasdorp
Vice President and Chief Vice President and Vice President and
Administrative Officer Chief Operations Officer Chief Financial Officer

Mr. Kazbekov has over 20 years’ Mr. Zhu has over three decades of Mr. Maasdorp has over 25 years’
experience in public sector and experience in senior management roles experience in senior leadership roles in
development finance. Before his in the Chinese public sector. Before his the private and public sectors in South
appointment at NDB he served at appointment at NDB, Mr. Zhu served as Africa. In 1994, he was appointed special
Vnesheconombank - Russia’s National Vice President and Chief Ethics Officer advisor to the Minister of Labour and in
Development Bank, as an executive at the World Bank Group. Mr. Zhu has 1999 was appointed as Deputy Director
and at the Russian Ministry of Foreign also held other positions in World Bank General of the Department of Public
Affairs, as the Deputy Director of the Group including Strategy and Operations Enterprises. Before joining NDB, Mr.
Foreign Policy Department of the Director for South Asia, Country Director Maasdorp served as President of Bank
Presidential Executive Office of the for Bangladesh and Country Director for of America Merrill Lynch for Southern
Russian Federation. the Pacific Islands, Papua New Guinea Africa and prior to that he served in a
and Timor-Leste. dual role as Vice Chairperson of Barclays
Capital and ABSA Capital. He is a former
International Adviser to Goldman Sachs.

New Development Bank | Annual Report 2018 27

 Human Resources

144 staff N
DB is committed to recruiting, retaining and
developing a diverse and high-performing team
of professionals to contribute to infrastructure
As at December 2018 and sustainable development efforts in its member
(2017: 106 staff) countries and, in the future, other emerging economies.

NDB searches the talent market within its member nations for
the recruitment of its professional staff, who bring a wide array
of perspectives and competencies to apply international best
practice and collaborate effectively with clients and partners. NDB
attracts motivated, flexible and high-performing professionals
who are driven by the purpose of creating a greener, more
sustainable future. NDB strives to ensure diversity of staff

56 females
from member countries, including representation, gender,
age and experience, as this is at the heart of how NDB defines
and reinforces organisational and professional excellence.
As at December 2018 (39%)
(2017: 43, 41%) Human capital is the Bank’s most valuable resource. The Bank
supports professional development through on-the-job skills
transfer and technical training. Training opportunities extended
to the staff have included operations workshops to strengthen
capacity in financial and economic due diligence, project
finance and project economic evaluation. Technical seminars
on impairment provisioning, local currency lending and hedge
accounting were held as well as ongoing, in-house training and
awareness sessions to update staff on changes in operating

88 males
guidelines and practices.

As at December 2018, the Bank had 144 staff, comprising

of the President, 4 Vice Presidents, 123 full-time permanent
As at December 2018 (61%)
staff, nine short-term consultants and seven outsourced
(2017: 63, 59%)
employees. The staff consists of 56 females (39%) and 88
males (61%).

Of the 144 staff, 53 or 37% (CY2017: 45 or 42%) are part of the

young workforce aged 32 years old and under, who are guided
by the experience and expertise of Director Generals and
Chiefs. The Bank provides opportunities for Junior and Young
Professionals to contribute with fresh perspectives on projects,
problem solving and information systems.

Human Resources Composition Young Workforce: Age 32 and younger

Full-time staff
Short-term consultants and outsourced staff
5

President and Vice Presidents

(2017: 5)
9 8

123 16 2017 2018

36
 hort-term consultants
S
and outsourced staff
(2017: 17) 45

Full-time staff
(2017: 84)

28 New Development Bank | Annual Report 2018

 Risk Management

Governance
B
alancing business strategic success with
2018 focus:
exposure to financial and non-financial risk
– Enterprise-wide risk requires careful attention to the financial
trajectory of NDB and to the day-to-day transactions
– New systems for measuring within the context of the economies of the Bank’s
credit and market risk member countries.
– Introduction of sophisticated
metrics that provided a forward- In order to safeguard its capital base, NDB follows best
looking approach to identifying practices aligned with international standards to actively
incipient risk. manage all inherent risks in its activities, including credit,
market (exchange rate and interest rate risks), liquidity and
operational risks. The Bank ensures that a consistent risk
control approach is communicated to all divisions and staff
so as to promote a strong institutional risk culture.
NDB follows best practices NDB’s policies establish risk appetite parameters that
aligned with international supports the Bank’s strategic decision-making processes
and also guide operational day-to-day decisions, thereby
standards to actively avoiding excessive bank-wide risk taking and encouraging
manage all inherent risks the development of effective controls to protect the key
resources of the Bank.
in its activities.
As part of the overall internal control framework, the Bank
follows a “three lines of defense” approach. The roles and
responsibilities, risk ownership and segregation of duties
among NDB’s divisions have been clearly articulated as part
of the overall risk governance architecture.

In 2018, risk management development focused on enterprise-

wide risk, new systems for measuring credit and market
risks and introduction of sophisticated metrics that provided
a forward-looking approach to identifying incipient risk.

Additionally, the Bank has initiated projects to automate various

processes, such as its loan management system, which aims
to minimise operational risks and further strengthen risk
management practices.

2017

45 36

New Development Bank | Annual Report 2018 29

 The Bank’s current
approach to its portfolio
is largely in line with the
practices of the impact
investing community and
we look forward to
building on this.

30 New Development Bank | Annual Report 2018

 Operations

Operations
KEY INFORMATION ABOUT THE BANK’S
OPERATING ENVIRONMENT AND PROJECTS

New Development Bank | Annual Report 2018 31

 NDB’s Operating Context

GLOBAL OUTLOOK of monetary policy normalisation and tightening financial

conditions slowed down towards the end of 2018 and some

I
n 2018, the largest number of countries in over a major advanced economies could move to an easing stance.
decade experienced economic expansion. World Trade tensions and the moves towards protectionism
GDP grew in 2018 at 3.6%1, a slight deceleration constitute a downside risk to global economic growth.
from the previous year but continuing the economic
Infrastructure investments, while growing, remain insufficient
expansion that has been underway since the
to support new and more complex investment demands
aftermath of the 2008 financial crisis. brought about by:
In 2018, Emerging and Developing Asia remained the fastest
– rapid urbanisation
growing region, with estimated GDP growth of 6.6% (2017:
– environmental pressures
6.4%), followed by Emerging Europe with growth of 3.6%
– growing inequality
(2017: 6.0%) and Sub-Saharan Africa with 3.0% (2017: 2.9%).
– demographic transitions.
Economic performance was subdued in Latin America and
the Caribbean with GDP growth rates of 1.0% (2017: 1.2%)
Total global infrastructure investments are expected to reach
and in the Euro area, with GDP growth at 1.8% (2017: 2.4%).
USD 35 trillion up to 2030, while it is estimated that about USD
45 trillion is needed to meet the SDGs2. Global infrastructure
Risks to economic growth and global uncertainties increased
investments should increase on average by 26.3% to meet the
throughout 2018. There are signs that growth may have
SDGs by 2030. NDB is well positioned to contribute to member
reached a peak in advanced economies, such as the United
countries’ development and the infrastructure funding gap.
States and some members of the European Union. The pace

NDB PROJECT CYCLE

1 2 3 4 5 6

Identify business
opportunities to
support members
Potential projects
and project Assess the Conduct project
pipeline aligned project’s impact due diligence,
with NDB’s and development including risk Project
Loan signing
mandate and contribution assessment implementation
strategy CIC approval and Loan effectiveness
Senior Negotitations Monitor strategic
endorsement and disbursement
Clients’ needs management and agreement of development
are assessed approval terms, in principle Board approval Loan servicing impacts

BUSINESS CIC & BOARD COMMITMENT AND

CONCEPT APPRAISAL MONITORING
DEVELOPMENT APPROVAL DISBURSEMENT

1 All GDP figures for this section were sourced from IMF World Economic Outlook (WEO)
Database, April 2019.
2 All infrastructure investment figures for the remainder of this document were sourced
from G20 Global Infrastructure Hub. Accessed on December 19, 2018.

32 New Development Bank | Annual Report 2018

 Operations
Growth rate of BRICS countries and their contribution BRICS ECONOMIC OUTLOOK
to global growth
% The BRICS countries are implementing policies and structural
50 reforms to enhance economic growth and/or promote more
43% equitable growth patterns. The weighted average GDP growth
40 of the five economies was 5.7% in 2018, the highest expansion
in the past five years, contributing to approximately 43.2% of
30 global growth. As a result of their robust growth, BRICS’ share
of global GDP measured in PPP terms has been increasing from
20 27.2% in 2010 to 32.7% in 2018, which makes them larger than
the G7 countries combined.
10 5.7%
BRICS countries are working towards increasing and
0 improving access to basic electricity and drinking water,
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

sanitation, education and health facilities, while managing

— Contribution of BRICS to global growth
fiscal constraints. In line with the increasing role of BRICS in
— Weighted average growth rate of BRICS’ countries the global economy, their current combined share of global
infrastructure investments is expected to increase from 40.1%
in 2018 to 42.5% by 2030. This substantial increase would
equate to a compounded annual growth rate of 2.3%, compared
to 1.1% of G7 countries and 1.9% of other countries. BRICS
are becoming an important source of capital to fund these
investments. Within this context, NDB is expected to experience
a fivefold increase in its share of total infrastructure investment
in BRICS countries, from 0.1% in 2018, to 0.5%, in 2021,
accounting for a share of 11.0% in South Africa, 3.0% in Russia
and 2.1% in Brazil.

Contribution of NDB to BRICS’ investments in infrastructure

BRICS countries share of global GDP PPP per year1
% USD m % USD m
33%
160,000 7,000
1.0
5,850
32 140,000 6,000

120,000 0.8 5,000

4,100
30 100,000
0.6 4,000
80,000 2,600
0.5
28 3,000
60,000 0.4 0.4
27%
625 2,000
40,000
26 0.2
20,000 0.2 1,000
24
0.1
24 0 0.0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2017 2018 2019e 2020e 2021e
— Global GDP PPP (current PPP dollars) — BRICS GDP PPP (current PPP dollars) — Share of BRICS investments in infrastructure (%)
— BRICS share of global GDP PPP (left axis, %) — NDB Loan disbursements (USD millions)
e expected

1 NDB disbursement projections from the General Strategy 2017:2021 (Scenario 1).

New Development Bank | Annual Report 2018 33

 NDB Operations Summary

LOANS

Loans Loans approved by area of operation

As at December 31 Metric 2018 2017 USD m As at December 31 2018 2017

Approved loans Number 30 1

13 Clean energy 2,187 1,218 1

Cancelled loans Number 1 – Environmental efficiency 700 200

Approved loans USD million 8,0781 3,419 Irrigation, Water resource
Cancelled loans USD million 250 – management and Sanitation 1,426 1,122
Signed loans USD million 3,938 1,645 Social infrastructure 460 460
Effective loans USD million 2,968 1,345 Transport infrastructure 2,175 419
Disbursements USD million 625 24 Urban development 1,130 –
Total
8,078 3,419

LOAN APPROVALS AS AT DECEMBER 31, 20182

7 Loans approved in 20161 6 Loans approved in 2017

USD m USD m

400 Apr 2016 Jul 2016 Nov 2016 500 Aug 2017 Nov 2017
470
350 460
400
300
300 291
300 345
250
200 291
180 200
200
100
100 100
76
69
0 0
Judicial
system
Madhya
Pradesh
Village Water

Hunan

Jiangxi Low
Carbon

Ufa

Rajasthan
Lingang

Canara

Eskom

Karelia

Madhya
Pradesh
Roads

Fujian
BNDES

USD 1.5 bn USD 1.8 bn

Brazil
Russia
India
China
South Africa
Total value of approved projects in 2016 Total value of approved projects in 2017

1 Includes the USD 250 million loan to Canara Bank for its Renewable Energy
Financing Scheme, approved in 2016 and cancelled in 2018.
2 All amounts have been translated using the exchange rate as at December 31, 2018.

34 New Development Bank | Annual Report 2018

 Operations
Loans approved by type of operation Loan approvals

USD m As at December 31 2018 2017

Sovereign 6,678 3,019 1

1,4002 400
Non-sovereign
Total
8,078 3,419
USD 8,078 m
USD 3,419 m

2017 2018

17 Loans approved in 2018

USD m

700 Mar 2018 May 2018 Jul 2018 Sept 2018 Nov 2018
600
610
500
400
400
300 350 350
320 300 300 300 300 291
200 260
220
200 200 175
100 71
50
0
Pará

Maranhão

Petrobras

Volga River

Small Cities

Bihar

Chongqing
Small Cities

Transnet

Luoyang
Metro

DBSA

SIBUR

Madhya Pradesh
Roads II

Madhya Pradesh
Bridges

Mumbai
Metro Rail

Guangdong
Wind

Jiangxi Gas

Hohhot
Airport

USD 4.7 bn
Brazil
Russia
India
China
South Africa
Total value of approved projects in 2018

1 Includes the USD 250 million loan to Canara Bank for its Renewable Energy
Financing Scheme, approved in 2016 and cancelled in 2018.
2 USD 700 million relates to approved loans to national financial institutions
and USD 700 million relates to loans approved in the private sector.

New Development Bank | Annual Report 2018 35

 Expected development
results of NDB’s operations

T
NDB’s portfolio by key area of operation he Bank continues to evaluate and refine
% its operational approach to deliver positive
development results.
6
8
27 The projects that NDB finances are designed and implemented
in a way that avoids, mitigates or compensates for adverse
14
2018 impacts on the environment and social groups, in compliance
with the standards set in the Bank’s Environmental and Social
18 Framework (ESF), as well as relevant environment and social
27 country systems. The ESF is guided by core principles related
to inclusive and sustainable development, climate change,
environmental interests, conservation of natural resources,
gender equality, precautionary approach and co-operative
Clean energy 27%
functioning and knowledge dissemination. Where environmental
Transport infrastructure 27%
Irrigation, Water resource or social risks are identified, mitigation measures are
management and Sanitation 18% introduced before an investment can be taken further.
Urban development 14%
Environmental efficiency 8%
Social infrastructure 6%
Yet, NDB does not limit itself only to the application of the ESF
requirements. The Bank finances projects that help its member
countries achieve transformative results, including reversing
some negative environmental and social impacts brought by
economic development in the past. Each project is screened for
positive development contributions, which goes beyond direct
SUSTAINABLE DEVELOPMENT GOALS
financial calculations to a longer-term and broader assessment
of economic, environmental and social impact.

At the project preparation stage, investment teams assess

each project’s potential development contributions and design
a set of indicators to monitor and evaluate its development
result. The Bank is building systems to be able to collect,
measure and monitor results of its operations, aligned with
countries’ approaches and priorities, for evidence-based and
data-driven development investment.

NDB is committed to sustainable infrastructure development

across its member countries, as highlighted in the Bank’s
General Strategy: 2017-2021. Since its inception, the Bank
aims to develop and provide practical, specialised expertise in
sustainable infrastructure development, including the areas of
project design, regulatory issues and financing arrangements.
Through knowledge sharing activities and by building sector-
specific expertise, the Bank is enhancing its capacity to meet
its commitment to becoming a leading player in sustainable
infrastructure development.

In 2018, the expected impact of the Bank’s approved projects,

which NDB has collaborated or participated in, began to provide
a view into its contribution to the development efforts of its
member countries. Projects in transport infrastructure, clean
energy, irrigation, water resource management and sanitation,
as well as urban development represent the vast majority of
the Bank’s current portfolio. The expected development results
of these projects demonstrate the trajectory of the Bank’s
contribution to supporting infrastructure and sustainable
development in its member countries, as intended by NDB’s
General Strategy.
36 New Development Bank | Annual Report 2018

 Operations
The Bank is enhancing
its capacity to meet
its commitment to
becoming a leading
player in sustainable
infrastructure
development.

New Development Bank | Annual Report 2018 37

 Expected development results
in select areas of operation

TRANSPORT INFRASTRUCTURE CLEAN ENERGY

ROADS RENEWABLE ENERGY CAPACITY

More than 7,800 km of roads to be built or upgraded Over 1,500 MW of renewable energy capacity to be installed
BRIDGES CARBON DIOXIDE (CO2) REDUCED
350 bridges to be constructed or reconstructed Over 1.5 million tons of CO2 to be reduced per year
PORT
Port infrastructure to be developed and rehabilitated
NDB supports the shift to a more sustainable energy
to increase its handling capacity by 500,000 TEUs
path in its member countries by promoting emerging
AIRPORT renewable technologies.
A new airport to be built with expected annual passenger
through-put of 22 million and freight annual freight As at December 31, 2018, the Bank had approved USD 2.2
through-put of 200,000 tons billion in loans (27% of NDB’s total approved loans) to expand
renewable infrastructure and upgrade technology to provide
clean and more efficient energy in its member countries. The
Transport infrastructure that enhances connectivity between combined total cost of these clean energy projects amounts
people, markets and services is amongst the Bank’s key to USD 5.1 billion.
areas of operation.
Through these projects, the Bank contributes to its member
By the end of the 2018 financial year, NDB had committed countries’ efforts toward achieving:
USD 2.2 billion in loans (27% of NDB’s total approved loans)
for eight transport projects with a combined total cost of USD – SDG 7 on affordable and clean energy,
6.5 billion. Better connectivity has numerous socio-economic – SDG 13 on climate action, and
benefits and is a key enabler of inclusive development, – helps them transition to a low carbon economy in line
especially for populations in underserved areas. Greater with their commitments under the Paris Agreement.
employment opportunities and access to markets and social
services, such as education and healthcare, result in higher By the end of the 2018 financial year, the Bank had committed
incomes, increased labour force participation and improved to support the financing of renewable energy projects with a
living standards. total installed capacity of over 1,500 MW, which are expected
to help reduce over 1.5 million tons of CO2 emissions per year.
Transport infrastructure lies at the heart of sustainable
development, because it contributes to the achievement of
many SDGs through inter-linked impact. NDB has, in collaboration
with development partners, committed to invest in building or
upgrading more than 7,800 kilometres of roads in its member
countries. In India alone, the Bank contributes to financing 27% of NDB’s total approved
the construction and upgrade of roads with a total length
of about 7,500 kilometres, as well as the construction and loans will be used to expand
re-construction of about 350 bridges, to connect rural areas
with the national and state highway networks, improving rural renewable infrastructure and
populations’ access to economic, social and education centres.
The Bank also helps finance projects to develop port and airport
upgrade technology to provide
infrastructure in South Africa and China, which could bolster clean and more efficient energy
economic growth by expanding access to resources, markets
and opportunities. in its member countries.

38 New Development Bank | Annual Report 2018

 Operations
IRRIGATION, WATER RESOURCE
MANAGEMENT AND SANITATION URBAN DEVELOPMENT

IRRIGATED LAND NUMBER OF BENEFICIARY CITIES

Additional 150,000 hectares of land to be brought 30 cities to benefit from sustainable urban development
under irrigation MASS TRANSIT SYSTEMS
CANAL INFRASTRUCTURE More than 80 km of metro rail to be built
Over 1,000 km of canal infrastructure to be built or upgraded
WATER AND SANITATION
NDB considers sustainable urban development to be
More than 3 million people to benefit from improved
increasingly important as a rapidly growing share of the
access to safe systems of water supply, resulting from
population of its member countries live in urban areas.
rehabilitated sewage collection and treatment systems
By the end of 2018, the Bank had approved USD 1.1 billion
in loans (14% of NDB’s total approved loans) to help address
Irrigation, water resource management and sanitation
with challenges brought by rapid urbanisation, such as:
are an essential enabler for sustainable development
and a basic requirement for achieving the ambitious
– increased traffic congestion,
goals of the UN’s 2030 Agenda.
– uneven urban development,
– inadequate access to basic services and
As at December 31, 2018, NDB had approved approximately
– lack of preservation of heritage.
USD 1.4 billion in loans for projects in these areas (18% of
NDB’s total approved loans). These projects have a combined
These loans contribute to the financing of six urban development
total cost of USD 2.0 billion and are designed to help address
projects with a combined total cost of USD 6.2 billion. They
critical development challenges, such as low agricultural
provide direct support to the member countries’ efforts toward
productivity, water contamination and lack of drinking water
achieving SDG 11, i.e. making cities and human settlements
supply, to spur socio-economic development. They contribute
inclusive, safe, resilient and sustainable.
directly to the efforts of NDB’s member countries to achieve
SDG 2 and SDG 6, on ending hunger and ensuring water
In total, 30 cities across NDB’s member countries are expected
security and sanitation, respectively.
to benefit directly from the Bank’s operations focusing on urban
development. The vast majority of the beneficiary cities will
Through its operations related to water and sanitation, the
be fast- growing small and medium-sized cities, where urban
Bank aims to help people access systems that can increase their
infrastructure is typically underdeveloped and often poorly
exposure to safer and cleaner water. More than 3 million people
maintained due to various reasons, including limited budgetary
are expected to benefit from improved access to safe systems
support. In larger cities, NDB supports the development of mass
of water supply and removal in Russia and India, resulting
transit systems, which are designed to tackle the traffic congestion
from rehabilitated sewage collection and treatment systems.
challenge and to improve connectivity within cities. NDB’s
financing will contribute to the construction of metro lines in
NDB’s operations also contribute to the development of
two cities in China and India with a total combined length of
advanced and efficient irrigation systems and promote sound
more than 80 km.
management of water resources, which will help modernise
the agriculture sector. Projects supported by the Bank’s
It is worth noting that NDB increased its operations to fund
financing are expected to help bring 150,000 hectares of land
urban development projects in 2018, demonstrating the
under irrigation in India and also build or upgrade 1,000 km of
Bank’s ability to respond to member countries’ development
canal infrastructure to improve water use efficiency.
needs, as well as the Bank’s increasing capability to undertake
projects in areas that go beyond its operational focus during
the initial years.

New Development Bank | Annual Report 2018 39

 Brazil

The government
T
he Brazilian economy continued to gradually
recover after a two-year recession, achieving
implemented a series 1.1%1 real GDP growth in both 2017 and 2018.
of measures to spur The growth outlook is supported by:
investments, including
– improving business and consumer confidence;
an acceleration of – low inflation with anchored expectations;
public-private – the benchmark interest rate at historic lows;
partnerships and the – strong foreign direct investment inflows; and
– substantial foreign exchange reserves that
convergence of the constitute a buffer to external shocks.
BNDES’ interest rate
Ongoing reforms are expected to address fiscal constraints
to market level. and promote increased investments from the private sector,
supporting sustained economic recovery.

Brazil’s limited fiscal space has recently reduced the

government’s capacity to sustain higher levels of infrastructure
Cumulative loan approvals investment. In 2018, investments in infrastructure accounted
to Brazil for 2.9% of GDP, while it is estimated that an investment of 5.1%
USD million of GDP is required to achieve the SDGs by 2030. The government
800 implemented a series of measures to spur investments,
621
including an acceleration of public-private partnerships and
600 the convergence of the BNDES’ interest rate to market level.
The latter is expected to result in higher participation of private
400 players and other development banks in financing infrastructure.
300 300

200 In 2018, NDB approved three loans for projects in Brazil,

totalling USD 321 million. The Bank committed USD 200 million
0 through a loan to improve the environmental performance of
2015 2016 2017 2018 two existing refineries of Petrobras by avoiding water and soil
contamination and significantly reducing harmful emissions.
A USD 71 million loan was approved to rehabilitate highway
Total approvals to Brazil by area infrastructure in Maranhão, enhancing the north-south connectivity
of operation within the state. The Bank also approved a USD 50 million loan
% to finance the drainage and road paving programme in the state
of Pará to improve its urban infrastructure. The opening of the
8 ARO in 2019 will enhance NDB’s operational capabilities and
12 facilitate identification and preparation of bankable projects
in Brazil.
2018 48

32

Clean energy 48%

Environmental efficiency 32%
Transport infrastructure 12%
Urban development 8% 1 Brazilian Institute of Geography and Statistics (IBGE).

40 New Development Bank | Annual Report 2018

 Pará Sustainable Municipalities Project

Operations
PAVING THE WAY TO A MORE SUSTAINABLE FUTURE FOR CITIES

DEVELOPMENTAL IMPACT Many cities in the state of Pará Government of Pará provides the
have been experiencing rapid remaining USD 25 million.
IN THE 12 MUNICIPALITIES
urbanisation, without a commensurate
development in infrastructure. Pará The proceeds from the NDB loan
186 KM receives abundant rainfall throughout will be used to pave 186 km of existing
EXISTING URBAN DIRT ROADS the year; however the vast majority of urban dirt roads in 12 municipalities
roads in the state are not paved and along the Trans-Amazonian highway
PAVED ALONG THE TRANS-
drainage systems are not adequate and to install underground or surface
AMAZONIAN HIGHWAY to deal with these conditions. This drainage systems. In addition, the
situation compromises access to NDB loan will finance capacity building
1/3 transport infrastructure and impacts activities which will improve project
the overall quality of life in the state. implementation co-ordination and
OF THE POPULATION OF THE
promote adequate maintenance of
TARGETED MUNICIPALITIES In 2018, NDB partnered with the State roads and drainage equipment.
WILL BENEFIT FROM Government of Pará to support its
ENHANCED ALL-WEATHER Sustainable Municipalities Project, The intended development results
designed to improve the state’s urban of the project include:
ACCESS TO PAVED URBAN
infrastructure conditions. The project
ROADS AND SIDEWALKS consists of three main components: – increased urban connectivity,
– improved flooding control and
– drainage and road paving, enhanced resilience to climate,
– sanitation; and – reduced cost of road maintenance.
– telecommunications.
It is expected that, upon its completion,
The total estimated cost of this project the project will help improve the
is USD 125 million. The project is co- quality of life for residents in the
financed through a USD 50 million loan 12 municipalities, where almost a
from NDB, the Bank’s first sovereign third of the population will benefit
guaranteed loan in Brazil and a USD from enhanced all-weather access
50 million loan from the Development to paved urban roads and sidewalks.
Bank of Latin America. The State

New Development Bank | Annual Report 2018 41

 Russia

USD 840 m A
fter the 2015-16 recession, the Russian
economy experienced positive growth of 1.6%
in 2017 and further expanded by 2.3% in 20181.
Total project approvals Moderately conservative monetary and fiscal policies
in Russia by NDB in 2018 supported growth sustainability amid the sanctions
environment, with inflation hovering around the
4% target.
Cumulative loan approvals The fiscal rule, together with foreign currency market operations,
to Russia has helped to smooth exchange rate fluctuations and overall
USD million consumption, creating favourable conditions for industrial
1,500 1,469 development in non-commodity sectors. These steps reflect
the government’s plans to promote a gradual structural shift
in the economy, reducing reliance on hydrocarbon revenues
1,000 and building fiscal buffers to increase resilience against
629
external shocks.
500
The government has articulated a policy agenda for 2018-2024
100 to boost economic growth primarily by speeding up investments.
0 Proposed investments will focus on projects in:
2015 2016 2017 2018
– transportation;
– energy;
– digitalisation;
– development of remote regions; and
– socially important initiatives.
Total approvals to Russia by area
of operation In 2018, investments in infrastructure accounted for 2.8% of
% GDP, while it is estimated that an investment of 4.4% of GDP
is required to achieve the SDGs by 2030.
5
7
31 In 2018, NDB approved three loans for projects in Russia,
15 totalling USD 840 million. The Bank approved a USD 320 million
2018 loan to modernise the water supply and sanitation systems in
five cities situated along the Volga River. In addition, NDB approved
20 a USD 300 million loan to improve the operational profile of
22 SIBUR – Russia’s leading petrochemicals producer – by, amongst
other things, introducing modern and cleaner technology for
enhanced productivity with reduced environmental footprint.
Social infrastructure 31%
Irrigation, Water resource NDB also approved a USD 220 million loan to support urban
management and Sanitation 22% infrastructure development in nine small historic cities across
Environmental efficiency 20% seven federal subjects of Russia, with a goal to preserve
Urban development 15%
cultural heritage while contributing to sustainable social-
Clean energy 7%
Transport infrastructure 5% economic development of the cities.

1 Federal State Statistics Service (Rosstat).

42 New Development Bank | Annual Report 2018

 Volga River Project

Operations
USD 320 MILLION FUNDING FOR CLEANER,
SUSTAINABLE USE OF RUSSIA’S ICONIC VOLGA RIVER

Russia is home to about a quarter governments and water service

of the world’s fresh water. The Volga providers (USD 31 million).
River, the longest river in Europe, is
widely viewed as the Mother River Implementation of the Volga River
of Russia and 11 of the 20 largest project will be two-fold. Firstly,
cities in the country are situated in the project will entail constructing
its basin. The deterioration of existing advanced water and sewage treatment
infrastructure along the Volga River facilities, water supply and drainage
has significantly impacted the quality networks and storm water collection
of water supply and sanitation services systems. Secondly, it will make use of
in the region. Meanwhile, wastewater advanced technology that prevents
from households, farms and industries leakages in the water supply network
flushed into the river through rain and and equipment to improve the process
floods accounts for more than one efficiency of the existing infrastructure.
third of the country’s total discharges
into water bodies. The intended impact of the project
includes reducing the environmental
USD 320 MILLION LOAN
NDB has partnered with the Russian damage to the Volga River and
BANK FUNDING Government to support modernisation minimising the underground water
of water supply and sanitation systems pollution. This will be achieved
USD 400 MILLION in five competitively selected cities by decreasing the percentage of
in the Volga River basin: Cheboksary, untreated wastewater in centralised
TOTAL PROJECT COST
Dzerzhinsk, Ivanovo, Rybinsk and wastewater removal systems from
Volzhsky, with populations ranging 9% to 0%.
between 190,000 to 490,000
inhabitants. The Bank approved a The project is expected to contribute
USD 320 million loan in May 2018 to safeguarding the health of citizens
to support the project’s total cost in the five cities by improving the
of USD 400 million. The remaining quality of water supply and sanitation
amount will be provided by the Russian services through the introduction of
Government (USD 49 million) and city modern water treatment technologies.

New Development Bank | Annual Report 2018 43

 India

India remains the

I
ndia’s GDP expanded by 7.1%1 in 2018 and its
growth is expected to accelerate further, helping
fastest growing major the country to remain among the fastest growing
economy in the world economies in the world.
and infrastructure The resilience of India’s external position was tested in 2018
investments remain by a simultaneous occurrence of monetary tightening in the
a key driver of India’s US and higher oil prices, causing the Rupee to depreciate.
Stress in the Indian banking sector continued as the proportion
strong growth. of non-performing assets remained high. In addition, liquidity
conditions were tightened due to defaults in the non-banking
financial sector. However, the implementation of financial
sector reforms eased some of the stress and is expected to
create a more inclusive growth model, setting the stage for
higher investments and private consumption.
Cumulative loan approvals
Infrastructure investments remain a key driver of India’s strong
to India
growth and are supported by large budgetary allocations for the
USD million
construction of roads, railways and airports. These investments
3,000 have helped improve infrastructure connectivity, especially
2,550 to interior and inaccessible areas. The pace of construction
of national highways in 2018 reached 25 km per day, up from
2,000
22 km per day in the previous year. India invested 4.6% of
1,415
GDP in infrastructure in 2018. However, it is estimated that an
1,000 investment equivalent to 7.1% of GDP is required to achieve
600 the SDGs by 2030. This gap provides opportunities for NDB to
contribute to key areas aligned with the Bank’s mandate and
0 India’s priorities.
2015 2016 2017 2018
In 2018, NDB approved four loans for projects in India,
amounting to USD 1.1 billion. The Bank approved a USD 350
million loan to support rural roads development and improve
connectivity within the state of Bihar. Similarly, NDB approved
a USD 350 million loan to rehabilitate major district roads
Total approvals to India by area
in the state of Madhya Pradesh. In addition, to enhance the
of operation
benefits of strengthened road connectivity in Madhya Pradesh,
% NDB approved a USD 175 million loan to upgrade bridges in
the state. To facilitate urban mobility and improve transport
10 capacity, the Bank also approved a USD 260 million loan
10 to construct three metro lines in Mumbai, which is facing
challenges brought about by rapid urbanisation.
2018 48

32

Transport Infrastructure 48%

Irrigation, Water resource
management and Sanitation 32%
Urban development 10%
Clean energy 10% 1 IMF World Economic Outlook Database, April 2019.

44 New Development Bank | Annual Report 2018

 Bihar Rural Roads Project

Operations
BUILDING ALL-WEATHER ROADS TO INCREASE CONNECTIVITY
AND IMPROVE RURAL LIVELIHOODS

Located in eastern India, Bihar is weather road connectivity to rural

the third most populous state in the habitations with a population between
country. It has a strong agricultural 250 and 499, which is meant to
base, with the vast majority of its 104 complement the central government’s
million residents living in rural areas rural connectivity programme whose
and relying on agriculture for their focus is primarily on habitations
livelihoods. Despite the high economic with a population of more than 500.
growth witnessed in recent years,
Bihar has one of the lowest levels of Through this project, NDB will help
per capita GDP in India, which remains the Government of Bihar enhance
less than 40% of the national average. local connectivity and improve the
There is considerable disparity in the state’s transportation infrastructure
per-capita income across the districts by constructing and upgrading about
of Bihar, which is often attributed to 4,000 km of rural roads, providing all-
the pronounced gap in rural road weather connectivity to around 3,400
development. It is within this context rural habitations spreading across 26
that the Government of Bihar aims districts. By expanding and upgrading
to improve local connectivity and in rural road networks, the project
doing so facilitate socio-economic is expected to increase transport
development. efficiency and improve access to local
socio-economic centres for a large
In 2018, NDB approved a loan of USD number of rural communities, some
350 million to the Government of India, of which have been isolated for long
for on-lending to the Government of periods. It is expected that these

4,000 KM
Bihar, to finance the Bihar rural roads outcomes will enhance agricultural
project. The total project cost is USD productivity and increase household
500 million, the balance of which – income, leading to improved rural
RURAL ROADS USD 150 million – is provided by the livelihoods in the state of Bihar.
UPGRADE state government. The project will
contribute to the state government’s
ongoing efforts to provide all-

New Development Bank | Annual Report 2018 45

 China

Cumulative loan approvals

C
to China hina’s GDP expanded 6.6%1 in 2018 as
USD million the country continued to adjust its economic
3,000 2,759
structure by increasing the role of consumption
in driving economic growth and by promoting structural
deleveraging initiatives.
2,000
Against this backdrop, a challenging domestic and international
1,000
environment pressured economic growth. The government
858
introduced tax reductions to corporates and individuals, provided
367 liquidity injections and accelerated infrastructure investments.
0 These measures helped to keep the main economic and social
2015 2016 2017 2018 indicators within targeted levels.

To support infrastructure investments without jeopardising

the sovereign credit profile, the country took centralised
stimulus measures, such as accelerating the projects approval
process, increasing local government bond issuance and
Total approvals to China by area promoting private investments. These measures led to a
of operation rebound in infrastructure investment growth, particularly in the
% environmental protection and transportation sectors. In 2018,
China invested 6.3% of GDP in infrastructure, while it is
7 estimated that an investment of 6.7% of GDP is required to
11 achieve the SDGs by 2030.
38
2018 In 2018, NDB approved five loans for projects in China,
22 amounting to USD 1.9 billion. The Bank approved a RMB
4.2 billion (USD 610 million) loan to finance the construction
22 of a new airport in Hohhot, the capital city of Inner Mongolia
Autonomous Region and an area which suffers from
insufficient air transport capacity. A RMB 2 billion (USD
Clean energy 38%
Transport infrastructure 22% 291 million) loan was approved to help improve Guangdong
Urban development 22% Province’s energy mix, through financing the construction
Irrigation, Water resource of an offshore wind farm. These are the two local-currency
management and Sanitation 11%
denominated loans approved by the Bank in 2018.
Environmental efficiency 7%

In the same year, NDB also approved a USD 400 million loan
to improve environment conditions in Jiangxi Province, through
the development of a natural gas transmission system to reduce
the province’s heavy reliance on coal for energy. Another loan
of USD 300 million was approved to help develop the first metro
system in Luoyang – a historical city located in Henan Province
– to boost its urban transport capacity increasingly demanded
by its rapid social-economic development. In addition, a
USD 300 million loan was approved to support sustainable
infrastructure development of seven small cities in Chongqing
Municipality, through an integrated urban planning scheme
comprised of sub-projects targeted at ecological restoration
as well as urban revitalisation and upgrading.

1 National Bureau of Statistics of China.

46 New Development Bank | Annual Report 2018

 Guangdong Offshore Wind Power Project

Operations
RMB 2 BILLION FOR OFFSHORE WIND POWER
TO ACHIEVE A GREENER ENERGY MIX

Located on the South China Sea USD 871 million, of which about one
coast, Guangdong has been the largest third will be financed by NDB through
contributor to China’s GDP since 1989, a local-currency loan of RMB 2 billion
contributing about 11% to national (USD 291 million).
economic output in recent years.
The province, however, relies heavily The project is expected to contribute
on conventional sources of power to a greener energy mix by installing
INTENDED IMPACT generation. In 2017, coal-fired power 300 MW offshore wind energy capacity,
INVESTMENT plants accounted for over 55% of the which could generate 810 GWh of
province’s total generation capacity. clean electricity each year. This can
To reduce the negative environmental help reduce coal consumption of
300 MW impact created by the coal-dominant about 247,000 tons annually, leading
OFFSHORE WINDPOWER power generation system, the province to carbon emission savings of about
CAPACITY is re-balancing its energy mix by 500,000 tons per year. The reduced
focusing on cleaner energy sources. emissions could potentially help
With a vast coastal area, Guangdong improve health conditions of local
810 GWH is seeking to substantially develop residents.
CLEAN ELECTRICITY offshore wind energy to meet an
GENERATED EACH YEAR ambitious target of 2 GW by 2020 Moreover, the project is expected to
and 30 GW by 2030. benefit from NDB’s growing experience
and expertise in offshore wind power
500,000 TONS NDB partnered in 2018 with the development in China. Following its
CARBON EMISSIONS provincial government of Guangdong first investment in the Putian offshore
AVOIDED EACH YEAR to construct an offshore wind farm wind power project in 2016, NDB has
in Yangjiang’s shallow water area for established a panel of international
clean energy generation. The project experts to provide technical assistance
comprises three main components: through know-how transfer and
construction of foundation of wind capacity building to offshore wind
turbines and generators (WTGs), supply farm development in China, especially
of WTGs and project management. The in typhoon-prone areas.
total cost of the project is estimated at

New Development Bank | Annual Report 2018 47

 South Africa

I
The government n 2018, South Africa experienced 0.8%1 GDP growth.
Economic activity improved in the third and fourth
has adopted a quarters and growth is expected to continue
comprehensive accelerating over the next two years.
economic stimulus High and persistent unemployment and large fiscal deficit
plan aimed remain among the main challenges for the country to achieve
at increasing sustained growth rates. In response, South Africa’s government
adopted a comprehensive Economic Stimulus and Recovery
investments Plan aimed at implementing growth enhancing economic
and advancing reforms, including reprioritisation of public spending to
support job creation and increased investments. In addition,
inclusive growth. South Africa revised its tax policies to support fiscal pressures,
including an increase in the value added tax from 14% to 15%.

South Africa continued to prioritise infrastructure investment

to ease bottlenecks and increase the economy’s potential
Cumulative loan approvals growth rate. The country has committed to establish a ZAR
to South Africa 400 billion (USD 28 billion) infrastructure fund with resources
USD million from the budget. The fund is expected to leverage additional
800
resources from the private sector, developmental finance
680 institutions and multilateral development banks. In 2018,
600
South Africa invested 3.2% of GDP in infrastructure, while it
is estimated that an investment of 4.8% of GDP is required to
400 achieve the SDGs by 2030.

200 180 180 In 2018, NDB approved two loans for projects in South Africa,
totalling USD 500 million. NDB approved a two-step loan of
0 USD 300 million to the Development Bank of South Africa
2015 2016 2017 2018 (DBSA), which will be on-lent to renewable energy projects,
such as wind, solar and biomass. NDB also approved a USD
200 million loan to increase the capacity of Durban Port – the
main gateway and hub-port for Africa – through infrastructure
Total approvals to South Africa development and rehabilitation of the Durban Container
by area of operation Terminal. ARC has been supporting the identification and
preparation of projects in South Africa, which is expected to
%
help accelerate operations in the country, in line with South
Africa’s National Development Plan.

29

2018

71

Clean energy 71%

Transport infrastucture 29%

1 Statistics South Africa (Stats SA).

48 New Development Bank | Annual Report 2018

 The Development Bank of Southern Africa (DBSA)

Operations
FACILITATING CLEAN ENERGY GENERATION PROJECTS IN SOUTH AFRICA
AND REDUCING GREENHOUSE GAS EMISSIONS

South Africa is on the trajectory each of the sub-projects costs.

of greener and more sustainable The project’s objective is to facilitate
development. South Africa has investments in renewable energy
committed to a reduction in that contributes to the reduction of
greenhouse gas emissions to a greenhouse gas emissions and a
range between 398 and 614 million diversification of the energy generation
metric tons of CO2 equivalent by 2030. mix in South Africa. It is expected that
This commitment was translated into at least 3 renewable energy projects
Nationally Determined Contributions with not less than 375 MW of total
from South Africa to the Paris installed capacity shall be put into
Agreement on Climate Change 2015. operation by 2021. Through this
The biggest potential contribution project, South Africa, with the support
to the targeted emission reduction of NDB will be able to work towards
is expected to be made by a shift its commitments under the Paris
towards low carbon energy sources Agreement on Climate Change 2015.
for electricity generation.

DBSA has historically and continues

to play a significant role in developing
the clean energy sector in South Africa
through financing renewable energy
projects. To enhance the role played
by this national financial intermediary,
in July 2018, NDB approved a USD 300
million loan to DBSA for on-lending
to renewable energy projects (sub-
projects) including, but not limited to,
wind, solar and biomass. The combined
total cost of the sub-projects is
estimated at USD 600 million and
NDB’s loan will finance up to 50% of

New Development Bank | Annual Report 2018 49

 Project Preparation Fund (PPF)
THE BOARD OF GOVERNORS APPROVED THE ESTABLISHMENT OF
NDB PPF ON JANUARY 20, 2017.

T
PPF Contributions received he PPF is established as a multi-donor fund
USD m which is open to contributions by all the Bank’s
members. The objective is to help NDB achieve
its purpose of promoting infrastructure and sustainable
1
development by supporting preparation of bankable
projects to facilitate borrowing member countries to
2018
raise funds for such projects from NDB and others.
1.5
4
The Bank has signed contribution agreements with three of
the member countries. In 2017, the first contribution agreement
was signed with China for a commitment contribution of USD
4.0 million and the second contribution agreement was signed
China 62% with Russia for a committed contribution of USD 1.5 million, to
India 23% be received in three instalments. The Bank signed the third
Russia 15% agreement, in 2018, with India for USD 1.5 million.

As at December 31, 2018, USD 6.5 million (CY2017: USD 4.5

million) was received, USD 4.0 million from China, USD 1.0
million from Russia and USD 1.5 million from India.
The objective is to help
NDB achieve its purpose of Contributions received

promoting infrastructure and USD m As at December 31 2018 2017

Received
sustainable development by 6,500 4,500

supporting preparation of Asset quality

bankable projects to facilitate
Months As at December 31 2018 2017

borrowing member countries Average rating of

treasury liquid assets
to raise funds for such projects Average maturity of
A+ A+

from NDB and others. treasury assets 2 months 1 month

50 New Development Bank | Annual Report 2018

 2019

Operations
LOOKING AHEAD

PROSPECTS FOR JOINT EFFORTS IN

INFRASTRUCTURE FUTURE RESPONSE TO COMMON
INVESTMENT OPERATIONS CHALLENGES TOOLING UP

BRICS countries accounted For 2019, the Bank has set an The SDGs outlined in the UN’s 2019 will mark NDB’s fourth
for 32.7% of global GDP in ambitious target to increase 2030 Agenda for Sustainable full year of operations. The
2018 and are expected to its 30 projects, valued at about Development represent Bank will increase its human
expand to 36.8% in 20241. USD 8 billion, to 60 projects in tremendous investment resource base in Shanghai
Infrastructure investments of 2019, valued at USD 15 billion. opportunities and fully and regional offices from 144
BRICS countries are expected At the same time, technology embody the fundamental to 230. To support the Bank’s
to account for a growing advancement is substantially objectives of MDBs. Yet, lean operations, cloud-based
share of global infrastructure changing the nature and scope despite growing momentum technologies are deployed,
investments, increasing from of infrastructure demands. for investments in which are also more secure,
40.1% in 2018 to 42.5% in Innovation, speed and agility sustainable development, cost effective and efficient.
2030, while that of emerging are required for impact the financing gap remains
markets and developing investments to meet these significant 2. To free up more In 2019, the focus on
countries is expected to demands. In response, the capital, the Bank will explore technology continues which,
increase from 62.2% to 65.3% Bank will continue to operate ways to maximise its balance amongst the technology
by 2030. As part of its strategy mainly in a cloud-based sheet capacity to promote enhancement efforts, includes
to fill the demand gap and computing environment. impact development. a loan management system
complement resources with The Bank will also support and improvement of the
other MDBs, NDB will endeavour member country systems for The Bank is also committed Bank’s Enterprise Resource
to continue contributing procurement, environmental to working with other MDBs Planning system to support
meaningfully towards total and social standards and in packaging projects to Straight-Through-Processing.
infrastructure investments continue to speed up project bankability and significantly This aims to establish a more
in its member countries. preparation and approval. scaling up investments in user-friendly, seamless and
This could help enhance sustainable infrastructure. secure method of project
productivity, reduce poverty, In compliance with the General This is based on demands management. The Bank’s
contribute to the development Strategy: 2017-2021, NDB from member countries, investment in IT infrastructure
of domestic capital markets has received strong domestic through the use of guarantees, seeks to enhance the
and promote overall trade and international credit ratings co-financing and budgetary integration of core systems
and investment opportunities. in order to hold down its cost support. with projects and connect the
of funding for the benefit of Bank globally through the
its borrowers. Continuing to utilisation of secure, robust
achieve the most favourable and interactive systems.
international credit rating
The macro-economic remains a strategic focus to
outlook of BRICS establish itself as a reliable
countries is inspiring, borrower in international The Bank will continue
with continued expansion and domestic capital markets to assess innovative
which is underpinned to help sustain the Bank’s ways of supporting new
counter-cyclical role in
by changes in policies infrastructure investments.
types of infrastructure
and reforms to sustain The resultant cost savings along with technological
and enhance economic will be passed through to changes aimed at
growth. the Bank’s borrowers. enhancing efficiency
and productivity.

1 IMF World Economic Outlook, April 2019.

2 UN official website. Accessed on December 27, 2018.

New Development Bank | Annual Report 2018 51

 NDB’s regional offices
and new headquarters

N
DB’s ARC, opened on August 17, 2017 The construction of NDB’s new headquarters, along the
in Johannesburg, has seen its first full Huangpu River in Shanghai, commenced in September 2017.
year of operations. As the focal point and The building has four basement floors and 30 floors above
representation for the Bank in Africa, the ARC has ground. By December 2018, the core structures had already
reached the tenth floor. By the end of 2019, all of the floors and
served as the Bank’s interface for governments,
at least half of the mechanical, electrical engineering and
private sector entities and financial institutions. It interior fittings are targeted for completion.
is also tasked with project identification and project
preparation. In a short period of time, the ARC has The construction in Shanghai reached the mid-point milestone
been instrumental in providing insight into how the on October 18, 2018. The event was attended by NDB President,
Bank can enable scaling up of lending within the Mr. K.V. Kamath, NDB staff, representatives of the Shanghai
South African context. Municipal People’s Government and the architecture and
design companies involved in the construction.
The lessons learned from the ARC will be applied to the regional
offices expected to be opened in all of the Bank’s member Innovation, safety, efficiency and sustainability are amongst
countries. The upcoming opening of the regional offices in the priorities for the construction project, set to be completed in
Brazil and Russia is planned for 2019. These offices will not 2021. Working in close partnership with the Shanghai Municipal
only represent a physical footprint of NDB in each member People’s Government, the building is designed to achieve China’s
nation but will also play a crucial role in the identification and three-star green building rating, China’s three-star health
preparation of bankable projects. Additionally, it will facilitate building rating and an international US LEED-NC platinum
the Bank’s expansion of activities in the respective continents rating. Once completed, the building is expected to achieve
where each member country is located. several international green building ratings.

1. Ceremony marking the

mid-point of construction for
NDB’s new headquarters.
2. Artists impression of the
new headquarters.

1 2

52 New Development Bank | Annual Report 2018

 Operations
Existing
Planned
Expected

MOSCOW,
RUSSIA
SHANGHAI,
CHINA

NEW DELHI,
INDIA

BRASILIA,
BRAZIL
SÃO PAULO,
BRAZIL
JOHANNESBURG
SOUTH AFRICA

The Bank will continue

to assess innovative
ways of supporting new 2

types of infrastructure
along with technological
changes aimed at
enhancing efficiency
and productivity.
1. Signing ceremony of the Agreement
on the Hosting of the Bank’s American
Regional Office in São Paulo.
2. NDB HQ construction mid-phase event.

New Development Bank | Annual Report 2018 53

 NDB’s regional offices
and new headquarters

Life in Shanghai
1
NDB’s organisational culture, high performance and location
contribute to a healthy work-life balance, positioning the
Bank as an employer of choice for professionals who value an
environment which fosters a culture of collaboration and seek
to make an impact in what they do. The Bank’s headquarters are
in Pudong, the financial centre of Shanghai, a dynamic and highly
developed world-class city. Shanghai offers a cosmopolitan
lifestyle, urban green spaces, vibrant cultural life, safety, high-
quality education and efficient public transport for the global
professionals the Bank wishes to attract.

1. NDB’s current headquarters

in Lujiazui, Shanghai.
2. Lujiazui, Shanghai skyline.

54 New Development Bank | Annual Report 2018

 Management

Discussion and Analysis

discussion & analysis

New Development Bank | Annual Report 2018 55

 Management
discussion & analysis

This report should be read together with NDB’s financial proceeds from the RMB 3.0 billion (USD 436.0 million) bond
statements. The Bank undertakes no obligation to update issuance has been fully disbursed to fund five green projects
any forward-looking statements. which met the Green Bond Project Requirements (CY2017:
RMB 80.8 million; USD 12.4 million).

SECTION I In light of the successful disbursement of all proceeds raised

EXECUTIVE SUMMARY from the green bond, the Bank is planning to register similar
programmes in all its member countries based on the demand
Financial highlights for local currency financing.
Net operating profit
Equity
The conclusion of the 2018 financial year marks the Bank’s
For the 2018 financial year, the paid-in capital balance
three and a half years of operations. For the year ended
amounted to USD 5.0 billion and was received in accordance
December 31, 2018, the Bank reported an operating profit
with the payment schedule set out in the AoA.
of USD 72.0 million (CY2017: USD 30.9 million). Staff and
operating expenses were tightly controlled to effectively
The timely receipt of capital contributions demonstrates the
support lean and agile operations.
commitment and support NDB receives from its members.
Net interest income
For the year ended December 31, 2018, the Bank reported net
interest income of USD 109.8 million (CY2017: USD 49.8 million).
SECTION II
This increase was driven by USD 113.2 million of interest income
NDB’s STRATEGY
earned from the treasury portfolio investments (CY2017: USD
63.7 million) and USD 10.2 million interest income earned from
The 2018 financial year has seen NDB continue its efforts
the Bank’s loan portfolio (CY2017: USD 182,000).
to fully operationalise its activities and achieve a rapid, though
prudent, growth phase, building on the strong foundation that
Portfolio Performance
has been laid since the Bank’s inception in 2015. The Bank
Approved loan portfolio continues to be steered by the guiding principles of its General
In 2018, the total loan portfolio grew by USD 4.7 billion to Strategy: 2017-2021 of mobilising resources for infrastructure
USD 8.1 billion. Approvals for the year were more than double and sustainable development projects.
the the USD 1.8 billion approved during 2017. 30 loans were
approved in 2018 (of which one was cancelled)1, up from 2018 has seen a natural evolution in NDB’s development impact
13 projects in 2017. planning and operational approach. The Bank is striving to deliver
the strongest social, economic and environmental impact
Investment portfolio aligning with the development efforts of its member countries.
At December 31, 2018, the investment portfolio totalled USD 4.8 NDB’s portfolio extends beyond its initial focus of core renewable
billion, increasing by USD 800.0 million during the financial year energy sectors to include areas such as rural roads, ecosystem
(CY2017: USD 4.0 billion). The investments are concentrated in restoration, access to water supply particularly in rural areas,
high-quality assets with appropriate maturities to maintain irrigation system restructuring and energy conservation. NDB’s
sound levels of liquidity. lending supports infrastructure and sustainable development
projects and aligns directly with the principles embodied in the
Borrowings UN’s 2030 Agenda for Sustainable Development.
The Bank’s borrowing portfolio consists of the RMB-green bond
which was issued in 2016. At the end of the 2018 financial year, NDB’s policies and operations are based on each member
the bond’s fair value was USD 443.8 million, marginally down country’s socio-economic context and are designed to
from the fair value of USD 449.4 million reported at December assist its members as they progress along their respective
31, 2017. This was attributable to changes in exchange rates development paths. It is with this aim in mind that the Bank
and market interest rates during the course of the year. The will continue to strengthen its existing relationships and also
establish new relationships in other emerging economies.

1 Relates to the USD 250.0 million loan to Canara Bank for its Renewable Energy Financing
Scheme, approved in 2016 and cancelled in 2018.

56 New Development Bank | Annual Report 2018

 Discussion and Analysis
The Bank understands that global infrastructure goals can only Loan portfolio by key area of operation
be achieved through collaborative efforts. Throughout 2018, the %
Bank added its support to the joint framework with other MDBs to
align their activities with the goals of the Paris Agreement, signed
6 6
four additional MoUs with peer organisations and reaffirmed its 8 12
27
pledge to support resilient, sustainable infrastructure at the 36
Global Infrastructure Forum. 14
2018 13 2017
NDB, as a new MDB, has the benefit of learning from its peers
and, most importantly, is well-positioned to harness the power 18
27
of new technology in its solutions and approaches. In 2018, 33
NDB continued to realise security, cost-effectiveness and
efficiency benefits from its cloud-based platforms and also % As at December 31 2018 2017
streamlined its decision-making processes by leveraging Clean energy 27 36
video technology. This institutional mindset will enable NDB Transport infrastructure 27 12
to evolve within the business environment in which it operates. Irrigation, Water resource
management and Sanitation 18 33
Urban development 14 –
Environmental efficiency 8 6
Social infrastructure 6 13
SECTION III
FINANCIAL RESULTS
NDB’s approved loan portfolio split is spread across the
Lending Activities Bank’s key areas. The Bank initiated lending in the urban
Approved loan portfolio: sovereign and non-sovereign development sector for the first time in the 2018 financial year.
This reflects NDB’s ability to appraise increasingly complex
USD m As at December 31 2018 2017 Movement % Change projects as the Bank continues to move up the learning curve
Sovereign Loans 6,6781 3,019 3,659 121 and demonstrates its ability to respond to member countries’
Non-Sovereign Loans 1,400 400 1,000 250 infrastructure needs.
Approved loans 8,078 3,419 4,659 136
Disbursed loans 625 24 601 2,504 Loan portfolio by area of operation

USD’000 As at December 31 2018 2017
As at December 31, 2018, total loan disbursements were
USD 624.6 million (CY2017:USD 23.9 million) which included Clean energy 2,1871 1,218
the Bank’s first fully disbursed loan of USD 300.0 million to Environmental efficiency 700 200
BNDES, which financed three renewable energy sub-projects Irrigation, Water resource
aimed at diversifying Brazil’s energy mix. Disbursements are management and Sanitation 1,426 1,122
expected to increase going forward as NDB has a strong project Social infrastructure 460 460
pipeline and demand for funding sustainable infrastructure in
Transport infrastructure 2,175 419
member countries remains high. The Bank finances its loan
Urban development 1,130 –
assets through a mixture of equity and borrowings raised in
the capital markets. Total 8,078 3,419

To date, the Bank has fully utilised the proceeds from the
green bond to fund disbursements for projects that have
met the Green Bond Project Requirements.

1 Includes the USD 250.0 million loan to Canara Bank for its Renewable Energy Financing Scheme,
approved in 2016 and cancelled in 2018.

New Development Bank | Annual Report 2018 57

 Management
discussion & analysis

Condensed Statement of Income Net Fee Income

Net fee income consists of front-end and commitment fees.
USD’000 As at December 31 2018 2017 Movement % Change
NDB charges a front-end fee at the date of the first drawdown
Interest income by the borrower, with the income recognised over the life of
from banks 113,191 63,681 49,510 78 the loan. The increase in recognised front-end fees is attributed
Interest income from to the six projects which saw their first drawdowns in 2018.
loans and advances 10,209 182 10,027 5,509
Total interest income 123,400 63,863 59,537 93 Commitment fees are levied on the accrued portion of
Interest expense on the undisbursed loan balance to cover the cost of keeping
short-term borrowings (7) – (7) – adequate liquidity to meet the disbursement needs of the
Interest expense Bank’s borrowers. Commitment fees recognised in the 2018
on bonds issued (13,590) (14,020) 430 (3) financial year were marginal as it related to one loan. No
commitment fees were recognised in the 2017 financial year.
Net interest income 109,803 49,843 59,960 120
Net fee income 418 21 397 1,890
Operating Costs
Net interest income Operating expenses for 2018 was USD 37.2 million (USD 26.1
after fees 110,221 49,864 60,357 121 million). The increase is predominantly attributable to staff
Operating costs (37,246) (26,091) (11,155) 43 costs and technology expenses, driven by the expansion in
Impairment provision (3,758) (23) (3,735) 16,239 the scope and scale of the Bank’s operations.
Foreign exchange and
fair value gains/(losses) 2,820 7,102 (4,282) (60) The increase in staff costs of USD 6.4 million is attributable
Operating profit to the following:
for the year 72,037 30,852 41,185 133
– an increase of USD 3.6 million in salaries and allowances
Interest Income from Loans and Advances (CY2018: USD 19.4 million; CY2017: 15.8 million); and
Interest income from loans and advances increased from
USD 182,000 in 2017 to USD 10.2 million in 2018 due to higher – an increase of USD 2.8 million in other staff benefits (CY2018:
disbursements during the year. The increase can be attributed USD 5.9 million; CY2017: 3.1 million) which was driven by
to NDB disbursing on an additional six loans compared to the the 38 additional full-time staff employed during the 2018
two loans in the previous year. financial year.

In 2018, 17 loans were effective (all conditions precedent were The year-on-year increase in technology costs from USD
met to qualify for drawdown on the loan). Subsequent to the 239,000 to USD 1.8 million was a result of the implementation
2018 financial year end, a further six loans have become of the treasury management system, SWIFT, expansion of
effective indicating that robust interest income growth will the virtual desktop infrastructure, IT set up costs for regional
continue in 2019. offices and the procurement of other risk management tools.

Interest Expense on Bonds Issued Impairment Provision

The interest expense on the RMB 3.0 billion green bond The Bank records provisions against loans and other exposures
amounted to USD 13.6 million for the current year, marginally to reflect any expected Credit Losses (ECL) in accordance with
down from the USD 14.0 million bond expenses incurred in IFRS 9. As at December 31, 2018, the Bank had an accumulated
2017. The year-on-year difference was due to the weakening ECL provision for losses on loans and other exposures of USD
of RMB against USD. 3.8 million (CY2017: USD 23,000). The increase in the impairment
provision reflects the higher number of disbursements in 2018,
particularly related to non-sovereign projects loans, as well as
the increased forecast disbursement for the 2019 financial year.

58 New Development Bank | Annual Report 2018

 Discussion and Analysis
Foreign Exchange and Fair Value Gains/Losses BORROWING ACTIVITIES
The decrease in the foreign exchange and fair value gains/
losses related to two factors: As at December 31, 2018, the borrowing portfolio, consisting of
the green bond, totalled USD 443.8 million; a marginal decrease
– A translation loss of USD 5.0 million (CY2017: USD 5.8 million compared to the 2017 financial year’s value of USD 449.4
gain), which was driven by a weakening RMB/USD exchange million. This decrease can be attributed to changes in market
rate; and conditions, including year-on-year exchange rate fluctuations,
which affect the green bond as it is measured at fair value.
– A net fair value gain of USD 7.8 million, which was driven For the year ended December 31, 2018, the proceeds of the
by fair value adjustments on the green bond liability (which RMB 3.0 billion (USD 436.0 million) green bond had been used
is reported at fair value) and the corresponding fair value to fund disbursements related to five green projects compared
adjustments on the derivatives. to the RMB 80.8 million disbursed in 2017 (USD 12.4 million)
related to one green project.
To manage and limit the effects of risks associated with
fluctuating exchange and interest rates, NDB has entered into Based on the demand from its member countries for local
derivative contracts with highly rated counterparties to hedge currency financing, the Bank is continuing its work to register
the interest rate and foreign exchange risks arising from the local bond programmes in each of the BRICS countries1 .
green bond issuance.

Investment Activities EQUITY/CAPITAL CONTRIBUTIONS

Interest Income from Banks As at December 31, 2018, paid-in capital had been received in
The Bank’s interest income generated from its treasury accordance with the schedule in the AoA and future instalments
portfolio amounted to USD 113.2 million for the 2018 financial had been paid in advance. Total paid-in capital received amounted
year, compared to USD 63.7 million earned in 2017. The 78% to USD 5.0 billion relating to instalments one to four (with Russia
interest income increase of USD 49.5 million was driven by having paid its fifth contribution in advance of USD 300.0 million).
increase in yields on investments and the investment of USD The Bank will ensure these contributions are utilised to support
1.2 billion paid-in capital received during the year. bankable projects and the development agendas within each
member country.
Investment Portfolio
As at December 31, 2018, the net investment portfolio totalled Members’ contributions received to date
USD 4.8 billion (CY2017: USD 4.0 billion). The year-on-year
growth of the portfolio value is lower than the USD 1.2 billion Cumulative
paid-in capital received for the year due to the payment of USD Cumulative paid-in
paid-in capital
600.7 million in loan disbursements. capital received
due by as at
January December
The Bank places investments with highly rated counterparty USD m 3, 20182 31, 2018 Difference Notes
banks in Mainland China, Hong Kong and Singapore and
Brazil 700 1,000 300 1
maintains a sufficient level of liquidity to meet anticipated
Russia 700 1,300 600 2
cash flow requirements.
India 700 700 –
China 700 1,000 300 1
South Africa 700 991 291 3
Total 3,500 4,991 1,491

Notes
1. Fourth instalment of USD 300.0 million, due January 3, 2019,
received in advance.
2. Fourth and fifth instalment of USD 300.0 million each, due by January 3,
2019 and January 3, 2020 respectively, received in advance.
3. Fourth instalment of USD 300 million, due January 3, 2019, received
in advance less USD 9 million related to a ZAR to USD foreign exchange
translation difference. The USD 9 million was received on February 20, 2019.

1 On January 9, 2019, the Bank registered a RMB 10 billion bond in the China interbank bond
market and successfully placed RMB 3 billion on February 25, 2019 in this market.
2 USD 700.0 million is the sum of the first three instalments per member country according to AoA.

New Development Bank | Annual Report 2018 59

 Management
discussion & analysis

SECTION IV The Equity-to-Asset ratio as at December 31, 2018 is 92%

RISK MANAGEMENT (CY2017: 89%); well above the limit of 25%.

Risk Governance The increase in the ratio relates to an increase in equity which
The Bank is exposed to a variety of financial risks, namely: exceeded the application of equity for loan disbursements. As
credit risk, liquidity risk, operational risk and market risk, which the Bank begins to reach steady state, this ratio will stabilise
includes exchange rate risk and interest rate risk. In order to above the limit.
safeguard its capital base, the Bank has established various
risk management policies, approved by the BoD, which are Limitations on Operations
designed to identify and analyse risks of different types and The limitations on ordinary operations ratio is 21% for 2018,
to set up appropriate risk limits and controls. which is well within the Bank’s limit level and has not fluctuated
since 2017.
The primary responsibility for risk management at an
operational level rests with Senior Management. Senior Leverage Ratio
Management and various committees are tasked with
integrating the management of risk into the day-to-day The leverage ratio of 0.09 times (CY2017: 0.12 times), is in
activities of the Bank, by monitoring related risk parameters compliance with the Bank’s policy and is very conservative,
and tolerance through policies, guidelines and procedures as a result of the green bond debt of RMB 3.0 billion (USD 436.0
approved by designated committees. million equivalent) versus the paid-in capital of USD 5.0 billion.
This ratio will increase as the Bank increases its funding
Capital Adequacy through debt.

Capital is important to the Bank as it is a permanent source of

funding for operations and growth and it provides a buffer to
absorb losses. Capital not only reduces the risk of insolvency but INTEREST RATE RISK
enables the Bank to continue conducting its business in times
of stress and also reduces the effects of financial and economic The Bank’s interest rate risk management strategy is to minimise
downturn. Thus, the Bank monitors the capital adequacy within mismatches of structure and tenor of interest rate sensitive
a capital management framework and policies approved by assets and liabilities by adopting a match-funding principle,
the BoD. complemented by duration gap analysis, interest rate repricing
gap analysis and scenario analysis.
Capital adequacy ratios
Interest rate risk arises principally from the following two
As at December 31 Metric 2018 2017
aspects:
Equity to Assets % 92 89
Limitations on Operations % 21 21 – The sensitivity associated with the net spread between the
Leverage Ratio Times 0.09 0.12 rate the Bank earns on its assets and the cost of borrowings
which funds those assets; and
Equity-to-Asset Ratio
– The sensitivity of income to variable interest rates and rate
The Equity-to-Asset ratio serves as a key capital metric for the repricing schedules.
Bank from an operational perspective. The absolute minimum
level is set at 25%; however, the Bank sets 30% as the early
warning indicator.

60 New Development Bank | Annual Report 2018

 Discussion and Analysis
EXCHANGE RATE RISK CREDIT RISK

NDB manages exchange rate risk in its assets and liabilities Sovereign and Non-Sovereign Credit Risk Measurement
in currencies other than USD, by using derivatives to reduce
To measure sovereign credit risk, the Bank uses a combination
the unwanted residual net exposure to any currency.
of credit risk data from rating agencies and its own internal
credit risk rating, which is based on both financial and non-
The Bank measures the net open position of aggregated non-
financial factors. During the course of the 2018 year, Brazil
USD currencies against a limit of USD 20 million. As at the end
was downgraded by S&P and Fitch in January and February
of 2018, the net aggregate exposure was USD 0.2 million or
respectively. Moody’s upgraded the ratings of Brazil, South
1.0% of the limit (CY2017: USD 0.1 million or 0.5% of the limit).
Africa and Russia with the latter also being upgraded by S&P.
As at December 31, 2018, the Weighted Average Risk Rating
In the forthcoming period, the Bank will register bond
(WARR) of the sovereign loan portfolio was unchanged from
programmes in the domestic and offshore markets and
2017 and remained within the investment grade band at a
currencies of its member countries in order to raise domestic
rating of A-, a WARR that is the highest amongst the Bank’s
currency and USD debt for application to local projects.
MDB peers.

Total approved sovereign loans by country

LIQUIDITY RISK
As at December 31 2018 2017
Approved Approved
The Bank maintains an extremely strong liquidity position both Sovereign Sovereign
in the short and long term. USD m Loans WARR Loans WARR
Member Country
Expected USD cash outflows relating to project loan Brazil 121 BB – –
disbursements in the period following the 2018 financial year Russia 1,069 BBB- 529 BBB-
end were sufficiently covered by scheduled cash inflows from
India 2 2,550 BBB 1,415 BBB
maturing deposits.
China 2,758 A+ 895 A+
The Bank is characterised by conservative compliance with its South Africa 180 BBB- 180 BBB-
targeted liquidity ratios, reflecting the high level of short-term Total Approved
deposits. As at the end of the 2018 financial year, the weighted Sovereign Loans 6,678 A- 3,019 A-
average maturity of 0.4 years is shorter than the maturity at the
end of the previous reporting period of 0.6. To measure non-sovereign credit risk, the Bank uses a
combination of credit risk data from rating agencies and its own
Liquidity ratios internal credit risk rating, which is based on both financial and
non-financial factors. As at December 31, 2018, the WARR of
As at December 31 Ratio 2018 2017
the non-sovereign loan portfolio was investment grade BBB-
Liquidity Ratio (30-day) % 4,719 2,863 (CY2017: BB+).
Liquidity Ratio (90-day) % 774 1,695
Overall Liquidity Ratio % 626 1,148 Total approved non-sovereign loans by country

All liquidity ratios have been well above the Bank’s target and As at December 31 2018 2017
limit levels. This is characteristic of the predominantly short- Approved Approved
term nature of deposits and of the future disbursements that Sovereign Sovereign
USD m Loans WARR Loans WARR
are expected to be moderate. The year-on-year decrease in the
90-day and overall liquidity ratios signals a positive trend that is Member Country
indicative of the Bank’s increase in forecasted disbursements, Brazil 500 BB 300 BB
which will also result in these ratios moderating in the future. Russia 400 BBB 100 BBB+
South Africa 500 BBB- – –
Loans 1,400 BBB- 400 BB+

2 Includes the USD 250.0 million loan to Canara Bank for its Renewable Energy Financing Scheme,
approved in 2016 and cancelled in 2018.

New Development Bank | Annual Report 2018 61

 Management
discussion & analysis

The non-sovereign loan portfolio WARR for 2018 is higher OPERATIONAL RISK
compared to 2017 due to greater country diversification. Given
the developing and emerging nature of these projects and Operational risk is defined as the risk of financial loss or
the absence of a sovereign-backed guarantee, the ratings are damage to NDB’s reputation resulting from inadequate or failed
expected to be lower than sovereign-guaranteed loans. For internal processes, people and systems or from external events.
the 2018 financial year, the non-sovereign portfolio consists
of approved loans to national financial institutions (CY2018: The Bank recognises the importance of operational risk
USD 700.0 million; CY2017: 400.0 million) and private sector management activities and has set up an operational risk
(CY2018: USD 700.0 million). Loans to the private sector were management framework. This comprises of governance
approved for the first time in 2018 and the portfolio is expected structures, policies, processes and systems used to identify,
to continue growing in 2019. measure, monitor, control and mitigate operational risk. NDB’s
approach includes self assessments, loss data management
Risk Analysis of Total Loan Portfolio and periodic monitoring and reporting of key risk indicators.
Total approved loans by country The Bank is currently following a basic indicator approach for
the computation of operational risk capital charge.
As at December 31 2018 2017
Total Total
Approved Approved
USD m Loans WARR Loans WARR
TREASURY BUSINESS CREDIT RISK MANAGEMENT
Country
Brazil 621 BB 300 BB Deposit Counterparties
Russia 1,469 BBB- 629 BBB-
As at December 31, 2018, no breaches of treasury credit
India 1 2,550 BBB 1,415 BBB
limits (concentration limits and counterparty limits) had
China 2,758 A+ 895 A+ been observed nor had there been any cancelled or amended
South Africa 680 BBB- 180 BBB- transactions.
Total Approved Loans 8,078 BBB+ 3,419 A-
The credit quality of the Bank’s investment portfolio for 2018
The WARR of the total loan portfolio for the 2018 financial year (USD 4.8 billion; CY2017: USD 4.0 billion) remained concentrated
remains within investment grade at BBB+; a slight decrease in the upper end of the credit spectrum as all deposit counterparties
from the previous year’s rating of A-, which was driven by the are highly rated banks in mainland China, Hong Kong and
change of composition of total approved loans for the year. As Singapore with ratings no lower than A-.
at the end of the 2018 financial year, no loan or group of loans
had been put onto the watch list.

1 Includes the USD 250.0 million loan to Canara Bank for its Renewable Energy Financing Scheme,
approved in 2016 and cancelled in 2018.

62 New Development Bank | Annual Report 2018

 Annual financial statements
Annual financial statements
NDB: FOR THE YEAR ENDED DECEMBER 31, 2018

64 Independent auditor’s report

66 Statement of profit or loss and other
comprehensive income
67 Statement of financial position
68 Statement of changes in equity
69 Statement of cash flows
70 Notes to the annual financial statements

New Development Bank | Annual Report 2018 63

 Annual Financial Statements Independent Auditor’s Report

TO THE BOARD OF GOVERNORS OF THE NEW

RESPONSIBILITY FOR EXTERNAL FINANCIAL REPORTING DEVELOPMENT BANK

Senior Management’s Responsibility Opinion

NDB’s Senior Management is responsible for the preparation, We have audited the financial statements of the New
integrity and fair presentation of the annual financial statements Development Bank (the “Bank”), which comprise the statement
and all other information presented in the 2018 Annual Report. of financial position as at December 31, 2018 and the statement
The annual financial statements have been prepared in of profit or loss and other comprehensive income, statement of
accordance with International Financial Reporting Standards changes in equity and statement of cash flows for the year then
(IFRS) issued by the International Accounting Standards Board ended and notes to the financial statements, including a
(IASB) and in accordance with the accounting policies of NDB. summary of significant accounting policies.

The financial statements have been audited by independent In our opinion, the financial statements give a true and fair view
external auditors. Senior Management believes that all of the financial position of the Bank as at December 31, 2018
representations made to the independent external auditors and of its financial performance and its cash flows for the year
during their audit were valid and appropriate. then ended in accordance with International Financial
Reporting Standards (“IFRSs”).
Senior Management is responsible for establishing and
maintaining effective internal control over external financial Basis for Opinion
reporting for financial presentations, in conformity with IFRS.
We conducted our audit in accordance with International
The ARC Committee assists the BoD in its responsibility to
Standards on Auditing (“ISAs”). Our responsibilities under those
ensure the soundness of the Bank’s accounting policies,
standards are further described in the Auditor’s Responsibilities
guidelines, practices and effective implementation of internal
for the Audit of the Financial Statements section of our report.
controls. The external auditor and the internal auditor meet
We are independent of the Bank in accordance with the
regularly with the ARC Committee, with and without other
International Ethics Standards Board for Accountants’ Code of
members of Senior Management being present, to discuss the
Ethics for Professional Accountants (the “Code”) and we have
adequacy of internal controls over financial reporting and any
fulfilled our other ethical responsibilities in accordance with
other matters which they believe should be brought to the
the Code. We believe that the audit evidence we have obtained
attention of the ARC Committee.
is sufficient and appropriate to provide a basis for our opinion.
The external auditors have provided an audit opinion on the
Other Information
fair presentation of the annual financial statements presented
within this Annual Report set out on page 64 and 65. Management of the Bank is responsible for the other
information. The other information comprises the information
included in the Annual Report, but does not include the financial
statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the

other information and we do not express any form of assurance
conclusion thereon.

64 New Development Bank | Annual Report 2018

 Annual financial statements
In connection with our audit of the financial statements, our As part of an audit in accordance with ISAs, we exercise
responsibility is to read the other information and, in doing so, professional judgement and maintain professional scepticism
consider whether the other information is materially throughout the audit. We also:
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially – Identify and assess the risks of material misstatement of the
misstated. If, based on the work we have performed, we financial statements, whether due to fraud or error, design and
conclude that there is a material misstatement of this other perform audit procedures responsive to those risks and obtain
information, we are required to report that fact. We have audit evidence that is sufficient and appropriate to provide a
nothing to report in this regard. basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery,
Responsibilities of Management and the Board of Governors intentional omissions, misrepresentations, or the override of
for the Financial Statements internal control.
Management of the Bank is responsible for the preparation and
fair presentation of the financial statements in accordance with – Obtain an understanding of internal control relevant to the
IFRSs and for such internal control as the management audit in order to design audit procedures that are appropriate
determines is necessary to enable the preparation of financial in the circumstances, but not for the purpose of expressing
statements that are free from material misstatement, whether an opinion on the effectiveness of the Bank’s internal control.
due to fraud or error.
– Evaluate the appropriateness of accounting policies used
In preparing the financial statements, the management is and the reasonableness of accounting estimates and related
responsible for assessing the Bank’s ability to continue as a disclosures made by the management of the Bank.
going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting – Conclude on the appropriateness of the management’s use
unless the management either intends to liquidate the Bank or of the going concern basis of accounting and, based on the
to cease operations, or have no realistic alternative but to do so. audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant
The Board of Governors are responsible for overseeing the doubt on the Bank’s ability to continue as a going concern.
Bank’s financial reporting process. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related
Auditor’s Responsibility for the Audit of the Financial disclosures in the financial statements or, if such disclosures
Statements are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our
Our objectives are to obtain reasonable assurance about auditor’s report. However, future events or conditions may
whether the financial statements as a whole are free from cause the Bank to cease to continue as a going concern.
material misstatement, whether due to fraud or error and
to issue an auditor’s report that includes our opinion solely – Evaluate the overall presentation, structure and content of the
to you, as a body, in accordance with our agreed terms of financial statements, including the disclosures and whether
engagement and for no other purpose. We do not assume the financial statements represent the underlying transactions
responsibility towards or accept liability to any other person and events in a manner that achieves fair presentation.
for the contents of this report. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit We communicate with the Board of Governors regarding,
conducted in accordance with ISAs will always detect a material amongst other matters, the planned scope and timing of the
misstatement when it exists. Misstatements can arise from audit and significant audit findings, including any significant
fraud or error and are considered material if, individually or in deficiencies in internal control that we identify during our audit.
the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Deloitte Touche Tohmatsu

Certified Public Accountants LLP

Shanghai, PRC

April 1, 2019

New Development Bank | Annual Report 2018 65

 Statement of Profit or Loss
and other Comprehensive Income
FOR THE YEAR ENDED DECEMBER 31, 2018

Year ended Year ended

Expressed in thousands of USD Notes December 31, 2018 December 31, 2017

Interest income 7 123,400 63,863

Interest expense 7 (13,597) (14,020)

Net interest income 7 109,803 49,843

Net fee income 8 418 21

Net gains on financial instruments at fair value

through profit or loss 9 7,809 1,291

118,030 51,155

Other Income – 74

Staff costs 10 (25,310) (18,823)

Other operating expenses 11 (11,936) (7,342)
Impairment provision 5 (3,758) (23)
Foreign exchange (losses)/gains (4,989) 5,811

Operating profit for the year

72,037 30,852

93,822
Unwinding of interest on paid-in capital receivables 127,160

Profit for the year

165,859 158,012

Total comprehensive income for the year 165,859 158,012

66 New Development Bank | Annual Report 2018

 Annual financial statements
Statement of Financial Position
AS AT DECEMBER 31, 2018

As at As at
Expressed in thousands of USD Notes December 31, 2018 December 31, 2017
Assets
Cash and cash equivalents 12 122,988 1,019,854
Due from banks other than cash and cash equivalents 13 4,800,559 3,245,623
Loans and advances 14 628,104 23,997
Paid-in capital receivables 15 4,846,783 5,933,354
Property and equipment 16 1,205 594
Intangible assets 17 931 54
Derivative financial assets 18 710 –
Other assets 19 1,133 642
Total assets 10,402,413 10,224,118

Liabilities
Derivative financial liabilities 18 6,374 3,331
Financial liabilities designated at fair value through profit or loss 20 443,809 449,367
Other liabilities 21 7,367 2,811
Total liabilities 457,550 455,509

Equity
Paid-in capital 22 10,000,000 10,000,000
Other reserve 23 (162,429) (266,646)
Retained earnings 107,292 35,255
Total equity 9,944,863 9,768,609

Total equity and liabilities

10,402,413 10,224,118

The annual financial statements on pages 66 to 102 were approved and authorised for issue by the Board of Governors on April 1,
2019 and signed on their behalf by:

PRESIDENT CHIEF FINANCIAL OFFICER

New Development Bank | Annual Report 2018 67

 Statement of Changes in Equity
FOR THE YEAR ENDED DECEMBER 31, 2018

Expressed in thousands of USD Paid-in capital Other reserves Retained earnings Total

As at January 1, 2018 10,000,000 (266,646) 35,255 9,768,609

Operating profit for the year – – 72,037 72,037

Unwinding of interest on paid-in capital
receivables for the year – – 93,822 93,822

Total comprehensive income for the year – – 165,859 165,859

Impact of early payment on paid-in

capital receivables (Note 15) – 10,395 – 10,395

Reclassification of unwinding of interest – 93,822 (93,822) –
arising from paid-in capital receivables

As at December 31, 2018 10,000,000 (162,429) 107,292 9,944,863

Expressed in thousands of USD Paid-in capital Other reserves Retained earnings Total

As at January 1, 2017 10,000,000 (398,981) 4,403 9,605,422

Operating profit for the year – – 30,852 30,852

Unwinding of interest on paid-in
capital receivables for the year – – 127,160 127,160

Total comprehensive income for the year – – 158,012 158,012

Impact of early payment on paid-in

capital receivables (Note 15) – 5,175 – 5,175

Reclassification of unwinding of interest
arising from paid-in capital receivables – 127,160 (127,160) –

As at December 31, 2017 10,000,000 (266,646) 35,255 9,768,609

68 New Development Bank | Annual Report 2018

 Annual financial statements
Statement of Cash Flows

FOR THE YEAR ENDED DECEMBER 31, 2018

Year ended Year ended

Expressed in thousands of USD December 31, 2018 December 31, 2017

Operating activities
Profit for the year 165,859 158,012

Adjustments for:
Interest expense 13,597 14,020
Depreciation and amortisation 229 102
Unrealised (gains)/losses on financial instruments (2,912) 5,245
Unwinding of interest on paid-in capital receivables (93,822) (127,160)
Impairment provisions for loans and commitments 3,758 23
Operating cash flows before changes in operating assets and liabilities 86,709 50,242

Net increase in due from banks other than cash and cash equivalents (1,554,936) (941,526)
Net increase in loans and advances (604,228) (22,929)
Net increase in other assets (491) (398)
Net increase in other liabilities 919 485
Interest paid (13,910) (13,600)

Net cash used in operating activities (2,085,937) (927,726)

Investing activities
Purchase of property and equipment and intangible assets (1,717) (236)

Net cash used in investing activities (1,717) (236)

Financing activities
Paid-in capital received 1,190,788 1,600,000
Proceeds from short-term borrowings 13,000 –
Repayment of short-term borrowings (13,000) –

Net cash provided by financing activities

1,190,788 1,600,000

Net (decrease)/ increase in cash and cash equivalents (896,866) 672,038

Cash and cash equivalents at the beginning of the year 1,019,854 347,816

122,988
Cash and cash equivalents at the end of the year 1,019,854

New Development Bank | Annual Report 2018 69

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

1. GENERAL INFORMATION
The New Development Bank was established on the signing of the Agreement on the New Development Bank (the Agreement) on
July 15, 2014 by the Government of the Federative Republic of Brazil (Brazil), the Russian Federation (Russia), the Republic of India
(India), the People’s Republic of China (China) and the Republic of South Africa (South Africa) (collectively the BRICS Countries or
Founding Members). The Agreement took effect on July 3, 2015 according to the notification endorsed by Brazil in its capacity as
depositary. The headquarters of the Bank is located in Shanghai, China. On August 17, 2017, the Bank officially opened the Africa
Regional Centre (ARC), in Johannesburg, which is the first regional office of the Bank.

According to the Agreement, the initial authorised capital of the Bank is United States Dollar (USD) 100 billion and the initial subscribed
capital of the Bank is USD 50 billion. Each founding member shall initially subscribe for 100,000 shares, totalling USD 10 billion, of which
20,000 shares correspond to paid-in capital and 80,000 shares correspond to callable shares. The contribution of the amount initially
subscribed by each founding member, to the paid-in capital stock of the Bank, shall be made in USD in 7 instalments, pursuant
to the Agreement.

The purpose of the Bank is to mobilise resources for infrastructure and sustainable development projects within BRICS and other
emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions,
for global growth and development.

As at December 31, 2018, the Bank had 128 (December 31, 2017: 89) employees including the President and 4 (December 31, 2017: 4)
Vice-Presidents. In addition, there were 16 (December 31, 2017: 17) consultants/secondees appointed by the Bank on a short-term basis.

2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the annual financial statements, the Bank has consistently applied International
Accounting Standards (IASs), International Financial Reporting Standards (IFRSs), amendments and the related Interpretations
(IFRICs) (herein collectively referred to as IFRSs) issued by the International Accounting Standards Board (IASB) which are effective
for the accounting year.

The Bank has applied the following amendment in accordance with International Financial Reporting Standards (IFRSs) which are
relevant to the Bank for the first time in the current year:

IFRIC 22 - FOREIGN CURRENCY TRANSACTIONS AND ADVANCE CONSIDERATION

The interpretation specifies that the date of transaction is the date on which the entity initially recognises the non-monetary asset
or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in
advance, the Bank is required to determine the date of transaction for each payment or receipt of advance consideration. The application
of this interpretation has had no significant impact on the amounts reported and/or disclosures set out in these financial statements.

The Bank has not early adopted the following new or revised IFRSs, which are relevant to the Bank, that have been issued but not yet
become effective:

IFRS 16 Leases1
Amendments to IFRS 9 Prepayment Features with Negative Compensation1
1 Effective for annual periods beginning on or after 1 January 2019.

IFRS 16 LEASES
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations, when it
becomes effective.

70 New Development Bank | Annual Report 2018

 Annual financial statements
2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS – continued
IFRS 16 LEASES – continued
FRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of
operating leases (off-balance sheet) and finance leases (on-balance sheet) are removed for lessee accounting, and are replaced by a
model where a right-of-use asset and a corresponding liability have to be recognised for all leases (i.e. all on-balance sheet) except for
short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated
depreciation and impairment losses, adjusted for any re-measurement of the lease liability. The lease liability is initially measured
at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and
lease payments, as well as the impact of lease modifications, amongst others. The classification of cash flows will also be affected as
operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments
will be split into a principal and an interest portion, which will be presented as financing and operating cash flows respectively.

Other than certain requirements which are also applicable to lessor, IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

As at December 31, 2018, the Bank had non-cancellable operating lease commitments of USD 252 thousand as disclosed in Note 25.
A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, whereby the Bank will
recognise a right-of-use asset and a corresponding liability in respect of all these leases unless the lease qualifies for low value or
short-term leases upon the application of IFRS 16. Furthermore, extensive disclosures are required by IFRS 16.

The application of new requirements may result in changes in measurement, presentation and disclosure as indicated above.
The Bank anticipates that the application of IFRS 16 is unlikely to have a significant impact on the Bank’s annual financial statements.

The Bank intends to elect the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying
IAS 17 and IFRIC-Int 4, Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not
previously identified as containing a lease applying IAS 17 and IFRIC-Int 4. Therefore, the Bank will not reassess whether the contracts
are, or contain a lease which already existed prior to the date of initial application. Furthermore, the Bank intends to elect the modified
retrospective approach for the application of IFRS 16 as lessee and will recognise the cumulative effect of initial application to opening
retained profits without restating comparative information.

AMENDMENTS TO IFRS 9 PREPAYMENT FEATURES WITH NEGATIVE COMPENSATION

The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the Solely Payments of
Principal and Interest (SPPI) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment
irrespective of the reason for prepayment. The amendments allow financial assets with a prepayment option that could result in the
option’s holder receiving compensation for early termination to meet the condition of solely payments of principal and interest if
specified criteria are met. The Bank anticipates that the application of amendments to IFRS 9 is unlikely to have a significant impact on
the Bank’s annual financial statements.

New Development Bank | Annual Report 2018 71

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

BASIS OF PREPARATION
The annual financial statements have been prepared on the historical cost basis except for certain financial instruments that are
measured at fair values at the end of each reporting period, and in accordance with the accounting policies set out below which are in
conformity with IFRSs. These policies have been consistently applied throughout the year.

Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the Bank takes into account the characteristics of the asset or liability, if
market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value
for measurement and/or disclosure purposes in the financial statements is determined on such a basis, except for leasing transactions
that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as
value in use in IAS 36 Impairment of Assets.

The preparation of the annual financial statements, in conformity with IFRSs, requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the annual financial
statements and the reported amounts of revenues and expenses during the reporting years. It also requires management to exercise
its judgement in the process of applying the Bank’s policies. The areas involving a higher degree of judgement or complexity, or areas
where judgements and estimates are significant to the financial statements, are disclosed in Note 4 Critical Accounting Estimates and
Judgements Applied by Management.

The principal accounting policies adopted are set out below and have been applied consistently to each year presented.

REVENUE
Under IFRS 15, the Bank recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or
services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods
or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of
the relevant performance obligation if one of the following criteria is met:

– the customer simultaneously receives and consumes the benefits provided by the Bank’s performance as the Bank performs;
– the Bank’s performance creates and enhances an asset that the customer controls as the Bank performs; or
– the Bank’s performance does not create an asset with an alternative use to the Bank and the Bank has an enforceable right to
payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

For contracts that contain variable consideration, the Bank estimates the amount of consideration to which it will be entitled using either
(a) the expected value method or (b) the most likely amount, depending on which method better predicts the amount of consideration to
which the Bank will be entitled to.

The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that such
an inclusion will not result in a significant revenue reversal in the future when the uncertainty associated with the variable consideration
is subsequently resolved.

At the end of each reporting period, the Bank updates the estimated transaction price (including updating its assessment of whether an
estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period
and the changes in circumstances during the reporting period.

72 New Development Bank | Annual Report 2018

 Annual financial statements
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued
REVENUE – continued
NET INTEREST INCOME
Interest income is recognised in profit or loss for interest-bearing financial instruments using the effective interest rate method, on the
accrual basis.

The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability (including a
group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant periods. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the
financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (but
does not consider future credit losses). The calculation includes all fees paid or received between parties to the contract that are an
integral part of the effective interest rate, transaction costs and all other premiums or discounts.

FRONT-END FEE
Front-end fees relating to the origination or acquisition of a financial asset are recognised as deferred income at the date of the first
drawdown when they satisfy the performance obligation, and subsequently amortised over the period of the contract.

COMMITMENT FEE
Commitment fees relating to the undrawn loan commitment are recognised in terms of the loan contracts over the commitment period.

BORROWING COSTS
Borrowing costs are recognised in profit or loss in the period in which they are incurred.

PROPERTY AND EQUIPMENT

The assets purchased are initially measured at acquisition cost. The cost at initial recognition include but is not limited to the purchase
price and costs directly attributable to bringing the asset to the location and condition necessary for it to be ready for its intended use.

Items of property and equipment are subsequently measured at cost less accumulated depreciation and accumulated impairment losses.

Subsequent expenditure incurred on property and equipment is included in the cost of the property and equipment if it is probable that
economic benefits associated with the asset will flow to the Bank and the subsequent expenditure can be measured reliably. Costs
relating to repairs and maintenance are recognised in profit or loss, in the period in which they incurred.

Depreciation is recognised so as to write-off the cost of items of property and equipment over their estimated useful lives, after taking
into account their estimated residual values, using the straight-line method. The Bank starts depreciating an item of property and
equipment in the month following the acquisition date.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in profit or loss in the period in which the item is derecognised.

The estimated residual value rates and useful lives of each class of property and equipment are as follows:

Classes Estimated residual value rates Useful lives

IT equipment 0% 5 years
Appliance 0% 5 years
Furniture 0% 5 years
Vehicle 20% 4-7 years
Others 0% 5 years

New Development Bank | Annual Report 2018 73

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued

INTANGIBLE ASSETS
Intangible assets acquired separately and with finite useful lives are subsequently measured at costs less accumulated amortisation
and accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis, over
their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each reporting period, with any
changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses
arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognised in profit or loss in the period when the asset is derecognised.

The estimated useful lives of this class of intangible assets are as follows:

IT software 3 - 5 years

IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS OTHER THAN FINANCIAL ASSETS

At the end of the reporting period, the Bank reviews the carrying amounts of its tangible and intangible assets with finite useful
lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to
estimate the recoverable amount of an individual asset, the Bank estimates the recoverable amount of the cash-generating unit to
which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair-value-less-costs-of-disposal and value-in-use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (or the cash-generating unit) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is
allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the
carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of
disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been
allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case
the impairment loss reversal is treated as a revaluation increase.

FINANCIAL INSTRUMENTS
INITIAL RECOGNITION AND MEASUREMENT
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity. The Bank’s financial instruments mainly consist of cash and cash equivalents, deposits due from banks, loans and
advances, paid-in capital receivables, derivative financial assets/liabilities and bonds designated at Fair Value Through Profit or
Loss (FVTPL).

74 New Development Bank | Annual Report 2018

 Annual financial statements
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued
FINANCIAL INSTRUMENTS – continued
INITIAL RECOGNITION AND MEASUREMENT – continued
Financial assets and financial liabilities are recognised in the statement of financial position when the Bank becomes a party to the
contractual provisions of the instrument.

Recognised financial assets and financial liabilities measured at FVTPL are initially measured at fair value except for trade receivables
from IFRS 15. Transaction costs directly attributable to the acquisition of financial assets or issue of financial liabilities at FVTPL are
recognised immediately in profit or loss. All other financial assets and financial liabilities are recognised initially at fair value plus or
minus transaction costs directly attributable to the acquisition or issue of the financial assets or financial liabilities.

CLASSIFICATION OF FINANCIAL INSTRUMENTS

FINANCIAL ASSETS
The Bank classifies its financial assets under IFRS 9, into the following measurement categories:
–– Financial assets at FVTPL;
–– Financial assets measured at amortised cost; and
–– Financial assets measured at Fair Value Through Other Comprehensive Income (FVTOCI).

The classification depends on the Bank’s business model for managing financial assets and the contractual cash flow characteristics
of the financial assets.

Financial assets at FVTPL

A financial asset shall be measured at FVTPL unless it is measured at amortised cost or at FVTOCI. Upon initial recognition, financial
instruments may be designated at FVTPL. A financial asset may only be designated at FVTPL if doing so eliminates or significantly
reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from
measuring financial assets on a different basis.

Financial assets measured at amortised cost

The Bank classifies an asset at amortised cost when the following conditions have been met:
–– The financial asset is held within a business model whose objective is to hold the financial asset to collect contractual cash flows; and
–– The contractual cash flows of the financial asset give rise to cash flows that are SPPI on the principal amount outstanding on
specified dates.

The Bank applies the effective interest method to the amortised costs of a financial asset.

Financial assets measured at FVTOCI

The Bank classifies debt instruments at FVTOCI if they are held within a business model whose objective is both to hold the financial
asset to collect contractual cash flows and to sell the financial assets, and that have contractual cash flows that are SPPI.

Subsequent changes in the carrying amounts for debt instruments classified as at FVTOCI as a result of interest income calculated
using the effective interest method, and foreign exchange gains and losses are recognised in profit or loss. All other changes in the
carrying amount of these debt instruments are recognised in other comprehensive income.

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/initial recognition
of a financial asset the Bank may irrevocably elect to present subsequent changes in fair value of an equity investment in other
comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer
in a business combination to which IFRS 3 Business Combinations applies. Financial assets at FVTPL are measured at fair value
at the end of each reporting period, with any fair value gains or losses recognised in profit or loss.

New Development Bank | Annual Report 2018 75

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued

FINANCIAL INSTRUMENTS – continued
CLASSIFICATION OF FINANCIAL INSTRUMENTS – continued
FINANCIAL LIABILITIES AND EQUITY
A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial
liabilities with another entity under conditions that are potentially unfavourable to the Bank or a contract that will or may be settled
in the Bank’s own equity instruments and is a non-derivative contract for which the Bank is or may be obliged to deliver a variable
number of its own equity instruments, or a derivative contract over its own equity that will or may be settled other than by the exchange
of a fixed amount of cash (or another financial asset) for a fixed number of the Bank’s own equity instruments.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Bank are recognised at the proceeds received, net of direct issue costs.

The Bank classifies its financial liabilities under IFRS 9 into the following categories:
–– Financial liabilities at FVTPL; and
–– Financial liabilities measure at amortised cost.

A financial liability is classified as held for trading if:

–– It has been incurred principally for the purpose of repurchasing it in the near term; or
–– On initial recognition, it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent
actual pattern of short-term profit-taking; or
–– It is a derivative that is not designed and effective as a hedging instrument.

A financial liability may be designated at FVTPL if:

–– It eliminates or significantly reduces an accounting mismatch that would otherwise arise; or
–– It forms part of a contract containing one or more embedded derivatives which meet certain conditions; or
–– It forms part of a group of financial liabilities, which is managed and its performance is evaluated on a fair value basis in accordance
with a documented risk management or investment strategy, and information about the group is provided internally on that basis to
the Bank’s key management personnel.

Where liabilities are designated at FVTPL, they are initially recognised at fair value, with transaction costs recognised in profit and
loss as incurred. Subsequently, they are measured at fair value and the movement in the fair value attributable to changes in the
Bank’s own credit quality is presented in other comprehensive income and the remaining change in the fair value of the financial
liability, is presented in profit or loss.

The Bank applies the fair value measurement option to the bonds issued in 2016 to reduce the accounting mismatch resulting from
the economically related interest rate swap and cross currency swap with the same notional amount in total.

Other financial liabilities are subsequently measured at amortised cost, using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.
For details on effective interest rate, refer to the net interest income section above.

DERIVATIVE FINANCIAL INSTRUMENTS

The Bank enters into a variety of derivative financial instruments to manage its exposure to interest rate and currency risk, including
interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in Note 18.

Derivatives are initially recognised at fair value at the date derivative contracts are entered into and are subsequently re-measured to
their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.

76 New Development Bank | Annual Report 2018

 Annual financial statements
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued
FINANCIAL INSTRUMENTS – continued
IMPAIRMENT
IFRS 9 requires recognition of Expected Credit Losses (ECL) on the financial assets accounted for at amortised cost, FVTOCI and certain
unrecognised financial instruments such as loan commitments. ECL of a financial instrument should be measured in a way that reflects:
–– An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
–– The time value of money; and
–– Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.

The Bank applies a three-stage approach to measuring ECL on financial assets accounted for at amortised cost and loan commitments.
Financial assets migrate through the following three stages based on the change in credit quality since initial recognition:

i) Stage 1: 12-month ECL

For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit-impaired
upon origination, the portion of the lifetime ECL associated with the probability of default events, occurring within the next 12 months,
is recognised.

ii) Stage 2: Lifetime ECL – not credit impaired

For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit-impaired,
a lifetime ECL is recognised.

iii) Stage 3: Lifetime ECL – credit impaired

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of
that financial asset have occurred. For financial assets that are credit-impaired, a lifetime ECL is recognised and interest revenue is
calculated by applying the effective interest rate to the amortised cost (net of impairment allowance) rather than the gross carrying
amount. The Bank identifies financial assets as being credit-impaired when one or more events that could have a detrimental impact
on future cash flows of the financial asset have occurred.

More details about credit risk analysis are provided in Note 5.

Refer to Note 5 for the disclosure regarding significant increases in credit risk, definition of default and credit-impaired financial assets.

MEASUREMENT OF ECL
The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default)
and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by
forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the
respective risks of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to the Bank in accordance with the contract and
the cash flows that the Bank expects to receive, discounted at the effective interest rate determined at initial recognition.

For undrawn loan commitments, the ECL is the present value of the difference between the contractual cash flows that are due to
the Bank if the holder of the loan commitments draws down the loan, and the cash flows that the Bank expects to receive if the loan
is drawn down.

DERECOGNITION OF FINANCIAL INSTRUMENTS

The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers its
rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of
ownership are transferred. The Bank derecognises financial liabilities when the Bank’s obligations are discharged, cancelled or expire.
The difference between the carrying amount of the financial instruments derecognised and the consideration paid and payable is
recognised in profit or loss.

New Development Bank | Annual Report 2018 77

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued

FINANCIAL INSTRUMENTS – continued
OFFSETTING
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when the Bank has
a legal right to offset the amounts and intends to settle on a net basis or to realise the assets and settle the liability simultaneously.

EMPLOYEE BENEFITS
In the accounting period in which employees provide services, the Bank recognises the salary and welfare costs incurred and estimated
employee benefits, as a liability at the undiscounted amount of the benefits expected to be paid, with a corresponding charge to the
profit or loss for the current period.

The amounts payable arising on the Bank’s defined contribution scheme are recognised in the financial statements in the period in
which the related service is provided. The Bank has no legal or constructive obligation to pay further contributions in the event that
these plans do not hold sufficient assets to pay any employee the benefits relating to services rendered in any current and prior period.

PAID-IN CAPITAL
In accordance with the Agreement, the Bank has authorised capital and subscribed capital that is further divided into paid-in shares
and callable shares. The Bank’s paid-in capital is denominated in USD.

Where shares have been issued on terms that provide the Bank rights to receive cash or another financial asset, on a specified future
date, the Bank recognises the financial asset at the fair value of the amount of receivable.

TAXATION
The Bank enjoys tax exemption within the territory of mainland China according to Article 9 of the Headquarters Agreement between
the New Development Bank and the Government of the People’s Republic of China regarding the Headquarters of the New Development
Bank in Shanghai, the People’s Republic of China.

The Bank shall be also immune from all taxation, restrictions and customs duties for the transfers, operations and transactions it
carries out pursuant to the Agreement entered into force on July 3, 2015.

CASH AND CASH EQUIVALENTS

Cash comprises of cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents are the Bank’s short-term,
highly liquid investments that are readily convertible to known amounts of cash, within three months and are subject to an insignificant
risk of changes in value.

LEASES
Leases are classified as finance leases whenever the terms of the leases transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.

THE BANK AS A LESSEE

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

FOREIGN CURRENCIES
The financial statements of the Bank are presented in the currency of the primary economic environment in which the Bank operates,
its functional currency, which is USD. In preparing the annual financial statements of the Bank, transactions in currencies other than
the Bank’s functional currency (USD) are recorded at the rates of exchanges prevailing on the dates of the transactions. At the end of the
reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not re-translated after initial recognition.

Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are recognised in profit
or loss in the period in which they arise.

78 New Development Bank | Annual Report 2018

 Annual financial statements
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS APPLIED BY MANAGEMENT
In the application of the Bank’s accounting policies, which are described in Note 3, the Bank is required to make estimates about the
carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.

VALUATION OF DERIVATIVE CONTRACTS AND BOND DESIGNATED AT FVTPL

Fair values are derived primarily from discounted cash flow models using the swap rates commonly used by market participants for
the underlying benchmark of the derivatives. These swap rates are published by reputable financial data vendors like Bloomberg and
are used for arriving at the forward rates and discount rates. The financial liabilities are measured at FVTPL. The valuation models are
based on underlying observable market data and market accepted valuation techniques.

The Bank’s analysis and method for determining the fair value of financial liabilities designated at fair value have been provided in Note 6.

DISCOUNTING OF PAID-IN CAPITAL RECEIVABLES

The discounted cash flow model is used by the Bank to calculate the present value of paid-in capital receivables at initial recognition.
In determining the discount rate of paid-in capital receivables, the Bank took into account various factors including the funding cost of
similar instruments issued by similar institutions, instrument-specific risk profile. The cost of alternative funding sources of the Bank
has been taken into consideration by referring to the Bank’s credit rating and general market rates. It was concluded by management
of the Bank that USD Libor yield curve is the most appropriate discount rate that reflects the time value and the credit risk of the
receivables in question.

MEASUREMENT OF THE ECL ALLOWANCE

The measurement of the ECL allowance for the Bank’s financial assets measured at amortised cost and loan commitments requires
the use of a model and certain assumptions.

The following significant judgements are required in applying the accounting requirements for measuring the ECL:
–– Determining criteria for significant increase in credit risk;
– Choosing an appropriate model and determining appropriate assumptions for the measurement of ECL; and
– Establishing the number and probability of forward-looking scenarios for each type of product.

Refer to Note 5 for additional disclosure on the ECL allowance.

5. FINANCIAL RISK MANAGEMENT

OVERVIEW
The Bank’s operating activities expose it to a variety of financial risks. As a multilateral development bank, the Bank aims to safeguard
its capital base by taking prudent approaches and following international practices in identifying, measuring, monitoring and mitigating
financial risks.

The Bank has established various risk management policies, approved by the Board of Directors in line with its Agreement, which are
designed to identify and analyse risks of particular categories, and to set up appropriate risk limits and controls. The Board of Directors
sets out the risk management strategy and the risk tolerance level in different risk management policies.

The primary responsibility for risk management at an operational level rests with the management of the Bank. Management and
various committees are tasked with integrating the management of risk into the day-to-day activities of the Bank, by monitoring related
risk parameters and tolerance through policies and procedures under the strategy approved by designated committees.

The Bank is exposed to a variety of financial risks which includes credit risk, liquidity risk and market risk which includes foreign
exchange risk and interest rate risk.

New Development Bank | Annual Report 2018 79

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

5. FINANCIAL RISK MANAGEMENT – continued

CREDIT RISK
The Bank is committed to mobilising resources for infrastructure and sustainable development projects in BRICS and other emerging
market economies and developing countries. The Bank will provide financial support through loans, guarantees, equity investment and
other financial activities to fulfil this purpose. Any possibility of the inability or unwillingness of borrowers or obligors to meet their
financial obligation with the Bank leads to credit risk.

According to the nature of the Bank’s business, the principal sources of credit risks are:
(i) Credit risk in its sovereign operations;
(ii) Credit risk in its non-sovereign operations; and
(iii) Counterparty credit risk in its treasury business.

A prudential credit risk limit structure facilitates the management of risks associated to the Bank’s portfolio. Credit risk limits would
apply to exposures to single jurisdiction, sectors, obligors and products.

The Bank mainly relies on external credit ratings from major international rating agencies (e.g. Moody’s, Standard and Poor’s and Fitch)
to provide an initial assessment of the credit quality of borrowers and treasury counterparties. In cases where the loans are guaranteed
by the governments of the individual countries, the credit risk is assessed on the guarantor. The risk division of the Bank monitors the
overall credit risk profile of the Bank on a periodic basis.

For loans without a sovereign guarantee, the Bank will in due course use an internal credit rating taking into account specific project,
sector, macro and country credit risks. The risk division of the Bank monitors the overall credit risk profile of the Bank on a periodic
basis. The risk division obtains the latest rating result of the obligors to measure credit risk profile of the Bank.

A summary of rating grades that are being used by the Bank is as below:
–– Senior investment grade: broadly corresponds with ratings of AAA to A- from global rating agencies or the Bank’s internal
credit rating.
–– Investment grade: broadly corresponds with ratings of BBB+ to BBB- from global rating agencies or the Bank’s internal credit rating.
–– Sub-investment grade: broadly corresponds with ratings of BB+ up to but not including defaulted or impaired.

ECL MEASUREMENT
As disclosed in Note 3, the Bank applies a three-stage model for impairment based on changes in credit quality since initial recognition.
A new ECL calculation tool (Moody’s model) has been used for the year ended December 31, 2018.

SIGNIFICANT INCREASES IN CREDIT RISK

The Bank considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following
qualitative and quantitative criteria have been met.

QUANTITATIVE CRITERIA:
–– Delay in interest or principal payment exceeds 30 days;
–– For investment grade loans, rating downgrade to non-investment grade; or
–– For non-investment grade loans, rating downgrade by 2 notches compared to the rating at initial recognition.

QUALITATIVE CRITERIA:
–– History of arrears within 12 months;
–– Cross default is activated;
–– Material regulatory action against the borrower; and/or
–– Failure to comply with covenants or loan condition renegotiation.

CREDIT-IMPAIRED FINANCIAL ASSETS

ECL is calculated on a 12-month or lifetime basis. For financial assets that are credit-impaired, a lifetime ECL is recognised and interest
revenue is calculated by applying the effective interest rate to the amortised cost rather than the gross carrying amount. A financial
asset is credit-impaired when one or more events that have a material detrimental impact on the estimated future cash flows of that
financial asset have occurred.

80 New Development Bank | Annual Report 2018

 Annual financial statements
5. FINANCIAL RISK MANAGEMENT – continued
CREDIT RISK – continued
CREDIT-IMPAIRED FINANCIAL ASSETS – continued
The impairment allowance is calculated on a 12-month basis for assets without a significant increase in credit risk or on a lifetime basis
for assets with a significant increase in credit risk. For financial assets that are credit-impaired, a lifetime ECL is recognised and interest
revenue is calculated by applying the effective interest rate to the amortised cost, rather than the gross carrying amount.

12-MONTH ECL MEASUREMENT

Estimation of 12-month ECL is calculated using the following formula for a given scenario:

Unconditional Point-in-time Probability of Default (PIT-PD) is derived based on the latest Standard and Poor’s observed default rate for
sovereign exposures, or Moody’s model considering a specific rating and country and industry information for non-sovereign
exposures, which is then conditioned on three future macro-economic scenarios:
– baseline, optimistic and pessimistic;
– Loss Given Default (LGD) for the current financial year the LGD is set at 30% for sovereign loans and at 75% for non-sovereign loans;
– Exposure at Default (EAD) includes the sum of loans disbursed, interest receivable and net projected disbursement schedule over
the next 12 months; and
– Discount rate is equal to the effective interest rate.

LIFETIME ECL MEASUREMENT

Estimation of lifetime ECL is calculated using the following formula for a given scenario:

– The process to determine the PIT-PD term structure is the same as 12-month ECL calculation for the first 5 years and PIT-PD
is assumed to revert back to the long-run PD for the remaining years;
– LGD is the same as the calculation used for the 12-month ECL measurement purposes;
– EAD for any given year is based on the sum of loan disbursed, interest receivable and net projected disbursement schedule
for each following year;
– Discount rate is equal to the effective interest rate; and
– Lifetime of the loan is the remaining loan contract period.

Forward-looking information incorporated in ECL

MACRO SCENARIO DEVELOPMENT

(i) 3 macro scenarios: baseline, optimistic and pessimistic. Each scenario is forecasted for 5 years.
(ii) Based on each member country’s development and conditions, a range of forward-looking macro-economic
information is considered.
(iii) Choice of macro scenarios and probability weightings of each scenario is approved by the Finance Committee.

The baseline, optimistic and pessimistic scenarios were given weightings of 50%, 25% and 25% respectively. The estimation is based
on the best representative management judgment without undue cost or effort that, going forward the current path of macro-economic
projections with an equal chance of being worse (pessimistic scenario) or better (optimistic scenario).

New Development Bank | Annual Report 2018 81

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

5. FINANCIAL RISK MANAGEMENT – continued

CREDIT RISK – continued
SENSITIVITY ANALYSIS
The weights of the scenarios used, is another source of sensitivity. Should the Bank have changed the weightings to 25%, 45% and
30% respectively for optimistic, baseline and pessimistic scenarios, the amount of ECL would have been USD 4 million or increased
by USD 0.2 million.

DEFINITION OF DEFAULT
For the ECL measurement, default occurs when a borrower meets one or more of the following conditions:
–– Failure to make a payment within 90 days.
–– Breach of specific covenants that trigger a default clause.
–– Failure to pay a final judgement or court order.
–– Bankruptcy, liquidation or the appointment of a receiver or any similar official.

The table below represents an analysis of the credit quality of loan facilities that are neither past due nor impaired, based on the external
rating of the counterparties:

CREDIT EXPOSURE ON LOAN FACILITIES

Maximum Effective Unutilised loan

facility facility Utilised
commitments
As at December 31, 2018 USD’000 USD’000 USD’000 USD’000

Senior investment grade 1,507,559 1,507,559 120,053 1,387,506

Investment grade 2,550,000 960,000 164,515 795,485
Sub-investment grade 500,000 500,000 340,000 160,000
Total 4,557,559 2,967,559 624,568 2,342,991

Interest Receivable 6,191 –

Less: Provision for loan and commitment (2,655) (1,126)
Carrying amount as at December 31, 2018
628,104 2,341,865

The PD associated with loan facilities for the next 12 months is between 0% to 1% at the dates of signing of loans agreements
and as at December 31, 2018. There has been no significant increase in credit risk up to December 31, 2018 and all the loans
are at stage 1.

Maximum Effective Unutilised loan

facility facility Utilised
commitments
As at December 31, 2017 USD’000 USD’000 USD’000 USD’000

Senior investment grade 895,402 895,402 12,622 882,780

Investment grade 450,000 450,000 11,235 438,765
Sub-investment grade 300,000 – – –
Total 1,645,402 1,345,402 23,857 1,321,545

Interest Receivable 140 –

Less: Provision for loan and commitment – (23)
Carrying amount as at December 31, 2017
23,997 1,321,522

The PD associated with the above loan facilities for the next 12 months is between 0% to 1% at the dates of signing of loans
agreements and as at December 31, 2017. There was no significant increase in credit risk up to December 31, 2017 and all the
loans were at stage 1.

82 New Development Bank | Annual Report 2018

 Annual financial statements
5. FINANCIAL RISK MANAGEMENT – continued
CREDIT RISK – continued
CREDIT EXPOSURE ON LOAN FACILITIES – continued

Reconciliation of provision for loans raised

12-month 12-month
Expected Credit Loss Expected Credit Loss
As at December 31, 2018 As at December 31, 2017
USD’000 USD’000

Provision at the beginning of the year – –

Provision for loan raised 2,655 –
Provision at the end of the year 2,655 –

Reconciliation of provision for loan commitment

12-month 12-month
Expected Credit Loss Expected Credit Loss
As at December 31, 2018 As at December 31,2017
USD’000 USD’000

Provision at the beginning of the year 23 –

Provision for loan commitment raised 1,103 23
Provision at the end of the year 1,126 23

CONCENTRATION RISK
The following table breaks down the credit risk exposures relating to loans and commitments, in their carrying amounts, by country.

Unutilised loan
Effective facility Utilised commitments
As at December 31, 2018 USD’000 USD’000 USD’000

China 1,457,559 94,928 1,362,631

Brazil 500,000 340,000 160,000
India 450,000 139,390 310,610
Russia 560,000 50,250 509,750
Total
2,967,559
624,568
2,342,991

Interest Receivable 6,191 –

Less: Provision for loan and commitment (2,655) (1,126)
Carrying amount as at December 31, 2018 628,104 2,341,865

Unutilised loan
Effective facility Utilised commitments
As at December 31, 2017 USD’000 USD’000 USD’000

China 895,402 12,622 882,780

India 350,000 11,235 338,765
Russia 100,000 – 100,000
Total
1,345,402
23,857
1,321,545

Interest Receivable 140 –

Less: Provision for loans and commitments – (23)
Carrying amount as at December 31, 2017 23,857 1,321,522

New Development Bank | Annual Report 2018 83

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

5. FINANCIAL RISK MANAGEMENT – continued

CREDIT RISK – continued
CREDIT EXPOSURE ON DEPOSITS
The Bank had deposits with commercial banks that are subject to credit risk. These deposits are placed with highly rated banks in
mainland China, Hong Kong and Singapore. The credit rating of banks are analysed as below:

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Cash and cash equivalents

Senior investment grade 122,976 1,019,848

Due from banks other than cash and cash equivalents

4,800,559 3,245,623
Senior investment grade
Total 4,923,535 4,265,471

There has been no significant increase in credit risk since initial recognition associated with the amounts due from banks and loans and
advances, for the year ended December 31, 2018 and 2017. The credit exposure on Cash and cash equivalents excludes cash on hand.

CREDIT RISK ON PAID-IN CAPITAL RECEIVABLES

The paid-in capital receivable relates to capital contributions instalments committed by the Founding Members. No member has
defaulted on payments therefore, in the opinion of the management of the Bank, is unlikely to incur any related credit risk associated
with the capital receivables.

CREDIT RISK ON DERIVATIVES

The Bank has entered into derivative transactions for the purpose of achieving an economic hedge of currency and interest rate risk
associated with the bond issued. The Bank chose counterparties with high credit ratings in mainland China and Hong Kong and entered
into International Swaps and Derivatives Association (ISDA) agreements with these counterparties. Under the ISDA master agreement,
if a counterparty defaults, all contracts with the counterparty will be terminated. At any point of time the maximum exposure to credit
risk is limited to the current fair value of instruments that are favourable to the Bank.

LIQUIDITY RISK
The Bank’s liquidity risk arises in the following way:

(i) Insufficient liquidity to settle obligations or to meet cash flow needs including, but not limited to, the inability to maintain
normal lending operations via loan disbursements and other payment obligations; and
(ii) Inability to liquidate an investment within the required period of time without undue loss of value.

The Bank utilises a set of short-term, long-term and stressed metrics for identifying, monitoring and managing liquidity risk.
The Bank balances the placement and tenor of its liquid assets to optimise interest income and provide a source of liquidity
for strategic and day-to-day cash needs, as well as meeting unanticipated funding requirements. The Bank has funding lines
with local and offshore banks to cover short-term flows. For strategic funding requirements, the Bank has established and
is developing arrangements to issue debt securities in its member countries and in other major global markets.

The Bank monitors liquidity risk through liquidity risk ratios and indicators, as prescribed in the liquidity risk management policy
of the Bank. The ratios are cast as short-term ratios and longer-term ratios that determine the availability of liabilities to fund
cash demands. The primary liquidity ratio is based on the 12-month availability of naturally-maturing and easily-disposable
assets to meet projected net cash requirements, known as the Prudential Minimum Liquidity (PML) level.

The following table represents the cash flows associated with financial assets and financial liabilities according to their
contractual maturity as at the end of the reporting period. The balances in the table do not correspond with the statement of
financial position, since liquidity risk management measures cash flows on an undiscounted basis and the figures therefore
include both principal and associated future interest payments.

84 New Development Bank | Annual Report 2018

 Annual financial statements
5. FINANCIAL RISK MANAGEMENT – continued
LIQUIDITY RISK – continued

Less than
On demand 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total
As at December 31, 2018 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Non-derivatives
Cash and cash equivalents 97,313 25,887 – – – – 123,200
Due from banks – 976,111 787,657 2,806,774 316,137 – 4,886,679
Loans and advances – – 11,620 13,932 264,008 537,255 826,815
Paid-in capital receivables – 300,000 9,212 – 4,700,000 5,009,212
Other financial assets 271 – – – – – 271
Financial liabilities designated
at FVTPL – – – (13,375) (459,738) – (473,113)
Other financial liabilities (1,275) – – – – – (1,275)
Sub-total 96,309 1,301,998 808,489 2,807,331 4,820,407 537,255 10,371,789

Derivatives
Net setting derivatives
interest rate swap – cash inflow – – – 2,001 4,007 – 6,008
interest rate swap – cash outflow – (598) – (1,433) (3,172) – (5,203)
Gross setting derivatives
Cross currency swap – cash inflow – – – 10,674 368,399 – 379,073
Cross currency swap – cash outflow – (4,163) – (4,794) (376,880) – (385,837)
Sub-total – (4,761) – 6,448 (7,646) – (5,959)

Net 96,309 1,297,237 808,489 2,813,779 4,812,761 537,255 10,365,830

Less than
On demand 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total
As at December 31, 2017 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Non-derivatives
Cash and cash equivalents 256,894 369,686 395,798 – – – 1,022,378
Due from banks 153,0601 143,080 258,750 1,866,746 876,959 – 3,298,595
Loans and advances – – 317 412 7,912 22,924 31,565
Paid-in capital receivables – – – – 6,200,000 – 6,200,000
Other financial assets 196 – – – – – 196
Financial liabilities designated
at FVTPL – – – (13,994) (469,982) – (483,976)
Other financial liabilities (885) – – – – – (885)
Sub-total 409,265 512,766 654,865 1,853,164 6,614,889 22,924 10,067,873

Derivatives
Net setting derivatives
interest rate swap – cash inflow – – – 1,760 5,126 – 6,886
interest rate swap – cash outflow – (981) – (2,064) (8,039) – (11,084)
Gross setting derivatives
Cross currency swap – cash inflow – – – 11,263 376,861 – 388,124
Cross currency swap – cash outflow – (2,288) – (2,933) (382,638) – (387,859)
Sub-total – (3,269) – 8,026 (8,690) – (3,933)

Net 409,265 509,497 654,865 1,861,190 6,606,199 22,924 10,063,940

1 The maturity of this one-year time deposit is December 31, 2017 and the Bank intends to renew it, accordingly the amount has been excluded from cash equivalent.

New Development Bank | Annual Report 2018 85

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

5. FINANCIAL RISK MANAGEMENT – continued

MARKET RISK
Market risk is the risk that variations in market rates and values of the Bank’s assets, liabilities and off-balance sheet positions result
in a loss to the Bank. The Bank’s exposure to market risk is currently derived from interest rate risks and exchange rate risks that
emanate from the Bank’s operations. In order to mitigate market risks, the Treasury and Portfolio Management division of the Bank
exercise control over funding, investment and hedging decisions within the guidelines set in Board-approved polices.

INTEREST RATE RISK

Interest rate risk is defined as the risk of adverse impact on the Bank’s financial position, including its income and economic value,
due to interest rate movements. The Bank’s lending and investment activities expose the Bank to interest rate risk, whilst changes
in the macro-economic environment significantly impact the movement of interest rate curves in different currencies to which the
Bank is exposed.

The Bank has limited tolerance for interest rate risk. The primary strategy for managing interest rate risk is to match the interest
rate sensitivity of the Bank’s liabilities and assets in individual currencies.

Interest rate risk arises principally from the basis, volatility and rate adjustment dates associated with the rates the Bank is exposed
to. Accordingly, interest rate risk management aims to minimise mismatches of structure and tenor of interest rate sensitive assets
and liabilities by adopting a match-funding principle complemented by duration gap analysis, interest rate repricing gap analysis and
scenario analysis. The Bank aims to maintain the duration gap below an approved limit by generating a stable overall positive net interest
margin that is not unduly sensitive to sharp changes in market interest rates, but adequately responsive to general market trends.

INTEREST RATE SENSITIVITY ANALYSIS

Net Interest Income (NII) sensitivity analysis utilises projected earnings simulations to forecast, measure and manage interest rate risk.

The sensitivity analysis is prepared assuming a static year-long balance sheet for which the interest-bearing financial assets and
liabilities outstanding at the end of each respective reporting period is constant for the whole year.

When reporting to the management of the Bank on the interest rate risk, a 25-basis points increase or decrease in the relevant
interest rates will be adopted for sensitivity analysis. The impact of a change in interest rates on the reporting period is shown below.

Impact on profit
Year ended Year ended
December 31, 2018 December 31, 2017
USD’000 USD’000

+ 25 basis points 7,959 4,952

- 25 basis points (7,959) (4,952)

EXCHANGE RATE RISK

Exchange rate risk at the Bank arises from the impact of exchange rate variations on net unhedged positions in non-USD currencies.
The Bank aims to reduce or limit exposure to exchange rate risk, while optimising its capacity to extend credit to clients. The Bank
uses currency-linked derivative contracts to align the currency composition of its financial position. Exchange rate risk is measured
using a net exposure limit in aggregate and individual non-USD currencies, as well as through value-at-risk in exchange rates.

EXCHANGE RATE SENSITIVITY ANALYSIS

The following table shows the impact of an appreciation or depreciation of USD against foreign currencies as at December 31,
2018 and December 31, 2017 assuming that all other variables remain constant.

Impact on profit
Year ended Year ended
December 31, 2018 December 31, 2017
USD’000 USD’000

10% appreciation (35) 46

10% depreciation 35 (46)

86 New Development Bank | Annual Report 2018

 Annual financial statements
5. FINANCIAL RISK MANAGEMENT – continued
CAPITAL MANAGEMENT
The Bank monitors its capital adequacy level within a Capital Management Framework (CMF), which seeks to ensure that the Bank’s
capital is sufficient to cover the risks associated with its business. The CMF consists of the following pillars: Limitation on Operations,
Equity-to-Loan Ratio, Capital Utilisation Ratio and Equity-to-Asset Ratio.

The Bank sets early warning indicators for the pillars (95% for Limitation on Operations, 30% for Equity-to-Loan Ratio, 30% for
Equity-to-Asset Ratio and 85% for Capital Utilisation Ratio) and monitors the capital adequacy level on an ongoing basis. Once any
of the early warning indicators are reached, contingency actions should be triggered to bring the capital adequacy level within the
Bank’s comfort levels.

As at December 31, 2018, the Bank had complied with its capital adequacy management policies.

The Bank has a capital structure in order to meet the capital management objective in a capital efficient manner. The initial
subscribed capital shall be equally distributed amongst the founding members and the payment of the amount initially subscribed
to the paid-in capital stock of the Bank shall be made in seven instalments.

According to Article 7d of the Agreement, an increase of the authorised and subscribed capital stock of the Bank, as well as the
proportion between the paid-in shares and the callable shares may be decided by the Board of Governors at such time and under
such terms and conditions as it may deem advisable, by a special majority of the Board of Governors. In such case, each member
shall have a reasonable opportunity to subscribe, under the conditions established in Article 8 and under such other conditions as
the Board of Governors shall decide. No member, however, shall be obligated to subscribe to any part of such increased capital. The
Board of Governors shall, at intervals of not more than 5 years, review the capital stock of the Bank as per Article 7e of the Agreement.

6. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The Bank’s financial instruments that are measured subsequent to initial recognition at fair value, mainly included bonds designated
at fair value and the derivatives as at December 31, 2018.

The risk division of the Bank is responsible for the fair value measurement. Analysis of fair value disclosures uses a hierarchy
that reflects the significant inputs used in measuring the fair value. The level in the fair value hierarchy within which a fair value
measurement is classified is determined on the basis of the lowest level input that is significant to the fair value measurement.
The fair value hierarchy is as below.

– Level 1: Quoted prices in any active market for the financial assets or the liabilities.
– Level 2: Inputs other than the quoted prices within Level 1 that are observable in the market and published by reputable agencies
like Bloomberg and Reuters. These inputs are used for arriving at the fair value of the assets or the liabilities.
– Level 3: Inputs for the financial asset or liability that are not based on the observable market data.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The estimated fair values are based on relevant information available at the reporting date
and involve judgement.

New Development Bank | Annual Report 2018 87

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

6. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES – continued

FAIR VALUE OF THE BANK’S FINANCIAL INSTRUMENTS THAT ARE MEASURED AT FAIR VALUE ON A RECURRING BASIS
The Bank is of the opinion that there is no active market related to its bond issued, in view of the low trading volume and frequency.

The fair value estimates are based on the following methodologies and assumptions:

– The fair values of derivative assets and liabilities, including interest rate swaps and cross currency swaps are obtained from
discounted cash flow models and other valuation techniques that are commonly used by market participants using observable
inputs as appropriate in the market and published by reputed agencies like Bloomberg.
– The fair value of bonds designated at fair value are measured using market accepted valuation techniques. The techniques
serve the purpose of tracking the value impact in respect of both interest rate and foreign exchange rate movement.

The table below shows the comparison of fair value of the financial assets and financial liabilities.

Level 1 Level 2 Level 3 Total

As at December 31, 2018 USD’000 USD’000 USD’000 USD’000

Financial assets – – – –
Derivatives – 710 – 710

Total financial assets measured at fair value – 710 – 710

Financial liabilities
Derivatives – 6,374 – 6,374
Financial liabilities designated at fair value – 443,809 – 443,809
Total financial liabilities measured at fair value – 450,183 – 450,183

Level 1 Level 2 Level 3 Total
As at December 31, 2017 USD’000 USD’000 USD’000 USD’000

Financial assets – – – –
Derivatives – – – –

Total financial assets measured at fair value – – – –

Financial liabilities
Derivatives – 3,331 – 3,331
Financial liabilities designated at fair value – 449,367 – 449,367
Total financial liabilities measured at fair value – 452,698 – 452,698

There were no transfers between Level 1 and 2 in for the year ended December 31, 2018 and December 31, 2017.

There were no third-party credit enhancements in the fair value measurement for financial liabilities designated at fair value
as at December 31, 2018 and December 31, 2017.

FAIR VALUE OF THE BANK’S FINANCIAL INSTRUMENTS THAT ARE NOT MEASURED AT FAIR VALUE ON A RECURRING BASIS
The Bank considered that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the
Bank’s statements of financial position, approximate their fair values.

88 New Development Bank | Annual Report 2018

 Annual financial statements
7. NET INTEREST INCOME

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

Interest income
Interest income from banks 113,191 63,681
Interest income from loans and advances 10,209 182
Total interest income 123,400 63,863

Interest expense
Interest expenses of short-term borrowings (7) –
Interest expense on bonds issued (13,590) (14,020)
(13,597) (14,020)
Total interest expense

Net interest income

109,803 49,843

8. NET FEE INCOME

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

Front-end fee recognised 155 21

Commitment fee 263 –
Total 418 21

9. NET GAINS ON FINANCIAL INSTRUMENTS AT FVTPL

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

Derivatives 2,564 47,174

Bonds 5,245 (45,883)
Total 7,809 1,291

New Development Bank | Annual Report 2018 89

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

10. STAFF COSTS

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

19,400
Salaries and allowances 15,770
5,910
Other benefits 3,053
Total 25,310 18,823

The Bank provides other benefits, based on their eligibility and applicability, to its staff members during their employment with the
Bank. These include medical insurance, life insurance, accidental death and dismemberment insurance, Staff Retirement Plan (SRP)
and Post Retirement Plan (PRP).

The charge recognised in the year ended December 31, 2018 for the SRP and PRP was USD 4 million (2017: USD 2.5 million) and
USD 442 thousand (2017: USD 284 thousand) respectively and is included in other benefits.

The Bank did not incur any salary expenses and other employee benefits for members of the Board of Governors and the Board
of Directors except for the President of the Bank for the year ended December 31, 2018 and for the year ended December 31, 2017.
According to Article 11 of the Agreement, the Board of Governors shall determine the salary and terms of the service contract of
the President of the Bank.

11. OTHER OPERATING EXPENSES

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

Office expenses 2,737 2,338

Professional fees 3,448 2,126
Auditor’s remuneration 513 310
Travel expenses 3,106 2,020
Technology expenses 1,777 239
Hospitality expenses 116 101
Depreciation and amortisation 229 102
Others 10 106
Total 11,936 7,342

90 New Development Bank | Annual Report 2018

 Annual financial statements
12. CASH AND CASH EQUIVALENTS

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Cash on hand 12 6
Demand deposit 97,301 256,888
Time deposit with maturity within three months 25,675 762,960
Total
122,988 1,019,854

13. DUE FROM BANKS OTHER THAN CASH AND CASH EQUIVALENTS

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Commercial banks 4,826,234 4,008,583

Total 4,826,234 4,008,583
Less: Time deposit with original maturity within three months (25,675) (762,960)
Total 4,800,559 3,245,623

Comparative figures for the prior year have been reclassified, refer to Note 29.

14. LOANS AND ADVANCES

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Carrying amount 624,568 23,857

Interest receivable 6,191 140
Gross Carrying Amount 630,759 23,997
Less: ECL allowance (2,655) –
628,104 23,997
Net carrying amount

Comparative figures for the prior year have been reclassified, refer to Note 29.

New Development Bank | Annual Report 2018 91

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

15. PAID-IN CAPITAL RECEIVABLES

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Balance at the beginning of year of the Agreement (Note 1 below) 6,200,000 7,800,000
Less:
Instalments received during the year (Note 2 below) (1,190,788) (1,600,000)
Total nominal amounts of receivable at the end
of the year (Note 4 below) 5,009,212 6,200,000

Less:
Interest on paid-in capital receivables
to be unwound in the future year (Note 3 below) (162,429) (266,646)

Balance at the end of the year 4,846,783 5,933,354

Note 1
As disclosed in Note 22, the Bank established the rights to receive the initial subscribed paid-in capital of 100,000 shares, which totalled USD 10 billion upon the effective
date of the Agreement. Each founding member shall initially and equally subscribe to 20,000 shares that correspond to the paid-in capital. The payment of the amount
initially subscribed to, for the paid-in capital stock of the Bank, is made in 7 instalments. The first instalment of paid-in capital was paid by each member within 6 months
of the Agreement coming into force, and the second instalment was due 18 months from the date that the Agreement came into force. The remaining instalments are due
successively, one year from the date on which the preceding instalment becomes due.

Note 2
The instalments received in the year ended December 31, 2018 resulted from the partial receipt of the fourth instalments and the partial receipt of the fifth instalments,
ahead of schedule. The instalment received in in the year ended December 31, 2017 resulted from the receipt of the third instalment and the partial receipt of the fourth
instalment ahead of schedule.

Note 3
The discounting method is applied to derive the interest to be unwound over the instalment period. The balance includes an initial discount of USD 622,285 thousand
less USD 444,286 thousand of accumulated unwinding interest already unwound on the paid-in capital receivables (December 31, 2017: USD 350,464 thousand) and
USD 15,570 thousand as a result of accumulated early payment and the impact on discounting which was credited to reserve as an equity transaction by the end of
December 31, 2018 (December 31, 2017: USD 5,175 thousand).

Note 4
On December 31, 2018, there were no overdue instalments of paid-in capital receivables. The total paid-in capital receivables that will become due within one year amount
to an undiscounted value of USD 0.3 billion, and that will become due over one-year amount to an undiscounted value of USD 4.7 billion (December 31, 2017:
USD 6.2 billion).

92 New Development Bank | Annual Report 2018

 Annual financial statements
16. PROPERTY AND EQUIPMENT

IT Equipment Appliance Vehicle Furniture Others Total

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Cost as at January 1, 2018 191 62 413 2 25 693

Additions during the year 762 4 – 7 – 773
Cost at December 31, 2018 953 66 413 9 25 1,466

Accumulated depreciation as at January 1, 2018 (18) (11) (65) (0) (5) (99)
Depreciation for the year (77) (13) (66) (1) (5) (162)
Accumulated depreciation as at December 31, 2018 (95) (24) (131) (1) (10) (261)

Net book value as at December 31, 2018 858 42 282 8 15 1,205

IT Equipment Appliance Vehicle Furniture Others Total
USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Cost as at January 1, 2017 65 30 360 2 25 482

Additions during the year 126 32 53 – – 211
Cost at December 31, 2017 191 62 413 2 25 693

Accumulated depreciation as at January 1, 2017 (3) (3) – (0) – (6)

Depreciation for the year (15) (8) (65) (0) (5) (93)
Accumulated depreciation as at December 31, 2017 (18) (11) (65) (0) (5) (99)

Net book value as at December 31, 2017 173 51 348 2 20 594

17. INTANGIBLE ASSETS

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Cost
As at the beginning of the year 65 40
Additions for the year 944 25
Cost as at the end of the year 1,009 65

Accumulated amortisation
As at the beginning of the year (11) (2)
Amortisation for the year (67) (9)
As at the end of the year (78) (11)

Net book value
As at the end of the year 931 54

New Development Bank | Annual Report 2018 93

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

18. DERIVATIVE FINANCIAL ASSETS/LIABILITIES

The Bank entered into derivative contracts for the bond issued, that was paired with swaps with a total notional amount of RMB 3 billion,
to convert the issuance proceeds into the currency and interest rate structure sought by the Bank. Notwithstanding the purpose of
achieving an economic hedge, the Bank opted not to apply hedge accounting for any derivative contracts entered into in the financial
year ended December 31, 2018 and December 31, 2017.

Notional USD Fair value asset Fair value liability

As at December 31, 2018 USD’000 USD’000 USD’000

Interest Rate Swap 90,132 710 –

Cross Currency Swap
359,396 –
6,374
Total
449,528 710
6,374

Notional USD Fair value asset Fair value liability
As at December 31, 2017 USD’000 USD’000 USD’000

Interest Rate Swap 90,132 – 4,047

Cross Currency Swap
359,396 – (716)
Total 449,528 – 3,331

19. OTHER ASSETS

As at December 31, 2018 As at December 31, 2017
USD’000 USD’000

Other receivables 220 196

Others 913 446
Total 1,133 642

Comparative figures for the prior year have been reclassified, refer to Note 29.

20. FINANCIAL LIABILITIES DESIGNATED AT FVTPL

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Bond - Principal 448,011 448,011

- Interest payable 6,086 6,399
- Fair value change (10,288) (5,043)
Total 443,809 449,367

On July 18, 2016, the Bank issued a five-year green bond with the maturity date at July 19, 2021. The interest is paid by the Bank
annually with a fixed coupon rate of 3.07%.

There has been no change in fair value of bonds attributable to changes in the Bank’s credit risk for the year ended December 31, 2018
and 2017. The contractual principal amount to be paid at maturity of the bond, in the original currency, is RMB 3 billion.

94 New Development Bank | Annual Report 2018

 Annual financial statements
21. OTHER LIABILITIES

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Employee benefits payable 308 328

Accrued expenses 1,275 885
Impairment provision of loan commitment 1,126 23
Deferred income (Note 1 below) 3,866 1,055
Annual Leave provision 792 520
Total 7,367 2,811

Note 1: The deferred income disclosed above relates to contract liabilities, which is the unsatisfied performance obligations
of front-end fees as at December 31, 2018 and December 31, 2017.

22. PAID-IN CAPITAL

A statement of capital subscriptions showing the amount of paid-in and callable shares subscribed to, by each member, according to the
Agreement, is set out in the following table. There is no amendment to the terms of subscription payment in the Agreement at December
31, 2018. The voting power of each member shall be equal to the number of its subscribed shares in the capital stock of the Bank,
according to the Agreement.

As at December 31, 2018 As at December 31, 2017

Number of shares Amount in USD’000 Number of shares Amount in USD’000

Authorised shared capital 1,000,000 100,000,000 1,000,000 100,000,000

Less: Unsubscribed by members (500,000) (50,000,000) (500,000) (50,000,000)

Total subscribed capital 500,000 50,000,000 500,000 50,000,000

Less: Callable capital (400,000) (40,000,000) (400,000) (40,000,000)

Total paid in capital 100,000 10,000,000 100,000 10,000,000

A statement of capital subscriptions showing the amount of paid-in and callable shares subscribed to, by each member is, set out in the
following table:

Paid-in capital1 Paid-in capital

Total shares Total capital Callable capital Paid-in capital received outstanding
As at December 31, 2018 Number USD’000 USD’000 USD’000 USD’000 USD’000

Brazil 100,000 10,000,000 8,000,000 2,000,000 1,000,000 1,000,000

Russia 100,000 10,000,000 8,000,000 2,000,000 1,300,000 700,000
India 100,000 10,000,000 8,000,000 2,000,000 700,000 1,300,000
China 100,000 10,000,000 8,000,000 2,000,000 1,000,000 1,000,000
South Africa 100,000 10,000,000 8,000,000 2,000,000 990,788 1,009,212
Capital subscribed by members 500,000 50,000,000 40,000,000 10,000,000 4,990,788 5,009,212

New Development Bank | Annual Report 2018 95

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

22. PAID-IN CAPITAL – continued

Paid-in capital1 Paid-in capital

Total shares Total capital Callable capital Paid-in capital received outstanding
As at December 31, 2017 Number USD’000 USD’000 USD’000 USD’000 USD’000

Brazil 100,000 10,000,000 8,000,000 2,000,000 700,000 1,300,000

Russia 100,000 10,000,000 8,000,000 2,000,000 1,000,000 1,000,000
India 100,000 10,000,000 8,000,000 2,000,000 700,000 1,300,000
China 100,000 10,000,000 8,000,000 2,000,000 700,000 1,300,000
South Africa 100,000 10,000,000 8,000,000 2,000,000 700,788 1,300,000
Capital subscribed by members 500,000 50,000,000 40,000,000 10,000,000 3,800,000 6,200,000

1 Pursuant to Article 9 and attachment 2 of the Agreement each founding member’s paid in capital stock is received in 7 instalments.

On December 31, 2018 all paid-in capital from founding members was received in accordance with the Agreement, and partial receipts
relating to the fourth and fifth instalment have been received ahead of schedule.

23. OTHER RESERVES

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Accumulated impact on discounting of paid-in

capital receivables (162,429) (266,646)
(162,429) (266,646)
Total

Other reserve mainly represents the difference on the present value of paid-in receivables and the nominal amounts of subscribed
paid-in capital arisen from the instalment payments of the subscribed paid-in capital, which is regarded as an equity transaction.
The subsequent unwinding of interest on paid-in capital receivables which is recycled to other reserves, from retained earnings
immediately occurs following the unwinding treatment in the relevant accounting period.

96 New Development Bank | Annual Report 2018

 Annual financial statements
24. RECONCILIATION OF ASSETS AND LIABILITIES ARISING FROM FINANCING ACTIVITIES
The table below details changes in the Bank’s assets and liabilities arising from financing activities, including both cash and non-cash
changes. Assets and liabilities arising from financing activities are those for which cash flows were, or future cash flows will be,
classified in the Bank’s statement of cash flows as cash flows from financing activities.

Non-cash movements
As at
As at Unwinding Impact of December
January 1, 2018 Cash inflows of interest early payment 31, 2018
USD’000 USD’000 USD’000 USD’000 USD’000

Paid-in capital receivables 5,933,354 (1,190,788) 93,822 10,395 4,846,783

Total assets from Financing activities 5,933,354 (1,190,788) 93,822 10,395 4,846,783

Non-cash movements
As at
As at Interest accrued Fair value Cash December
January 1, 2018 Cash inflows movements changes outflows1 31, 2018
USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Short-term borrowings – 13,000 7 – (13,007) –

Bond 449,367 – 13,590 (5,245) (13,903) 443,809

Total liabilities from Financing activities 449,367 13,000 13,597 (5,245) (26,910) 443,809

Non-cash movements
As at
As at Unwinding Impact of early December
January 1, 2017 Cash inflows of interest payment 31, 2017
USD’000 USD’000 USD’000 USD’000 USD’000

Paid-in capital receivables 7,401,019 (1,600,000) 127,160 (5,175) 5,933,354

Total assets from Financing activities 7,401,019 (1,600,000) 127,160 (5,175) 5,933,354

Non-cash movements
As at
As at Cash Interest accrued Fair value December
January 1, 2017 outflows2 movements changes 31, 2017
USD’000 USD’000 USD’000 USD’000 USD’000

Bond 403,064 (13,600) 14,020 48,553 449,367

Total liabilities from Financing activities 403,064 (13,600) 14,020 48,553 449,367

1 The cash outflows represents interest of USD 13.9 million for bond which is recorded in the Bank’s Statement of Cash Flows as net cash used in operating activities.
2 The cash outflows of USD 13.6 million represents an interest payment for the bond which is recorded in the Bank’s Statement of Cash Flows as net cash
used in operating activities.

New Development Bank | Annual Report 2018 97

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

25. COMMITMENTS
1) OPERATING LEASES COMMITMENTS
On December 31, 2018, the Bank had commitments for future minimum lease payments under non-cancellable operating leases which
fall due as follows:

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Not later than one year 99 100

Later than one year and not later than five years 153 –
Total 252 100

2) CAPITAL COMMITMENTS
As at December 31, 2018, the Bank had no irrevocable capital expenditure commitments.

3) CREDIT COMMITMENTS

As at December 31, 2018 As at December 31, 2017

USD’000 USD’000

Undrawn loan commitments

Letters of effectiveness signed 2,342,991 1,321,545
Letter of effectiveness yet to be signed 1,590,000 300,000
Total 3,932,991 1,621,545

Credit commitments represent general facility limits granted to borrowers. These credit facilities may be drawn in the form of loans and
advances once the letters of effectiveness are signed.

26. RELATED PARTY DISCLOSURE

In the ordinary course of business, the Bank may grant loans to a government or through a government credit guarantee arrangement.
The Bank is, in accordance with IAS 24, exempted from the disclosure requirements in relation to related party transactions and
outstanding balances, including commitments, with:

– A government that has control or joint control of, or significant influence over, the reporting entity; and
– Another entity that is a related party because the same government has control or joint control of, or significant influence over,
both the reporting entity and the other entity.

The name and relationship with founding member governments are disclosed below:

(1) NAME AND RELATIONSHIP

NAME OF RELATED PARTIES RELATIONSHIP

The Federative Republic of Brazil The Bank’s shareholder
The Russian Federation The Bank’s shareholder
The Republic of India The Bank’s shareholder
The People’s Republic of China The Bank’s shareholder
The Republic of South Africa The Bank’s shareholder

 ccording to the Headquarters Agreement between the Bank and the Government of the People’s Republic of China, the Headquarters
A
of the Bank and other relevant facilities to support the Bank’s operations have been provided from China, for free, for the year ended
December 31, 2018 and for the year ended December 31, 2017.

98 New Development Bank | Annual Report 2018

 Annual financial statements
26. RELATED PARTY DISCLOSURE – continued
(2) DETAILS OF KEY MANAGEMENT PERSONNEL (KMP) OF THE BANK:
KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Bank,
directly or indirectly, including the President and Vice Presidents.

The following persons were KMP of the Bank during the year ended December 31, 2018:

NAME COUNTRY POSITION

Vaman Kundapur Kamath India President
Sarquis José Buainain Sarquis Brazil Vice President; Chief Risk Officer
Vladimir Kazbekov Russia Vice President; Chief Administrative Officer
Xian Zhu China Vice President; Chief Operations Officer
Leslie Warren Maasdorp South Africa Vice President; Chief Financial Officer

(3) DURING THE YEAR, THE REMUNERATION OF KMP WERE AS FOLLOWS:

For the year ended For the year ended

December 31, 2018 December 31, 2017
USD’000 USD’000

Salary and allowance 2,427 2,352

Staff Retirement Plan 354 343
Post- Retirement Insurance Plan 61 59
Other short-term benefits 95 65
Total 2,937 2,819

(4) USE OF OFFICE BUILDING AND OTHER FACILITIES

Based on Article 3 of the Headquarters Agreement, China shall arrange to build and furnish a suitable office building to serve
as the Headquarters of the Bank and provide such other facilities as required for its operation free of charge.

27. SEGMENT INFORMATION

For the year ended December 31, 2018, the Bank has a single reportable segment and evaluates the financial performance of the
Bank as a whole.

28. UNCONSOLIDATED STRUCTURED ENTITY

The Board of Governors approved the establishment of the NDB Project Preparation Fund (PPF) on January 20, 2017. The PPF,
established and administered by the Bank based on Article 3 of the Agreement, is an unconsolidated structured entity for accounting
purposes. The objective of the PPF is to help NDB achieve its purpose of promoting infrastructure and sustainable development by
supporting the preparation of bankable projects to facilitate borrowing member countries to raise funds for such projects from NDB and
other financial institutions. The Bank is entrusted with the administration of the PPF to fulfil its purpose. The PPF does not expose the
Bank to any loss, nor does it generate significant variable interest to the extent that consolidation is required. Accordingly, the PPF is an
unconsolidated structured entity for accounting purposes.

New Development Bank | Annual Report 2018 99

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

28. UNCONSOLIDATED STRUCTURED ENTITY – continued

Consistent with Article 18c of the Agreement, the ordinary capital resources of the Bank and the resources of the PPF shall at all times
and in all respects be held, used, committed, invested or otherwise disposed of entirely separate from each other. The PPF will be open
to contributions from all its member countries. Non-member countries and international organisations/funds may also contribute to
the PPF with the Board of Director’s approval authorised by the Board of Governors.

As at December 31, 2018, the PPF had received contributions amounting to USD 6.5 million (December 31, 2017: USD 4.5 million).
The Bank has not earned any income from PPF for the year ended December 31, 2018.

29. RECLASSIFICATION OF COMPARATIVE FIGURES

As at December 31, 2017, USD 33.2 million accrued interest on deposits due from bank and USD 140,000 accrued interest on loans and
advances were included in Other assets. The Bank reclassified the accrued interest included in Other assets, to Due from banks other
than cash and cash equivalents and Loans and advances. As a result, the comparative figures of these line items have been amended
in the Statement of Financial Position as at December 31, 2018 and the Statement of Cash Flows for the year ended December 31, 2018.

For the year ended December 31, 2018, the Bank has presented interest expense and interest paid separately in the net cash used in
operating activities in the Statement of Cash Flows. As a result, the comparative figures of these line items have also been amended
in the Statement of Cash Flows for the year ended December 31, 2018.

These reclassifications do not have a material effect on the information in the Bank’s Statement of Financial Position and Statement
of Cash Flows.

100 New Development Bank | Annual Report 2018

 Annual financial statements
29. RECLASSIFICATION OF COMPARATIVE FIGURES – continued
The items were reclassified as follows:

Statement of Financial Position

Previously reported After reclassification

As at December 31, 2017 As at December 31, 2017
USD’000 USD’000

Due from banks other than cash and cash equivalents 3,212,404 3,245,623
Loans and advances 23,857 23,997
Other assets 34,001 642
3,270,262 3,270,262

Statement of Cash Flows

Previously reported After reclassification

As at December 31, 2017 As at December 31, 2017
USD’000 USD’000

Interest expense 420

14,020

Operating cash flows before changes in operating assets and liabilities 36,642 50,242

Net increase in due from banks other than cash and cash equivalents (927,510) (941,526)

Net increase in loans and advances (22,789) (22,929)

Net increase in other assets (14,554) (398)

Interest paid – (13,600)

New Development Bank | Annual Report 2018 101

 Notes to the Annual Financial Statements
FOR THE YEAR ENDED DECEMBER 31, 2018

30. SUBSEQUENT EVENTS

On January 3, 2019, USD 300 million of paid-in capital relating to the 4th instalment was received from India.

On October 5, 2018, a loan agreement for USD 350 million was signed with India to finance the Madhya Pradesh Major District Roads
II Project. This agreement became effective on January 17, 2019.

On October 5, 2018, a loan agreement for USD 175 million was signed with India to finance the Madhya Pradesh Bridges Project.
This agreement became effective on January 17, 2019.

On January 21, 2019, a loan agreement for USD 300 million was signed with SIBUR Holding to finance general purpose infrastructure
at the integrated petrochemical complex in Western-Siberian. This agreement became effective on January 21, 2019.

On November 20, 2018, a loan agreement for USD 350 million was signed with India to finance the Bihar Rural Roads Project.
This agreement became effective on January 22, 2019.

On February 20, 2019, USD 9 million of paid-in capital was received from South Africa relating to the 4th instalment.

On August 20, 2018, a loan agreement for USD 470 million was signed with India to finance the Madhya Pradesh Multi Village
Rural Water Supply Project. This agreement became effective on February 21, 2019.

On February 22, 2019, the Bank issued a RMB 3 billion bond consisting of two tranches:

–– RMB 2 billion for a 3-year tenor with an annual fixed coupon rate of 3.0%; and
–– RMB 1 billion for a 5-year tenor with an annual fixed coupon rate of 3.3%.

On March 15, 2019, a loan agreement for USD 300 million was signed with Development Bank of Southern Africa Limited to finance
greenhouse gas emissions reduction and the energy sector development project. This agreement became effective on March 15, 2019.

31. APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The annual financial statements were approved by the Board of Governors and authorised for issuance on April 1, 2019.

102 New Development Bank | Annual Report 2018

 Annual financial statements
Financial statements
PPF: FOR THE YEAR ENDED DECEMBER 31, 2018

104 Independent auditor’s report

106 Statement of profit or loss and other
comprehensive income
107 Statement of financial position
108 Statement of changes in equity
109 Statement of cash flows
110 Notes to the annual financial statements

New Development Bank | Annual Report 2018 103

 Financial Statements Independent Auditor’s Report
PPF: FOR THE YEAR ENDED DECEMBER 31, 2018

TO THE BOARD OF GOVERNORS OF THE NEW DEVELOPMENT

RESPONSIBILITY FOR EXTERNAL FINANCIAL REPORTING BANK PROJECT PREPARATION FUND

Senior Management’s Responsibility Opinion

NDB’s Senior Management is responsible for the preparation, We have audited the financial statements of the New
integrity and fair presentation of the annual financial Development Bank Project Preparation Fund (the “PPF”),
statements and all other information presented in the 2018 which comprise the statement of financial position as at
Annual Report. The financial statements have been prepared December 31, 2018 and the statement of profit or loss and
in accordance with International Financial Reporting Standards other comprehensive income, statement of changes in equity
(IFRS) issued by the International Accounting Standards Board and statement of cash flows for the period from January 20,
(IASB) and in accordance with the accounting policies of NDB. 2017 (the establishment date of the PPF) to December 31, 2018
The financial statements have been audited by independent and notes to the financial statements, including a summary of
external auditors. Senior Management believes that all significant accounting policies.
representations made to the independent external auditors
during their audit were valid and appropriate. In our opinion, the financial statements give a true and fair view
of the financial position of the PPF as at December 31, 2018 and
Senior Management is responsible for establishing and of its financial performance and its cash flows for the period
maintaining effective internal control over external financial from January 20, 2017 (the establishment date of the PPF) to
reporting for financial presentations, in conformity with IFRS. December 31, 2018 in accordance with International Financial
The ARC Committee, which assists the BoD in its responsibility Reporting Standards (“IFRSs”).
to ensure the soundness of the Bank’s accounting policies,
guidelines, practices and effective implementation of internal Basis for Opinion
controls. The external auditor and the internal auditor meet
We conducted our audit in accordance with International
regularly with the ARC Committee, with and without other
Standards on Auditing (“ISAs”). Our responsibilities under
members of Senior Management being present, to discuss
those standards are further described in the Auditor’s
the adequacy of internal controls over financial reporting and
Responsibilities for the Audit of the Financial Statements
any other matters which they believe should be brought to the
section of our report. We are independent of the PPF in
attention of the ARC Committee.
accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (the
The external auditors have provided an audit opinion on the
“Code”), and we have fulfilled our other ethical responsibilities
fair presentation of the annual financial statements presented
in accordance with the Code. We believe that the audit evidence
within this Annual Report set out on page 104 and 105.
we have obtained is sufficient and appropriate to provide a
basis for our opinion.

Responsibilities of Management and the Board of Directors

for the Financial Statements
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with
IFRSs, and for such internal control as the management
determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.

104 New Development Bank | Annual Report 2018

 Annual financial statements
Independent Auditor’s Report

In preparing the financial statements, the management is – Obtain an understanding of internal control relevant to the
responsible for assessing the PPF’s ability to continue as a audit in order to design audit procedures that are appropriate
going concern, disclosing, as applicable, matters related to in the circumstances, but not for the purpose of expressing
going concern and using the going concern basis of accounting an opinion on the effectiveness of the PPF’s internal control.
unless the management either intends to liquidate the PPF or to
cease operations, or have no realistic alternative but to do so. – Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
The Board of Directors is responsible for overseeing the PPF’s disclosures made by the management.
financial reporting process.
– Conclude on the appropriateness of the management’s use
Auditor’s Responsibility for the Audit of the of the going concern basis of accounting and, based on the
Financial Statements audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt
Our objectives are to obtain reasonable assurance about
on the PPF’s ability to continue as a going concern. If we
whether the financial statements as a whole are free from
conclude that a material uncertainty exists, we are required to
material misstatement, whether due to fraud or error and to
draw attention in our auditor’s report to the related disclosures
issue an auditor’s report that includes our opinion solely to you,
in the financial statements or, if such disclosures are inadequate,
as a body, in accordance with our agreed terms of engagement
to modify our opinion. Our conclusions are based on the audit
and for no other purpose. We do not assume responsibility
evidence obtained up to the date of our auditor’s report.
towards or accept liability to any other person for the contents
However, future events or conditions may cause the PPF to
of this report. Reasonable assurance is a high level of assurance,
cease to continue as a going concern.
but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it
– Evaluate the overall presentation, structure and content
exists. Misstatements can arise from fraud or error and are
of the financial statements, including the disclosures and
considered material if, individually or in the aggregate, they could
whether the financial statements represent the underlying
reasonably be expected to influence the economic decisions of
transactions and events in a manner that achieves fair
users taken on the basis of these financial statements.
presentation.
As part of an audit in accordance with ISAs, we exercise We communicate with the Board of Governors of the Bank
professional judgement and maintain professional scepticism regarding, among other matters, the planned scope and
throughout the audit. We also: timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
– Identify and assess the risks of material misstatement of the during our audit.
financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks and
obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a Deloitte Touche Tohmatsu
material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, Certified Public Accountants LLP
forgery, intentional omissions, misrepresentations, or the Shanghai, PRC
override of internal control.
April 1, 2019

New Development Bank | Annual Report 2018 105

 Statement of Profit or Loss
and other Comprehensive Income
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

From January 20, 2017

Expressed in thousands of USD Notes to December 31, 2018

Interest income 6 119

Operating expenses 7 (30)

Profit for the period 89

Total comprehensive income for the year 89

106 New Development Bank | Annual Report 2018

 Annual financial statements
Statement of Financial Position
AS AT DECEMBER 31, 2018

Expressed in thousands of USD Notes As at December 31, 2018

Assets
Cash and cash equivalents 8 6,619
Total assets 6,619

Liabilities
Other liabilities 30
Total liabilities 30

Equity
Contribution 9 6,500
Retained earnings 89
Total equity 6,589

Total equity and liabilities 6,619

The financial statements on pages 106 to 117 were approved and authorised for issuance by the Board of Governors on April 1,
2019 and signed on their behalf by:

PRESIDENT CHIEF FINANCIAL OFFICER

New Development Bank | Annual Report 2018 107

 Statement of Changes in Equity
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

Expressed in thousands of USD Note Contributions Retained earnings Total

As at January 20, 2017 – – –

Profit for the period – 89 89

Total comprehensive income for the year – 89 89

Contribution 9
6,500 – 6,500

As at December 31, 2018 6,500 89 6,589

108 New Development Bank | Annual Report 2018

 Annual financial statements
Statement of Cash Flows
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

From January 20, 2017

Expressed in thousands of USD to December 31, 2018

Operating activities
Profit for the period 89
Operating cash flows before changes in operating assets and liabilities 89
Net increase in other liabilities 30

Net cash used in operating activities 119

Financing activities
Contributions received
6,500

Net cash from financing activities

6,500

Net increase in cash and cash equivalents 6,619

Cash and cash equivalents at the beginning of the period –

Cash and cash equivalents at the end of the period

6,619

New Development Bank | Annual Report 2018 109

 Notes to the Financial Statements
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

1. GENERAL INFORMATION
The Board of Governors of the New Development Bank (NDB or the Bank) approved the establishment of NDB Project Preparation
Fund (PPF) on January 20, 2017 in accordance with Article 23a of the Agreement on the New Development Bank (Agreement).

The PPF is established as a multi-donor fund which is open to contributions by all the Bank’s members (Contributors). The objective of
the PPF is to help NDB achieve its purpose of promoting infrastructure and sustainable development by supporting the preparation of
bankable projects to facilitate borrowing member countries to raise funds for such projects from NDB and other financial institutions.
As stipulated in Article 18c of the Agreement, the ordinary capital resources and the PPF resources of the Bank shall be held, used,
committed, invested, or otherwise disposed of entirely separate from each other.

On September 4, 2017, the Bank signed a contribution agreement with the People’s Republic of China (China) in respect of the
commitment and contribution from China for USD 4,000,000. The Bank also signed a contribution agreement with the Ministry of
Finance of the Russian Federation (Russia) on October 15, 2017 for USD 1,500,000 which will be received in 3 instalments. On April 19,
2018, the Bank signed a contribution agreement with the Republic of India (India), for USD 1,500,000 which was paid in one instalment.

As of December 31, 2018, contributions of USD 4,000,000 and USD 1,500,000 were received from China and India respectively and the
first and second instalments, totalling USD 1,000,000 were received from Russia.

2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the financial statements, the PPF has applied International Accounting
Standards (IASs), International Financial Reporting Standards (IFRSs), amendments and the related Interpretations (IFRICs)
(herein collectively referred to as the IFRSs) issued by the International Accounting Standards Board (IASB) which are effective
for the accounting period from January 20, 2017 to December 31, 2018.

The PPF has applied the following IFRIC in accordance with IFRSs which are relevant to it for the first time in the current period:

The PPF has elected to early adopt the following new IFRSs since January 20, 2017 that have been issued by the IASB but not
yet effective:

IFRSs
IFRS 9 Financial Instruments1
IFRS 15 Revenue from Contracts with Customers1
1 Effective for annual periods beginning on or after 1 January, 2018

The PPF has not early adopted the following new or revised IFRSs that have been issued but not yet become effective:

IFRSs
IFRS 16 Leases1
Amendments to IFRS 9 Prepayment Features with Negative Compensation1
1 Effective for annual periods beginning on or after 1 January, 2019.

The PPF anticipates that the application of these new or revised IFRSs is unlikely to have a significant impact on the PPF’s
financial statements.

110 New Development Bank | Annual Report 2018

 Annual financial statements
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION
BASIS OF PREPARATION
The financial statements from January 20, 2017 to December 31, 2018 have been prepared on the historical cost basis in accordance
with the accounting policies set out below which, are in conformity with IFRSs.

Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the PPF takes into account the characteristics of the asset or liability,
if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

Analysis of fair value disclosures uses a hierarchy that reflects the significant inputs used in measuring the fair value. The level in
the fair value hierarchy within which a Fair Value Through Profit and Loss (FVTPL) measurement is classified is determined on the
basis of the lowest level input that is significant to the fair value measurement. The fair value hierarchy is as below.

– Level 1: Quoted prices in active markets for the financial assets or the liabilities that the PPF can access at the measurement date.
– Level 2: Inputs, other than the quoted prices, within Level 1 that are observable in the market and published by reputable agencies
like Bloomberg and Reuters. These inputs are used, for arriving at the fair value of the assets or the liabilities.
– Level 3: Inputs for the financial asset or liability that are not based on the observable market data.

The preparation of the financial statements, in conformity with IFRSs, requires the use of certain accounting estimates. This requires
management to exercise its judgement in preparing the financial statements.

The principal accounting policies adopted are set out below and have been applied consistently to the period presented.

REVENUE
INTEREST INCOME
Interest income is recognised in profit or loss for interest-bearing financial assets using the effective interest rate method, on the
accrual basis.

The effective interest rate method is a method of calculating the amortised cost of a financial asset (including a group of financial
assets) and of allocating the interest income or interest expense over the relevant periods. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts over the expected life of the financial asset to the gross carrying amount
of a financial asset. When calculating the effective interest rate, the PPF estimates cash flows considering all contractual terms of the
financial instrument (but does not consider future credit losses). The calculation includes all fees paid or received between parties
to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

New Development Bank | Annual Report 2018 111

 Notes to the Financial Statements
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued

FINANCIAL INSTRUMENTS
INITIAL RECOGNITION AND MEASUREMENT
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity. The PPF’s financial instruments currently only consist of cash and cash equivalents.

Financial assets and financial liabilities are recognised in the statement of financial position when the PPF becomes a party to the
contractual provisions of the instrument.

Recognised financial assets and financial liabilities measured at FVTPL are initially measured at fair value. Transaction costs directly
attributable to the acquisition of financial assets or issue of financial liabilities at FVTPL are recognised immediately in profit or loss.
All other financial assets and financial liabilities are recognised initially at fair value plus or minus transaction costs directly attributable
to the acquisition of financial assets or the issue of financial liabilities.

CLASSIFICATION OF FINANCIAL INSTRUMENTS

FINANCIAL ASSETS
The PPF classifies its financial assets under IFRS 9, into the following measurement categories:

– Financial assets at FVTPL;

– Financial assets measured at amortised cost; and
– Financial assets measured at Fair Value Through Other Comprehensive Income (FVTOCI).

The classification depends on the PPF’s business model for managing financial assets and the contractual cash flow
characteristics of the financial assets.

Financial assets at FVTPL

A financial asset shall be measured at fair value through profit or loss unless it is measured at amortised cost or at FVTOCI. Upon
initial recognition, financial instruments may be designated as FVTPL. A financial asset may only be designated at FVTPL if doing
so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that
would otherwise arise from measuring financial assets or liabilities on a different basis.

Financial assets measured at amortised cost

The PPF classifies a financial asset at amortised cost when the following conditions have been met:

– The financial asset is held within a business model whose objective is to hold the financial asset in order to collect contractual
cash flows; and

– The contractual terms of the financial asset gives rise to cash flows on specified dates that are solely payments of principal
and interest (SPPI) on the principal amount outstanding.

112 New Development Bank | Annual Report 2018

 Annual financial statements
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued
FINANCIAL INSTRUMENTS – continued
INITIAL RECOGNITION AND MEASUREMENT – continued

Financial assets measured at FVTOCI

The PPF classifies a financial asset at FVTOCI if it is held within a business model whose objective is both to hold the financial
asset to collect contractual cash flows and to sell the financial asset and the contractual terms of the financial asset gives rise
to cash flows on specified dates that are SPPI.

FINANCIAL LIABILITIES AND EQUITY

A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial
liabilities with another entity under conditions that are potentially unfavourable to the PPF or a contract that will or may be settled
in the PPF’s own equity instruments and is a non-derivative contract for which the PPF is or may be obliged to deliver a variable
number of its own equity instruments, or a derivative contract over the PPF’s own equity that will or may be settled other than by
the exchange of a fixed amount of cash (or another financial asset) for a fixed number of the PPF’s own equity instruments.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the PPF are recognised at the proceeds received, net of direct issue costs.

The PPF’s financial liabilities are measured at amortised cost, using the effective interest method.

The PPF recognises contributions as equity on the basis that the contribution agreement does not include a contractual obligation
to pay cash or another financial asset and there are no other features that would meet the definition of a financial liability.

IMPAIRMENT
IFRS 9 requires recognition of Expected Credit Losses (ECL) on the financial assets accounted for at amortised cost, FVTOCI and certain
unrecognised financial instruments such as loan commitments. ECL of a financial instrument should be measured in a way that reflects:

– An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
– The time value of money; and
– Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic conditions.

The PPF applies a three-stage approach to measuring ECL on financial assets accounted for at amortised cost. Financial assets
migrate through the following three stages based on the change in credit quality since initial recognition:

New Development Bank | Annual Report 2018 113

 Notes to the Financial Statements
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION – continued

FINANCIAL INSTRUMENTS – continued
IMPAIRMENT – continued

i) Stage 1: 12-month ECL

For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit impaired
upon origination, the portion of the lifetime ECL associated with the probability of default events, occurring within the next 12 months,
is recognised.

ii) Stage 2: Lifetime ECL – not credit impaired

For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit impaired,
a lifetime ECL is recognised.

iii) Stage 3: Lifetime ECL – credit impaired

A financial asset is credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of
that financial asset have occurred. For financial assets that are credit impaired, a lifetime ECL is recognised and interest revenue
is calculated by applying the effective interest rate to the amortised cost rather than the gross carrying amount. The PPF identifies
financial assets as being credit impaired when one or more events that could have a detrimental impact on future cash flows of the
financial asset have occurred.

More details about credit risk analysis are provided in Note 4.

DERECOGNITION OF FINANCIAL INSTRUMENTS

The PPF derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers
its rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards
of ownership are transferred. The PPF derecognises a financial asset if substantially all the risks and rewards have either been
transferred or if control is not retained. The PPF derecognises financial liabilities when the PPF’s obligations are discharged, cancelled
or expires. The difference between the carrying amount of the financial instruments derecognised and the consideration paid and
payable is recognised in profit or loss.

CASH AND CASH EQUIVALENTS

Cash comprises deposits that can be readily withdrawn on demand. Cash equivalents are the PPF’s short-term, highly liquid
investments that are readily convertible to known amounts of cash within three months and are not subject to a significant risk
of change in value.

114 New Development Bank | Annual Report 2018

 Annual financial statements
4. FINANCIAL RISK MANAGEMENT
OVERVIEW
The PPF follows the risk management policies of the Bank. The Bank has established various risk management policies approved
by the Board of Directors in line with its Agreement, which are designed to identify and analyse risks of particular categories and
to set up appropriate risk limits and controls. The Board of Directors set out the risk management strategy and the risk tolerance
level in different risk management policies.

The PPF is set up to assist the development needs of a project to reach a bankable status in a co-ordinated, targeted and cost-
effective manner, rather than to generate a return on its assets. The PPF was not exposed to many financial risks with the exception
of credit risk and interest rate risk associated with the financial institutions with which it deposited its cash resources for the period
from January 20, 2017 to December 31, 2018. The impact of a change in interest rates during the reporting period is not considered
significant by management.

CREDIT RISK
The PPF takes on exposure to credit risk, which is a risk that one counterparty to a financial instrument will cause financial loss to
the other party by failing to discharge an obligation. The PPF placed its cash equivalents with highly rated banks (senior investment
grade credit ratings) in mainland China. There has been no significant increase in credit risk since initial recognition associated with
the amounts due from banks up to December 31, 2018. All the financial instruments of the PPF as of December 31, 2018 are measured
at amortised cost.

5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value of the PPF’s financial instruments that are not measured at fair value on a recurring basis
The PPF considered that the carrying amounts of financial assets and financial liabilities measured at amortised cost, in the PPF’s
statements of financial position, approximate their fair values.

6. NET INTEREST INCOME

For the period from January 20, 2017 to December 31, 2018
USD’000

Interest income from banks 119

Total interest income 119

New Development Bank | Annual Report 2018 115

 Notes to the Financial Statements
FOR THE PERIOD FROM JANUARY 20, 2017 TO DECEMBER 31, 2018

7. OPERATING EXPENSES

For the period from January 20, 2017 to December 31, 2018
USD’000

Auditors remuneration 28
Other expenses 2
Total 30

8. CASH AND CASH EQUIVALENTS

As at December 31, 2018

USD’000

Deman deposit 218

Time deposit with original maturity within three months 6,401
Total 6,619

9. CONTRIBUTIONS

Contribution Contribution
Committed Received
As at December 31, 2018 USD’000 USD’000

China 4,000 4,000

India 1,500 1,000
Russia 1,500 1,500
Total 7,000 6,500

116 New Development Bank | Annual Report 2018

 Annual financial statements
10. RELATED PARTY DISCLOSURES
The PPF’s related parties are the Bank and the Contributors.

Please refer to Note 9 for the contributions received from the Contributors as of December 31, 2018.

11. SUBSEQUENT EVENTS

Up to the date of the financial statements, there has been no material subsequent events since the reporting date that would
require additional disclosure or adjustment to the financial statements.

12. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Board of Governors of the Bank and authorised for issuance on April 1, 2019.

New Development Bank | Annual Report 2018 117

 List of Acronyms and Definitions

ACRONYM/DEFINED TERM DEFINITION

AoA or Agreement Articles of Agreement

ADB Asian Development Bank
AIIB Asian Infrastructure Investment Bank
ARC Africa Regional Centre
ARC Committee Audit, Risk and Compliance Committee
ARO Americas Regional Offices
BHRC Committee Budget, Human Resources and Compensation Committee
BNDES Banco Nacional de Desenvolvimento Econômico e Social
BoD Board of Directors
BoG Board of Governors
BRICS Brazil, Russia, India, China and South Africa
CEO Chief Executive Officer
CIC Credit and Investment Committee
CMF Capital Management Framework
CO2 Carbon dioxide
DBSA Development Bank of Southern Africa
EAD Exposure at Default
ECL Expected Credit Loss
EMDC Emerging Markets and Developing Countries
ESF Environmental and Social Framework
FAO Food and Agriculture Organization of the United Nations
FDI Foreign Direct Investment
FVTOCI Fair Value Through Other Comprehensive Incom
FVTPL Fair Value through Profit and Loss
G20 Informal group of 19 countries and the European Union, with representatives of the IMF
and the World Bank
GDP Gross Domestic Product
GI Global Infrastructure
Green Bond The People’s Bank of China Announcement No. 39 (2015); Preparation Instructions on Green
Project Requirements Bond Endorsed Project Catalogue (2015 Edition)
GW Gigawatts
IAS International Accounting Standards
IASB International Accounting Standards Board
IBRD International Bank for Reconstruction and Development

118 New Development Bank | Annual Report 2018

ACRONYM/DEFINED TERM DEFINITION

IDB Inter-American Development Bank

IFC International Finance Corporation
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
IMF International Monetary Fund
ISA International Standards on Auditing
ISDA International Swaps and Derivatives Association
km Kilometre
KMP Key Management Personnel
kWh Kilowatt hours
LEED Leadership in Energy and Environmental Design
LGD Loss Given Default
MCA Master Co-operation Agreement
MDB Multilateral Development Bank
MoF Ministry of Finance
MoU Memorandum of Understanding
MW Megawatts
NDB or Bank New Development Bank
NGO Non-Governmental Organisations
NII Net Interest Income
NPV Net Present Value
PD Probability of Default
PML Prudential Minimum Level of Liquidity
PPF Project Preparation Fund
PPP Purchasing Power Parity
PRP Post Retirement Plan
RMB Renminbi
RUB Russian Ruble
RSFSR Russian Soviet Federative Socialist Republic
Senior Management President and Vice Presidents
SDG Sustainable Development Goals
SPPI Solely Payments of Principal and Interest
SRP Staff Retirement Plan

New Development Bank | Annual Report 2018 119

 List of Acronyms and Definitions

ACRONYM/DEFINED TERM DEFINITION

S&P Standard and Poors

SWIFT Society for Worldwide Interbank Financial Telecommunication
TEU Twenty Foot Equivalent Unit
UN United Nations
UNGA United Nations General Assembly
US United States
USD United States Dollar
USSR Union of Soviet Socialist Republics
VP Vice President
WARR Weighted Average Risk Rating
WTG Wind Turbine and Generator
ZAR South African Rand

120 New Development Bank | Annual Report 2018

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