Refine the means by which profitability of the GTFP is monitored, analyzed, and reported internally in order to better capture a comprehensive picture of profitability at the program level and to guide future program directions. A clear understanding of the profitability of the GTLP is also warranted.
3. Beyond IFC's corporate profitability assessment procedures, GTFP profitability has not been closely monitored at the program level. Due to the nature of the program as well as the fact that the portfolio is managed regionally instead of centrally, the routine departmental income statements do not present a complete picture of the program's profitability. Close monitoring and analysis of the profitability of the program would help guide future directions of the program. IFC does not have a clear picture of the profitability of the GTLP.
Original Response: Agreed: IFC's Management closely monitors IFC's income, both for current results and projections, every quarter. The investment operations' contribution to IFC profitability is also reported every quarter across regions and industries, of which GTFP projects are a subset. At the IFC aggregate level, discussions largely focus on those drivers which could have a sizeable impact on IFC's realized income, particularly equity revenue driven by market volatility. However, on an annual basis, during IFC's strategy cycle, the GTFP and overall profitability of trade and supply chain products is projected and discussed for impact.
Beginning with FY10, and as part of its focus on enhanced profitability measurement for investment operations, IFC produces annual profitability targets for all regions and industry departments for controllable cash income and cash income - the former not including realized capital gains & corporate overhead. As GTFP investments are owned not by the global product department itself, but by the industry and/or regional departments, all profitability targets assume a GTFP share where applicable, for which revenue and expenses are projected. These targets are revised throughout the course of the fiscal year in the form of latest projections and discussed by Management and operations. Since IFC's profitability is captured at project level, analysis around country, region, sector and other views can and is conducted as part of the operations' oversight of portfolio and profit and loss for current results and future outlook.
IFC agrees that the best approach and methodology for measuring product profitability for internal TSC departmental product management could be assessed beyond what is already in place. Assessment of market and best practices in this regard will continue, as well as the development of individual TSC product profitability assessments as operationally feasible.
IFC Action 8: Perform detailed profitability analysis of GTFP
Indicator: Inclusion of Profitability key driver metrics in GTFP's dashboard
Target: Monthly dashboard inclusion
Timeline: 1Q15
In the absence of the information from IFC, IEG keeps the rating on Implementation Progress as High and Implementation Status as Active (Rated). IEG in its 2015 Update acknowledged that GTFP's profitability is available on IFC's dashboard. Therefore, based on this evidence IEG upgraded the Implementation Progress of this recommendation to High.
However, IEG in its 2015 update requested IFC to provide concrete evidence on pricing by taking a real-time GTFP transaction (blocking out the country name and client name for confidentiality purposes) and clearly provide an explanation of how GTFP is determining the price of a transaction. This information has not been provided by IFC, therefore, there is no change in the rating for Implementation Progress and Implementation Status.
In the absence of information from the Management, IEG keeps the rating on Implementation Progress as High and Implementation Status as Active (Rated). IEG in its 2015 Update acknowledged that GTFP's profitability is available on IFC's dashboard and therefore, based on this evidence upgraded Implementation Progress to High. However, IEG in its 2015 Update requested the Management to provide more concrete evidence by taking a real-time GTFP transaction (blocking out the Country Name and Client Name for confidentiality purposes) and clearly explain how GTFP is determining the price of a transaction. This information has not been provided by the Management, therefore, there is no change in the rating for Implementation Progress and Implementation Status.
Based on the evidence that GTFPâs profitable is available on IFCâs dashboard (see attachment below), IEG rates this recommendation as "High". However, as mentioned under Action 5 (Recommendation 1), Management needs to provide IEG with more concrete evidence by taking a real-time GTFP transaction (blocking out the country name and client name for confidentiality purposes) and clearly explain how GTFP is determining the price of a transaction.
Action 8. As indicated in 2014, the team has conducted confidential investigational interviews with global bank leaders regarding the components of their profitability, which drives RAROC calculations and the levels of organizational structure responsible for each component. The team has had extensive conversations with IFC's [CIR] Risk department regarding capital allocation methodologies and assumptions regarding capital allocation for trade finance. The team has researched the history of RAROC calculations and capital allocation at IFC via review of board papers regarding capital treatment and RAROC for trade finance at IFC. The team has completed a historic profitability assessment of GTFP, including detailed findings of drivers and cost allocation methodologies to IFC's Senior Management, including our CEO in October 2013. (as samples provided to IEG last year) The team has since modelled GTFP's key profitability drivers in detail, gaining an understanding of the key levers which may or may not be feasible in each region/market, depending on market conditions and showing the theoretical impact of changes in those drivers. The team currently projects FY15 for GTFP down to the RAROC level, updating the model monthly as actuals come in and market conditions change. The team also performs a separate quarterly analysis of GTFP's profitability for IFC's Financial Institution Group's quarterly management team meeting. GTFP operations are already orienting towards targeting RAROC at this point, and models and discussions support this. Sample presentations were provided last summer. Available again upon request.
IFC has provided substantial evidence (refer to Trade & Supply Cahin Solutions Department: Profitability Review of CRC, June 2014) in performing a detailed profitability analysis of GTFP.
In progress to be completed by 2Q15.