The slow and uneven vaccine rollout, even in some advanced economies, and its very limited availability in the LICs are matters of serious concern. Enabling global access to effective and affordable vaccines is a global responsibility, and an ethical and moral issue. We support the Managing Director’s Global Policy Agenda (GPA) and its wellplaced focus on creating conditions for a safe exit from the crisis followed by a sustained, strong and inclusive global economic recovery. We welcome the GPA’s recognition of difficult challenges facing many developing countries in pursuing their development and social objectives, while facing severe financing constraint and high debt. We further welcome the increasing IMF emphasis on middleincome countries as many face stalled growth and large financing needs in tighter market conditions. Our constituency is a heterogeneous group of countries and a mix of fragile and conflict-affected states, middle-income and frontier economies, and oil exporting countries. The crisis has severely impacted all countries of our constituency. Our authorities reacted swiftly to the crisis and implemented measures to alleviate its impact on lives and livelihoods, with some of our members benefitting from Fund emergency and/or Upper Credit Tranche (UCT) facilities. The economic recovery is gradually taking shape in our constituency, but at varying pace and degrees. The rebound of international oil prices provided welcome relief to oil exporters in our constituency, but financing pressures continue to persist, and economic diversification challenges remain.
Trading business mainly consists of purchasing and selling securities on behalf of clients or for the bank’s own account. The current low interest rate environment can affect these three pillars in different ways. On the one hand, lower interest rates could plausibly benefit commission and trading business. Customers might be inclined to shift their portfolios into riskier investments, which would be conducive to earnings in these business areas. At the same time, a decline in interest rates leads to one-off valuation gains on securities in the balance sheet. On the other hand, it is likely that exceptionally low interest rates negatively impact banks’ interest rate margins. Put simply, the interest rate margin is the difference between banks’ interest income and interest expense, shown as a percentage of banks’ assets. To better understand the relationship between the interest rate level and interest rate margin, it is worth looking at the composition of the latter. The interest rate margin can be divided into three components, namely the asset, structural and liability margins (slide 4). The asset margin is the difference between the interest rate charged on loans and a market interest rate of equal maturity. The liability margin is the difference between a short-term market interest rate and the interest paid on deposits and other sources of financing. And finally, the structural margin is the difference between longer and short-term market interest rates – essentially the compensation the bank receives for maturity transformation.