World Bank May Increase Reserves for Loan Losses

Recognizing that a growing number of poor countries are seriously behind on loan payments, the World Bank said Friday that its board is expected to increase provisions for loan losses to $500 million from the current $100 million.

The addition would reflect a change in the development institution’s policy to add to loan-loss reserves when a country is six months in arrears, rather than wait two years as is the current practice.

The measure, which bank sources said did not reflect a tougher policy on lending to developing countries, is in response to a small but increasing backlog of delayed repayments, which now total more than $740 million.

In an unrelated development, the bank said it was lowering the interest rate that it charges on loans to 7.59% from 7.72%.

The reduction chiefly reflects cost savings resulting from the refinancing of the agency’s market borrowings, the bank said. The bank changes its rate every six months, charging borrowers half a percentage point more than the cost of the money it borrows itself.