World Bank Plans to Raise Reserves : Debt: Some new market economies are having trouble serving loans, but lending will increase, the bank said.

The World Bank said Sunday it expects a moderate increase in lending in 1994 to between $24 billion and $27 billion, but riskier loans are requiring it to strengthen its financial safety net.

Upheaval in Eastern Europe and the former Soviet Union, where new lending is concentrated, is causing problems as some nations that are converting to market economies have trouble servicing their debt loads.

To handle this new risk, the World Bank said in its annual report that it plans over the next two years to set aside more money to protect it against losses from bad loans.

It is increasing its ratio of total reserves to loans, which acts as an overall cushion against unexpected losses, to 13% or 14%, from its fiscal 1993 level of 12.8%.

A bank official called this a conservative measure taken to protect bank safety, not a sign of bank problems.

“We are realistic. We are going into uncharted territory and anything could happen,” she said.

Loan demand from the former communist states helped swell World Bank lending last fiscal year ended June 30, to a record $23.7 billion, up from $21.7 billion in fiscal 1992.

Demand will continue to grow this fiscal year, again led by the Eastern European and former Soviet states, World Bank officials said at a news briefing.

Already the World Bank faces a rising number of problem loans from the former Yugoslav republics, several of which are engulfed in civil war.

A halt in their debt repayments in fiscal 1993 required it to increase its provisions against loan losses to 3% of total loans from 2.5% in fiscal 1993 ended June 30.

This set-aside to protect it against possible losses, coupled with a drop in investment earnings as interest rates fell, caused bank net income to fall to $1.13 billion last year from $1.6 billion in fiscal 1991, the bank said.

Total bank loan commitments last fiscal year were $16.9 billion for 122 projects, up from $15.2 billion for 122 projects a year earlier.

Credits through the bank’s International Development Agency to the poorest countries totaled $6.8 billion in fiscal 1993 for 123 projects, up from $6.6 billion for 110 projects in 1992.

Agriculture and rural development, followed by transportation, won the largest loan share, the Bank said.

In another sign of rising demand for services as emerging nations join the agency, the Multilateral Investment Guarantee Agency is about to hit the limit on the amount of private loans to developing countries it can guarantee.

MIGA said it guaranteed 27 contracts worth $374 million in fiscal 1993, up 19.5% from the $313 million guaranteed a year earlier and bringing its total contingent liabilities to $850 million.

“If we continue to grow at the present speed, we will meet our capacity limit of $1.5 billion within this fiscal year,” a MIGA official said at a news briefing.

The agency stimulates investment in developing countries by insuring investors against currency risk, war and state seizure.