European Investment Bank

HC Deb 31 March 1977 vol 929 cc235-7W

Mr. Hooley

asked the Chancellor of the Exchequer if he will press for loans from the European Investment Bank to be denominated in sterling.

Mr. Denzil Davies

The policy of the European Investment Bank, which operates on a non-profit-making basis, is to make its loans at the lowest possible rate of interest. It therefore aims to raise the funds it needs to finance its operations on the international capital markets in the currencies which give it the best possible terms. To safeguard the position of the Bank, it is therefore necessary for its loans to borrowers to be made in currencies which adequately reflect the sources of the Bank's borowing; and the borrowers' indebtedness to the Bank is in terms of the currencies and amounts actually lent to them. In the case of United Kingdom borrowers loans generally include an element of sterling.

Mr. Hooley

asked the Chancellor of the Exchequer what is the nominal timescale term of replayment of loans for regional development from the European Investment Bank; and what steps are being taken to extend the life of such loans.

Mr. Denzil Davies

The duration of the European Investment Bank's loans—whether for regional development or for other purposes—depends on the type of project and the normal depreciation period for the equipment concerned, as well as on the conditions prevailing on the capital markets where the Bank raises its funds. The term is normally between seven and 12 years, but under favourable market conditions it has been as much as 20 years for certain infrastructure projects.

So far as I am aware there is no general evidence to suggest that the repayment term of the bank's loans acts as a deterrent to the use of such loans for regional development.

Mr. Hooley

asked the Chancellor of the Exchequer what measures are taken to guard against adverse movements in exchange rates when loans are approved from the European Investment Bank for regional development projects.

Mr. Denzil Davies

Most of the European Investment Bank's loans for regional development projects in the United Kingdom have been made to public sector bodies, which are able to take advantage of the official exchange cover scheme to cover the exchange risks on that portion of the bank's loans which is made in foreign currencies. Private sector borrowers make their own pudgment of the advantages of borrowing from the bank, taking the exchange risk into account.