The move aims to revitalise the municipal bond market as well as to allow stronger municipalities to raise their own funds.

Bank CEO and MD Mandla Gantsho says the challenges that faced SA and the region required innovative approaches. The bank sought to achieve this through new products and services, such as the Municipal Collateralised Debt Obligation.

The bank continued to support municipalities in a number of other ways.

Jeanette Nhlapo, acting executive manager of the bank's South African operations, says the focus of the bank's investments remained on public sector clients. Municipalities received 52% of new investment support, compared with 87% in the previous year.

"This shift was in favour of development corporations, utilities and other statutory institutions, indicating a broadening of the delivery base for public sector infrastructure in SA. It also signified the improving access of municipalities to wider sources of funding."

The South African operations cluster of the bank approved new lending of R1,7bn for the financing of infrastructure in SA during the year, bringing the net cumulative investment portfolio to R21,4bn.

The new approvals represented a total investment by the bank and its co-funders of R9,1bn.

Nhlapo says loans that showed problems or were nonperforming were given particular attention. The main institutional and financial problem areas were identified, and mitigation and support programmes were developed to restructure the debt and implement recovery strategies.

In addition, R4,4m was recovered from municipalities and R35m from parastatals that were in default, amounting to a recovery rate of 10,3% of non-performing loans. An agency agreement with the Public Investment Commissioners led to the recovery of a further R2,3m for that institution.

A further intervention by the bank to assist municipalities is the Development Fund. This is a section 21 company incorporated in December 2001 to address sustainable capacity-building at municipal level, and to support municipalities in enhancing service delivery and local economic development.

The fund seeks to be a leading catalyst for capacity-building and to maximise the effect of development finance in SA.

Nhlapo says that with the fund operational in all nine provinces, progress was made in helping local government institutions to build capacity and formulate integrated development plans.

The fund has approved technical support grants to municipalities and provincial departments totalling R86m since its inception, and supported 134 municipalities in the same period.