30510 - BNB Bhutan

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Summary of Investment Information

Project Number

30510

Company Name

BHUTAN NATIONAL BANK

Date SPI Disclosed

Nov 20, 2012

Country

Bhutan

Region

South Asia

Projected Board Date

Dec 20, 2012

Environmental Category

FI-1 - Significant

Status

Completed

Last Updated Date

Sep 28, 2025

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 20, 2012
Signed : Dec 31, 2012
Invested : Dec 31, 2012

Sector

Commercial Banking - General

Project Description

The Project comprises an equity investment of up to 20% in Bhutan National Bank (“BNB” or the “Bank”). The Bank was established in 1996 by the Government of Bhutan as the second commercial bank in the country, to promote growth and competition in the financial sector. BNB is currently the largest of Bhutan’s five banks in terms of credit market share. As of September 30, 2012, BNB had assets of US$442 million, outstanding portfolio of US$ 306 million, and capital fund of US$82 million.

The proposed project will be IFC’s first equity investment in Bhutan. The proposed investment is strongly aligned with IFC’s South Asia regional strategy, as it involves expanding outreach and financial inclusion as well as promoting sustainable and competitive private sector development in a frontier market in South Asia. Through this investment, IFC will provide BNB with access to international best practices in operational areas and help the Bank develop a more robust and scalable business model. In parallel, IFC is also proposing an Advisory Services engagement to build the Bank’s capacities in risk management, strategy and business planning for the micro, small and medium enterprise (MSME) sector, as well as IT business integration and MIS strategy.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	28.93

Development Impact

(i) Access to finance: increasing access to finance in Bhutan, a frontier market, by enabling BNB to expand and enhance lending to an underbanked largely rural population.
(ii) Best practices and implementation of strategy: as a shareholder, IFC will provide BNB with access to international best practices in the areas of IT, risk management, SEMS and governance, and help the Bank implement its new growth strategy and expand into new underserved market segments, not only benefiting Bhutan''s society, but also allowing the Bank to attain higher profitability.
(iii) Demonstration effect: as new commercial banks enter the market, BNB can prove to be an example of both success and public impact. The guidelines and norms that IFC will introduce can serve as an important precedent in the newly developing financial market and can strengthen the country''s investment climate. Further, IFC''s investment is expected to provide a stamp of approval and increase the interest of other foreign investors to invest in Bhutan.
(iv) Strengthening the Bhutanese banking sector. Stronger equity capital footings of a key player such as BNB will help to reduce systemic risk, and enable BNB to play a strong role in increasing and improving financial intermediation in BNB and promoting the competitiveness of the banking sector.

(i) IFC will strengthen a systemic bank in an IDA country by providing needed long-term capital.
(ii) IFC will support institutional transformation of the Bank by transferring know-how and expertise in corporate governance and risk management, through a new Advisory Services program (IFC has already completed one Advisory Services program with the Bank) as well as through representation on the Bank''s Board of Directors.
(iii) Since specialized services to micro enterprises and SMEs are practically non-existent in the country, IFC will also be able to help the Bank develop products to serve these segments; and
(iv) IFC will facilitate further reduction of effective government ownership in the Bank, thereby supporting the transition of Bhutan''s banking system to majority private sector participation.

E&S Category Rationale / Risks and Mitigation

This is Category FI (processed under old framework as the PDS c was approved in February 2011).

The lending portfolio of the bank comprises project finance, SME /corporate working capital, mortgage and housing finance. Some of the large exposures of the bank have been to the sectors such as hydropower, cement, iron & steel and construction sector. Overall, the lending portfolio present potentially adverse environmental or social risks or impacts that will be diverse in nature, widespread in geography and some of which will have irreversible E&S impacts. Hence, the E&S risk of the proposed investment is high and the project is categorised as FI-1 (under the new framework). The applicable Performance requirements will be i) the IFC- FI Exclusion List; ii) The host country E&S laws and regulations; and iii) the IFC Performance Standards.

Main E&S risk and impacts of the project emanates from the project finance, corporate and SME exposure and housing finance portfolio. These includes impacts like occupational health & safety concerns, construction safety, fire and life safety, waste and pollution management and possibly land and biodiversity impacts depending on the nature and location of the project. At present the bank does not have an E&S risk management system in place. The bank was found to be in gross compliance with IFC's requirements of PS-2 on Labour and Working Conditions.Main E&S risk and impacts of the project emanates from the project finance, corporate and SME exposure and housing finance portfolio. These includes impacts like occupational health & safety concerns, construction safety, fire and life safety, waste and pollution management and possibly land and biodiversity impacts depending on the nature and location of the project. At present the bank does not have an E&S risk management system in place. The bank was found to be in gross compliance with IFC's requirements of PS-2 on Labour and Working Conditions.

Contacts

For Inquiries About the Project, Contact

Mr. Kipchu Tshering, Managing Director
Bhutan National Bank
Head Office
PO Box 439
Thimphu, Bhutan

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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