34131 - BDF Sub-Debt

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Summary of Investment Information

Project Number

34131

Company Name

Banco de Finanzas SA

Date SPI Disclosed

Nov 11, 2013

Country

Nicaragua

Region

Latin America and the Caribbean

Projected Board Date

Dec 16, 2013

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

May 7, 2022

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Jan 17, 2014
Signed : Apr 1, 2014
Invested : Jun 26, 2014

Sector

Commercial Banking - SME Finance

Project Description

The proposed project consists of $15 million subordinated loan to Banco de Finanzas S.A. (“BDF” or the “Bank”). The subordinated debt will be used to increase BDF’s Tier 2 capital to allow it to continue to expand its lending activities, including a focus on SME lending. The loan will also help the Bank diversify and extend its sources of funding, as well as reduce its balance sheet maturity-mismatch
IFC has a long standing relationship with BDF, where the Bank considers IFC as a key partner that support its development and growth. BDF remains the market leader in housing finance with 31.0% market share in Nicaragua in 2012. As BDF continues to focus growing its commercial lending portfolio, both trade and SMEs have become priorities for the Bank.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	3.75
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Quasi-Equity	Loans to SME Borrowers
Quasi-Equity	Loans to SME Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Increase banking penetration and access to financial services: Nicaragua''s private sector credit to GDP ratio is below the regional average and declining. Support for a local bank and leader in housing finance to expand lending will allow for increased access to credit.

Growth of SME sector: Increased access to funding to underserved SMEs in Nicaragua will allow them to expand and improve operations.

Employment generation: SME is a large employment generator in Nicaragua and increased access to credit will translate into larger production scales requiring more workers.

Long term partnership: IFC has supported BDF in its different needs through a series of both investment and advisory projects. The proposed transaction will further strengthen a longstanding relationship and offers a unique value proposition for the Bank in the current local context. Through this long-term partnership IFC is uniquely positioned to finance growth and promote sustainable business practices across multiple projects. Furthermore, IFC''s continuing support across the economic cycle provides a comparative advantage in a market dominated by foreign competition.
Financial structure: IFC is able to provide a longer tenor subordinated debt that will be considered as Tier II capital under local regulation.
Resource mobilization: IFC will make additional funding available to the client via the AMC''s Capitalization Fund.

E&S Category Rationale / Risks and Mitigation

The proposed project consists of an up to US$ 15 million subordinated loan to Banco de Finanzas S.A. (“BDF”). The subordinated loan will be used to expand the Bank's small and medium enterprise (SME's) lending activities. BDF portfolio is mainly composed of consumer loans ( 68%) followed by SME lending (19%), corporate finance (8%) and short trade finance (5%). Given that a large part of the portfolio lending is to retail banking and to commercial and service based SME's, the project has been categorized as FI-2 in accordance with IFC's Environmental and Social Review Procedure. The overall portfolio risk includes a limited number of business activities that have potential limited adverse environmental and social risks or impacts that are few in number, generally site specific, largely reversible and readily addressed through mitigation measures. For this project the client will be required to screen the sub loans against the IFC FI Exclusion List (except for retail loans and mortgages), the national laws and regulations and the IFC Performance Standards, if applicable.

The key E&S risks and impacts derive from BDF capacity to identify and manage the potential environmental and social risks associated with its lending activities particularly lending to corporate and large companies in the agribusiness sector. Additional environmental and social risks and impacts of the project derive from the capacity and systems in place to manage these risks, and the Bank's practices with regards to labor and working conditions.

Banco BDF has implemented a satisfactory environmental and social management system and has dedicated environmental and social staff in place. The Risk Department is in charge of conducting the initial environmental and social review including sub project categorization (high, medium, low risk) approach. The environmental due diligence includes screening against the Exclusion List and verification of compliance with national environmental and social requirements. Key environmental staff has been trained in the management of the environmental and social aspects. BDF will be required to enhance its Human Resources policies to be compliant with the requirements of IFC's PS 2 Labor and Working Conditions.

Contacts

For Inquiries About the Project, Contact

Banco de Finanzas S.A.
Esquina Opuesta Hotel Crowne Plaza
Managua, Nicaragua
Attention: Mr. Leonel Jose Quant Jarquin, CFO
Telephone: +(505) 2276-8600 Ext. 2014
Email: mailto:leonel.quant@bdfnet.com
Website: http://www.bdfnet.com/

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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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