34902 - City Bank Equity

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Summary of Investment Information

Project Number

34902

Company Name

CITY BANK PLC

Date SPI Disclosed

Feb 18, 2016

Country

Bangladesh

Region

South Asia

Projected Board Date

Nov 11, 2015

Environmental Category

FI-1 - Significant

Status

Active

Last Updated Date

Sep 30, 2017

Department

Global Industry, Financial Markets

Industry

Financial Markets

Previous Events

Approved : Dec 1, 2015
Signed : Feb 18, 2016
Invested : Sep 26, 2017

Sector

Commercial Banking - General

Project Description

The project comprises an investment to take up to a 5% (post money) stake in common shares of The City Bank Ltd (“City Bank” or the “Bank”) through a preferential allotment for a total investment amount up to BDT 1.32 billion (approximately US$17 million equivalent at current exchange rate). In addition to the common shares, the project will also include a 3-year senior loan for an amount of US$20 million, convertible to the Bank’s common share at the expiry at IFC’s option. The financing provided is a fit with the World Bank and IFC’s Financial Institutions Group (“FIG”) strategy to strengthen financial institutions (“FIs”) with equity capital, liquidity support and advisory services.

The Bank commenced operations from 27th March 1983 and has total assets of US$2.6 billion as of September 30, 2015.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	20.0
Equity	16.87

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

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

Development Impact

1. Impact on Financial Sector Development: The Bangladeshi financial sector is under-developed and the country''s banking system requires considerable improvement. The Project will promote financial intermediation by using the broad regional network of City Bank to reach SMEs. Additionally, this Project will create a demonstration model for existing banks, encouraging them to strengthen capital position, improve corporate governance and operational standards. The Project will promote further competition in the Bangladeshi banking sector by giving borrowers across the country greater access to banking products.

2. Supportive to Bangladesh FIG strategy: A key pillar of Bangladesh FIG strategy is strengthening the financial system through capital infusion in select banks and supporting improved corporate governance. Higher non-performing loans ("NPLs") and regulatory tightening (including BASEL III requirements) translates into higher capital needs. Various estimates peg banking sector capital requirements in excess of US$1 billion that will not be all available through domestic capital alone.

3. Support Corporate Governance Improvement Efforts: IFC would be supporting the Bank''s efforts to improve corporate governance, and other potential program as well could be explored with the Bank. An IFC-appointed director would be an important addition to the existing board.

4. Demonstration Effect: The IFC funding will encourage other investors to provide capital to the Bangladeshi banking sector to support asset growth.

1. Corporate Governance ("CG") Standard Setting: The key shareholders are keen to bring IFC to help strengthen the overall CG framework through participation and advice at the Board level and work on improving risk management systems.

2. Long Term Financing and Resource Mobilization: The proposed project will provide critical equity support, in addition to the long term convertible loan facilities. Further, IFC''s investments will support the Bank''s strategy to expand into new products and segments.

3. Other Financial Products and Innovation: The project will signal IFC''s confidence in the long term sustainability of the sector and attract FDIs from other foreign investors into this sector which will in turn help support the capital raising as per the BASEL III framework currently under implementation. The proposed convertible loan will be a new financial instrument in Bangladesh which will encourage further investments to bolster capitalization in the banking sector.

E&S Category Rationale / Risks and Mitigation

The key E&S risks and impacts derive from the bank's capacity to manage the potential environmental and social risks associated with the project. The typical risks and impacts of this project will be limited and site specific (e.g. related to occupational health & safety, emergency response, wastewater discharge, air emissions, labour, etc.). The bank is an existing IFC client and thus the bank has appointed an E&S team and is implementing an E&S risk management system (ESMS). The ESMS is adequate for this project and the client will be required to apply its existing ESMS to its lending operations supported by this project which should allow on screening out higher risk transactions. The bank is in the process of upgrading its employee grievance redressal mechanism. Other HR policies and procedures are in line with PS-2 requirements.

Task Title & Description	Status	Comments	Completion Date
Nominate officers	Completed	AEPR	01/01/2018
Establish SEMS	Completed	AEPR	12/31/2017
Staff Training	Completed	BTOR	10/31/2018
Other1 Implement SEMS	Completed		12/31/2020

Contacts

For Inquiries About the Project, Contact

Sheikh Mohammad Maroof
Deputy Managing Director &
Head of Wholesale Banking
The City Bank Limited
136, Gulshan AvenueGulshan-2, Dhaka-1212
PH: +8802 8834767
Email: mailto:smaroof@thecitybank.com

Mohammad Mahbubur Rahman
Senior Executive Vice President &
Chief Financial Officer
The City Bank Limited
136, Gulshan AvenueGulshan-2, Dhaka-1212
PH: +8802 58813126
Email: mailto:mrahman@thecitybank.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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