35461 - PSBC Equity

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Summary of Investment Information

Project Number

35461

Company Name

Postal Savings Bank of China

Date SPI Disclosed

Sep 15, 2016

Country

China

Region

East Asia and the Pacific

Projected Board Date

Jun 9, 2015

Environmental Category

FI-1 - Significant

Status

Active

Last Updated Date

Nov 30, 2016

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 9, 2015
Signed : Jun 10, 2015
Invested : Dec 16, 2015

Sector

Commercial Banking - General

Project Description

Postal Savings Bank of China (“PSBC”) is the 5th largest PRC commercial bank in terms of total assets and 5th largest in terms of total deposits as of March 31, 2016. It is a subsidiary of China Post Group Corporation (“CPGC”). As of March 31, 2016, PSBC had a total of 40,057 business outlets covering all cities in China and 98.9% of the county areas, and had a retail client base of 505 million. Leveraging its large network and broad coverage in urban and county areas in China, PSBC strategically focuses on providing financial services to communities, SMEs and Agriculture/ Rural/ Farmers (“ARF”, or “Sannong”) customers and are committed to meeting the financial needs of its customers.

PSBC launched a pre-IPO private placement and offered approximately16.92% ownership stake through the issuance of new shares to a shortlist of international and domestic strategic investors, including IFC. This investment is consistent with IFC’s strategy for East Asia and China is a key market in achieving the WBG goal of universal financial access by 2020. China accounts for approximately 16% or almost 400 million people of the world’s 2.5 billion unbanked population. The investment in PSBC can play a critical and strategic role in expanding financial inclusion in China as it has one of the most extensive bank networks in the world and is also the leading bank in China for SME and rural finance. The partnership is a unique opportunity for IFC to reinforce and significantly expand its mandate of financial inclusion and poverty alleviation in China, given the aligned mandate between PSBC and IFC on financial inclusion, the unique broad outreach in frontier regions, and the potential growth of the institution.

Associated Advisory Engagement

IFC and PSBC entered into a Strategic Cooperation Agreement which identified the areas in which IFC will provide advisory services. Based on discussions with PSBC and IFC’s strong track record of providing integrated investment and advisory services, PSBC would look to IFC to, where applicable and practical, cooperate in the area of rural finance, offer advisory services, conduct mapping of the relevant products and services and processes, and provide suggestions of improvement compared to international best practices, and to leverage IFC’s diagnostic and analytical tools to improve corporate governance mechanism.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	300.0

Development Impact

1. Promote access to finance for MSMEs and rural sector. IFC believes its participation in this project will facilitate access to finance for a large segment of the MSME market which is currently under served. Greater financial inclusion is a strategic priority for IFC in China and this project fits well into that overall objective. As stated above, the development impact of the project is significant and will help change the landscape of MSME/ rural finance in China. Nowadays, a number of policy banks, microfinance institutions, rural credit cooperatives and village and township banks are serving the MSME/ rural sector but none of them can compare to a large and professionally-operated commercial bank with the right mandate and mission, with the most in-depth outreach and strong capital position, and with globally first-class sponsors.

2. Create jobs, alleviate poverty and boost shared prosperity. In China, MSMEs create 50% of GDP, 60% of tax but 70% of jobs and 80% of innovation; therefore an active MSME segment is critical to maintain employment. In the meantime, due to the unbalanced development between urban and rural areas in China, the poverty mostly lies on farmers. The support to MSMEs and rural sector is equivalent will lead to job creation and poverty alleviation in China.

3. Promote best practice in banking and governance. As a State-Owned commercial bank, with long history of operating under administrative interventions, PSBC needs to enhance its banking expertise and adopt a more robust governance structure. IFC could bring its global expertise and experience in commercial banking to PSBC; furthermore, IFC''s potential nominee director can also play a major role in introducing international best practice at the Board level.

4. Promote SOE equity reform, aiming for a more balanced shareholding structure, a market-oriented business model and higher operation efficiency. IFC''s catalytic role in bringing diversified investors will contribute to the ongoing overall SOE reforms in China; in addition, IFC''s extensive experience in privatization could serve as a useful reference to PSBC.

1. Stamp of approval: IFC''s investment will be regarded as a stamp of approval of the Bank, the country and Chinese banking industry from long-term perspective. Given the widely spread concerns on China economic downturn and the increasing risks in the Chinese banking industry, IFC''s stamp of approval will provide additional comfort for foreign institutions to invest in the Bank.

2. Honest broker: IFC''s investment is seen by the Government and CPGC as "critical seed" to provide comfort to other strategic investors. For the upcoming equity reform of PSBC, a large majority state-owned bank, the Government/ CPGC and the strategic investors do value the honest broker investor who plays a bridging and balanced role, especially in the case of PSBC, where some potential investors are likely to be competitors globally.

3. Integrated IS-AS: PSBC welcomes IFC''s value proposition through combined investment and advisory services. They have expressed keen desire for capacity building, particular in the areas of MSME finance, mobile banking and risk management.

4. Relationship with and influence on the government: China''s new state leadership has recently promoted a transformational initiative to encourage State-Owned Enterprises ("SOEs") to open to private capital and to diversify ownership structure. PSBC''s equity reform is supporting this critical initiative. IFC, as a committed and long-term investor focusing on poverty alleviation, could leverage its relationship with and influence on the government to assist the Bank in achieving a smooth and successful equity reform.

5. Aligned mission in financial inclusion: The aligned mission in supporting financial inclusion will provide synergy for both parties to work together.

E&S Category Rationale / Risks and Mitigation

This Project involves an equity investment in PSBC, one of the largest Chinese commercial banks with extensive network serving hundreds of million retail clients. The majority of PSBC’s borrowers are MSMEs and individuals, but the bank also has exposure to large corporate clients. The project has therefore been classified as a Category FI-1 project according to IFC Policy on Environmental and Social Sustainability. The applicable performance requirements for the project include screening against IFC FI Exclusion List, and applying the relevant national E&S laws and where needed, the IFC Performance Standards to its corporate lending activities.

The main E&S risks and impacts of the project derive from PSBC’s corporate lending activities and its capacity and systems to manage the E&S risks and impacts associated with these activities. PSBC has implemented procedures to comply with national laws including China’s Green Credit policy requirements, but it hasn’t developed a systematic approach including capacity for E&S management yet. Under this project. IFC will provide technical support to PSBC’s ESMS diagnosis and development. PSBC will be required submit periodic E&S reports to IFC, and IFC will monitor and supervise the bank’s E&S performance to ensure the project will meet the applicable performance requirements.

Contacts

For Inquiries About the Project, Contact

Board Office,
Postal Savings Bank of China,
No. 3 Financial Street, Xicheng District, Beijing, 100808
Tel: +86-10-68857891

For Inquiries and Comments About IFC, Contact

General IFC Inquiries
IFC Corporate Relations
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Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster

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Task Title & Description	Anticipated Completion Date
Nominate officers	03/31/2016
Establish SEMS	12/31/2016
Staff Training	03/31/2017

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