37270 - BoP Sub-Debt

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Summary of Investment Information

Project Number

37270

Company Name

BANK OF PALESTINE PLC

Date SPI Disclosed

Dec 4, 2015

Country

West Bank and Gaza

Region

Middle East

Projected Board Date

Jan 5, 2016

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Nov 30, 2016

Department

Regional Industry FIG MCT

Industry

Financial Markets

Previous Events

Approved : Mar 7, 2016
Signed : Mar 31, 2016
Invested : Jun 30, 2016

Sector

Commercial Banking - General

Project Description

The proposed project entails a 10-year subordinated debt (“Sub-debt”) of up to US$75 million to Bank of Palestine (“BoP” or the “Bank”), the largest national bank in West Bank & Gaza (“WB&G”). The Sub-debt will qualify as Basel II, Tier II capital. The Sub-debt will strengthen BoP’s capital base and support its vision of maintaining its position as the market leader in WB&G and will provide a base to expand BoP’s outreach in the local market as well as expanding its regional footprint. This project comes as a part of IFC’s support to BoP which included helping the Bank to strengthen its risk management framework, corporate governance and developing new products to expand access to finance and banking services for SMEs and women.

Associated Advisory Engagement

IFC is implementing a 2-year advisory project (Project no. 599985) that included the strengthening of BoP’s risk management framework and developing SME and gender financing products. This project is expected to be completed by December 2015.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	75.0
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

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

Development Impact

The development impact is expected to be high. First, IFC''s engagement will assist in the development of the local banking sector and introduce new investment instruments since the proposed subordinated debt will be the first of its kind in West Bank & Gaza. Second, IFC''s investment in BoP will have an important demonstration effect as it is expected to further provide market comfort and accordingly attract investors to invest in the Palestinian banking market and thus assist in its growth and expansion. Third, by supporting the capitalization of the largest national bank, BoP, IFC will be assisting the bank to fulfill its ambitious strategy that focuses on: (a) further penetration of the local market; (b) financial inclusion and improve access to finance to the different segments including SMEs and underserved segments, such as women and youth, which will assist in maintaining existing jobs and creating new ones to address the significantly high unemployment rate; (c) support BoP''s growth strategy beyond WB&G including reaching out to Palestinian diaspora in the region and globally.

The critical role and addtionality of IFC is to support the capitalization of BoP, an important strategic and systemic bank in West Bank & Gaza. IFC''s facility that will be structured to qualify as Tier II capital and will provide important risk capital support for the planned growth and expansion of BoP. Furthermore, IFC''s renewed engagement with BoP will provide comfort to other investors to invest in the local banking sector and support its growth and expansion especially in times when foreign investments are becoming scarce. The engagement through the mentioned facility will also contribute to the development of the local market by introducing new instruments that are currently not available.

E&S Category Rationale / Risks and Mitigation

This project consists of a subordinated loan to Bank of Palestine (BoP) qualifying as Basel II-Tier II capital, to strengthen BoP’s capital base. The Bank's portfolio mostly includes medium to low risk sectors, where the highest exposure is to medical services, construction and contracting companies, and tourism. The project has been classified as FI-2 according to IFC Environmental and Social Review Procedure. For this particular project, IFC's applicable requirements will be to ensure that the Bank's entire portfolio and the portfolio of its relevant subsidiaries are screened against the IFC Exclusion List, applicable environmental and social national laws and regulations, and the IFC Performance Standards, if necessary.

6731740ECBF1455CAE351EB8A499737E .par_A67BD9ECD378F2EA85257EE700477364_8 { font-family:sans-serif; color:black; font-size:10pt; font-weight:normal; text-decoration:none; } The main E&S risks and impacts of this investment relate to Bank of Palestine having adequate systems and capacity in place to manage the operations being financed in accordance with applicable requirements, including compliance with the IFC's Exclusion List, Host Country Laws and Regulations and IFC Performance Standards. 6731740ECBF1455CAE351EB8A499737E .par_A67BD9ECD378F2EA85257EE700477364_9 { text-align:full; line-height:2; font-family:sans-serif; color:black; font-size:10pt; font-weight:normal; text-decoration:none; } Bank of Palestine has an Environmental and Social Management System (“ESMS”) in place and has designated staff members with overall responsibility for implementation of the ESMS. The ESMS will need to be enhanced to reflect the requirements for this new project, including IFC Performance Standards and applicability at relevant subsidiary level. Bank of Palestine's HR Practices will also have to be enhanced in conformity with PS2 requirements.

Task Title & Description	Actual Due Date	Status
Formalize procedures		Completed
Develop guidelines		Completed
Upgrade Applicable Requirements		Completed
Staff Training	08/31/2021	Rescheduled
Other1 Enhance HR practices in line with IFC's PS2 on Labor and Working Conditions		Completed

Contacts

For Inquiries About the Project, Contact

Hashim Shawa
Bank of Palestine
General Management Head Office
P.O. Box 471, Ramallah, Palestine

Telephone: +970 2 2970990
Fax: +970 2 2970980

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