43670 - GyT Sub. Debt

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Summary of Investment Information

Project Number

43670

Company Name

BANCO G AND T CONTINENTAL S.A.

Date SPI Disclosed

Aug 23, 2021

Country

Guatemala

Region

Latin America and the Caribbean

Projected Board Date

Oct 6, 2021

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Mar 7, 2022

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Sep 30, 2021
Signed : Dec 20, 2021
Invested : Dec 23, 2021

Sector

Commercial Banking - General

Project Description

The proposed IFC Investment consists of a subordinated “C” loan of up to US$80 million, (the Project) to be provided to Banco GyT Continental Guatemala S.A. (GyT or the Bank), an IFC client since 2008.

The Project’s main objective is to contribute to strengthening the Bank's capital base for future business growth. The Guatemalan banking regulation includes subordinated debt as part of Tier II capital. Also, the funds of the Project will enable GyT to continue its strategic move to gain a stronger presence in the small and medium enterprises (SMEs) market, mortgage housing for individuals, and Climate Smart lending consisting of green buildings in urban areas, and energy efficiency sub-projects.

Associated Advisory Engagement

IFC is planning on engaging its advisory services for the Project. The advisory engagement with GyT will support the Bank in expanding and diversifying its operations in climate finance and further developing the green building business in the country.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	80.0
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	Climate (not covered in any category)
Quasi-Equity	Housing Finance
Quasi-Equity	Loans to SME Borrowers

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

Development Impact

Financial Additionality - Financing Structure: IFC will provide subordinated financing to GyT from its own account of up to US$80 million and with a maturity of up to 10 years (5 years grace), a tenor which is not readily available in the market through commercial banks or even through the capital markets, which provide subordinated debt with a 10-year tenor but including a 5-year sale option structure. This structure will offer the Bank longer-term funding and will increase the average maturity of GyT's funding sources, allowing it to provide longer-term loans to its clients. The Bank's funding is mainly concentrated in short-term deposits (85% of total liabilities), which limit the Bank's ability to extend long-term financing to its clients while at the same time maintaining an adequate asset-liability profile. Non-Financial Additionality - Knowledge, innovation and capacity building: IFC will support GyT in its climate finance initiative through an advisory service aimed at helping the Bank design and implement its green buildings strategy for Guatemala.

E&S Category Rationale / Risks and Mitigation

The project will support SMEs, mortgage housing for individuals, and Climate Smart lending consisting of green buildings, energy and water efficiency, and solar power up to 20MW installed capacity sub-projects in urban areas. The overall E&S risks of the sub-projects to be supported are low to medium, therefore, the project has been categorized as FI-2 according to the IFC's Sustainability Framework. The project will not support category A activities, or any activities with significant E&S impacts such as (i) involuntary resettlement; (ii) risk of adverse impacts on indigenous peoples; (iii) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage; (iv) significant occupational health and safety risks; (v) the conversion or degradation of natural habitats as defined by IFC PS 6 – “Biodiversity Conservation and Sustainable Management of Living Natural Resources”; or (vi) companies operating in the coal sector such as coal mining, coal transportation, coal-fired power plants or infrastructure services dedicated to support any of these activities. IFC’s applicable requirements for this project will be the IFC Exclusion List, host country laws and regulations, and the IFC Performance Standards.

Implemented since 2016, G&T’s ESMS is aligned with IFC’s E&S requirements which comprise the screening of G&T's portfolio against the IFC Exclusion List (XL), host country laws (HCL), and the IFC Performance Standards (PSs) as applicable. The ESMS procedures integrate the credit risk cycle. ESMS procedures comprise the following phases: (1) pre-screening of potential clients based on IFC’s XL; (2) verification of clients’ alignment with Guatemalan E&S law which includes permits, EIAs, management plans and audits reports required by local authorities; (3) customer portfolio’s classification through a risk matrix categorization based on industry sector, loan amount, tenor, and use of proceeds; (4) E&S risk assessment including site visits and further analysis based on IFC PS, when applicable; (5) credit approval and inclusion of E&S clauses, covenants, and ESAP in the legal documentation, and (6) annual supervision. The monitoring process comprises site visits, verification of valid operational and E&S permits and licenses, certifications, ESAP completion, and relevant E&S updates. Due diligence and monitoring are commensurate with the E&S risks of the portfolio. ESMS procedures are implementated by a capable E&S officer and two E&S specialists.

S.no	Title	Anticipated Completion Date	Status
1	Nominate officers	08/07/2021	Completed
6	Staff Training	11/05/2021	Completed
9	Other1 - External Communication Mechanism	08/07/2021	Completed
10	Other2 - Internal Grievance Procedures	11/05/2021	Completed
11	Other3 - Enhanced ESMS procedures	08/07/2021	Completed

Contacts

For Inquiries About the Project, Contact

Banco GyT Continental
Julio Sandoval
Chief Financial Officer
(502) 2338 6801 Ext.: 33690
jsandoval@gtc.com.gt
6ª. Avenida 9-08 zona 9, Plaza G&T Continental, Quinto Nivel
https://www.gtc.com.gt/

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