45474 - DCM OTP MREL

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Summary of Investment Information

Project Number

45474

Company Name

OTP Bank Nyrt.

Date SPI Disclosed

Dec 13, 2022

Country

Southern Europe Subregion

Region

Europe

Projected Board Date

Nov 15, 2022

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Feb 1, 2023

Department

Regional Industry - FIG - ECA

Industry

Financial Markets

Previous Events

Approved : Nov 15, 2022
Signed : Nov 22, 2022
Invested : Dec 1, 2022

Sector

Commercial Banking - General

Project Description

The Project comprises an investment for IFC’s own account in Minimum Requirement for Own Funds and Eligible Liabilities (MREL) eligible financing to be provided to OTP Bank Plc (OTP or the Bank). The proceeds of the investment will be earmarked for social SME and/or climate finance in Bulgaria, Croatia, Romania and Serbia (the Target Markets).

Associated Advisory Engagement

Sponsor / Cost / Location

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	Labeled: Green;Blue;Social-Loans/Bonds

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

Development Impact

The Project is expected to contribute to i) improved access to climate finance in Target Markets, ii) improved access to finance for SMEs in less economically developed areas in the Target Markets; and iii) greater market resilience directly by reducing systemic risk in Hungary and Target Markets and indirectly by spurring replication and uptake of MREL instruments by other market players.

Financial additionality is based on financing structure as IFC would provide longer term funding to OTP that is not readily available in Hungary. Non-financial additionality is provided through i) risk mitigation, as IFC investment will help catalyze funding by influencing investor appetite and strengthening market confidence; and ii) standard setting, as IFC will support OTP to further improve and streamline its environmental and social standards.

E&S Category Rationale / Risks and Mitigation

The project involves an investment in OTP MREL eligible instruments with the proceeds of the IFC investment to be earmarked for social SME and climate finance in the Target Markets through OTP’s four subsidiaries in Bulgaria, Croatia, Serbia and Romania (Target Subsidiaries). The climate finance use of proceeds will be directed mainly to wind energy, clean transport and green buildings, and the rest will be earmarked for social SME finance. Key E&S risks and impacts are associated with the capacity of OTP and the Target Subsidiaries to sufficiently manage the E&S risks associated with the financed portfolios. Overall environmental and social risks and impacts of the portfolio associated with climate finance and social SME financing of the Target Subsidiaries are considered medium and can be addressed through mitigation measures. This project has been categorized as FI-2 in accordance with IFC’s Sustainability Policy. IFC's applicable requirements will be the IFC Exclusion List, the applicable E&S national laws and regulations in the Target Markets, and IFC Performance Standards. The Project will not support activities on IFC Exclusion List, coal-related activities, solar energy projects, hydropower projects, as well as higher risk business activities involving a) involuntary resettlement, b) risk of adverse impacts on Indigenous Peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or d) significant occupational health and safety risks. OTP and the Target Subsidiaries will also be required to be in line with IFC’s life and fire safety requirements, and the requirements of IFC’s Performance Standard 2 on Labor and Working Conditions. IFC’s requirements on disclosure of climate-related sub-projects will not be applied to this Project, given this is a capital market transaction and IFC is not a sole investor.

The OTP Group has assigned ESG responsibilities and operates an ESG credit risk management framework for the non-retail clientele, which provides for the ESG credit risk assessment process through the following steps: (i) screening against the ESG exclusion list and (ii) assigning ESG risk categories to clients and transactions. The framework is being implemented by all OTP Group members; elaboration of the Group-level reporting is in progress. Additionally, in 2022 OTP has established the Sustainable Finance Framework that is aligned with the ICMA Sustainability Bond Guidelines (SFF). The SFF provides the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or adaptation, and also determining whether that economic activity causes any significant harm to any of the other environmental objectives. As a part of this project, the Bank and Target Subsidiaries will be required to develop E&S policies and procedures including E&S due diligence tools to enable assessment and mitigation of E&S risks of the supported asset class and exclusion of restricted activities (as defined above) in line with IFC’s requirements. Additionally, OTP and the Target Subsidiaries will be required to build proper E&S capacity in place, establish relevant E&S monitoring and reporting procedures, and develop an external communication mechanism.

Key Mitigation Measures:

Task Title & Description	Anticipated Completion Date
Prepare E&S Management System Training Plan (OTP + Subsidiaries)	12/31/2022
Implement Staff E&S Management System Training (OTP+Subsidiaries)	01/15/2023
Develop E&S Management System Procedures (OTP + Subsidiaries)	12/31/2022
Retain Internal and/or External Capacity (OTP + Subsidiaries)	12/31/2022
ESMS Implementation and Implementation Records (Subsidiaries)	03/31/2023
Develop External Communication (OTP + subsidiaries)	03/01/2023

Contacts

For Inquiries About the Project, Contact

OTP Bank Plc
Gábor Fazekas
Head of Markets Department
+3612887536
Gabor.Fazekas@otpbank.hu
Babér utca 9, H-1131 Budapest. Hungary
www.otpbank.hu

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