47324 - SBL Nepal SME

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Summary of Investment Information

Project Number

47324

Company Name

SIDDHARTHA BANK LIMITED

Date SPI Disclosed

Jan 10, 2023

Country

Nepal

Region

South Asia

Projected Board Date

Feb 10, 2023

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Apr 14, 2023

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Mar 21, 2023
Signed : Mar 26, 2023
Invested : Apr 12, 2023

Sector

Commercial Banking - General

Project Description

The proposed investment comprises of a US$55 million investment through a 3-year USD denominated senior loan to Siddhartha Bank (SBL or the Bank), to be used exclusively for on-lending to small and medium enterprises (SMEs) in Nepal (the Project) with US$5.5 million carveout for green financing. Of the US$55 million, US$25 million will be through mobilization. SBL is a fast-growing commercial bank with a strong retail and small and medium enterprise (SME) segment. The shortage of liquidity in the financial sector is inherent in Nepal, and the business operations and economic activities of SMEs have been hampered by the COVID-19 pandemic. The proposed facility will assist the Bank to further extend capital to the SME segment and contribute to improving liquidity in the financial sector and support the fast recovery of SMEs impacted by the COVID-19 pandemic, including the underserved rural SMEs.

SBL is Nepal’s 6th largest bank in terms of total assets and has grown organically every year in ranking, size and profitability. The Bank is characterized by a large stable deposit base, low cost to income ratio, high retail assets, good asset quality and decent profitability. The Bank has an experienced senior management team with a strong vision to grow the Banks operations profitably while maintaining high levels of corporate governance.

For the year ended 16 July 2022, the Bank reported total assets of US$2,033 million, loan book of US$1,424 million, net worth of US$168 million and deposits of US$1,473 million. The Bank has robust asset quality (with a gross non-performing assets ratio of 1.03%) and healthy profitability with return on total assets of 1.31% and return on equity of 15.22%. SBL is rated BBB+ by ICRA.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
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
Syndications	Loans to SME Borrowers
Syndications	Labeled: Green;Blue;Social-Loans/Bonds
Syndications	Loans to SME Borrowers
Syndications	Labeled: Green;Blue;Social-Loans/Bonds
Syndications	Loans to SME Borrowers
Syndications	Labeled: Green;Blue;Social-Loans/Bonds
Straight Senior Loan	Loans to SME Borrowers
Straight Senior Loan	Labeled: Green;Blue;Social-Loans/Bonds

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

Development Impact

Stakeholder Effects: (i) Increased access to finance for SMEs, including women owned SMEs: The project is expected to contribute positively towards access to finance for SMEs in Nepal, which identify access to finance as a major constraint. In addition to the growth in the overall SME portfolio, Siddhartha Bank will pursue a more inclusive strategy by increasing its outreach beyond the urban areas and cater to SMEs in rural areas with due focus on women owned SMEs. SMEs play a central role in the creation of employment in emerging markets. By improving access to finance for SMEs, the investment with Siddhartha Bank is expected to create more jobs in the economy. (ii) Increased access to climate finance: The Project also will contribute to climate mitigation efforts in Nepal by increasing access to climate finance for clean transportation, climate smart agriculture, and green buildings. IFC anticipates that the Project will build SBL's capacity to identify and evaluate green lending opportunities and increase access to green financing in Nepal over the next three years.

(i)Financing Structure: Longer-term U.S. dollar funding than is otherwise available due to a challenging market environment; (ii) Resource mobilization: It will be for the first time that mobilization will be done for a financial institution in Nepal which will have a strong demonstration effect in the market. Even, for IFC, this will be first transaction with mobilization component for a financial institution in Nepal. (iii) Knowledge, Innovation and Capacity Building: Provision of technical assistance to develop climate finance and risk management frameworks, and digital processing capabilities.

E&S Category Rationale / Risks and Mitigation

The project entails a senior loan of up to $55million to Siddhartha Bank Limited ('SBL" or the "Bank') to provide financing to Small and Medium Enterprises (SME). SBL's SME portfolio mainly comprises businesses engaged in wholesale/retail trading, agribusiness, small scale manufacturing, and small and medium sized construction companies engaged in commercial and residential projects. These industry sectors in SME segment, present medium-low Environmental & Social ('E&S') risks and impacts which are readily manageable. The typical risks areas include labor and working conditions, occupational health and safety, supply chain risk including child labor and biodiversity risks in the agribusiness, air emissions, waste management, and handling of hazardous materials, in the SME borrower's operations. The project will not support coal-related activities, or higher risk business activities that may involve 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. Hence, the project is categorized as Category FI-2 in accordance with IFC's Environmental and Social Sustainability Policy. IFC's applicable performance requirements for this project will be i) the Exclusion List; ii) additional list of restricted commodities and iii) the host country laws and regulations.

The Bank has developed an Environment and Social Management System (ESMS) in line with Nepal Rastra Bank Guidelines. It has appointed an E&S officer for implementing the ESMS. The ESMS details screening against IFC Exclusion List and restricted commodity list and includes due diligence procedures for assessment of compliance with relevant national E&S laws and regulations for its entire lending operations. It also lays down criteria and guidelines for periodic supervisions of its portfolio companies. The ESMS is adequate for this project. SBL has adequate HR policies which are in line with IFC Performance Standard - 2 requirements. The bank will need to develop a life and fire safety procedure covering the potential emergencies and the corresponding response for the business premise.

Contacts

For Inquiries About the Project, Contact

Siddhartha Bank Limited
Shishir Hari Rajbhandari
Manager Treasury and Correspondent Banking
+977 1 4442920
shishir.rajbhandari@sbl.com.np
Hattisar, Kathmandu, Nepal
https://www.siddharthabank.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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Task Title & Description	Anticipated Completion Date
Develop a Life and Fire Safety plan	05/15/2023

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