48213 - Shinhan ID Debt

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Summary of Investment Information

Project Number

48213

Company Name

Shinhan Bank Co., Ltd.

Date SPI Disclosed

Feb 1, 2024

Country

Indonesia

Region

East Asia and the Pacific

Projected Board Date

Dec 8, 2023

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Feb 2, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 8, 2023
Signed : Dec 13, 2023
Invested : Dec 20, 2023

Sector

Commercial Banking - General

Project Description

International Finance Corporation (IFC) is proposing an investment of up to US$200 million in a senior unsecured A Loan to Shinhan Bank Co., Ltd. (SHB) for up to 5 years with a bullet repayment and quarterly interest payments, to be committed in two tranches of US$ 100 million each. The Project will be structured as a back-to-back financing arrangement - with the borrower being SHB, and all the proceeds to be exclusively used for on-lending to PT Bank Shinhan Indonesia (BSI or the Bank). The Project will be in the form of a sustainability loan dedicated to finance: (i) eligible blue assets for 15% of the loan, (ii) eligible green assets for 40% of the loan, (iii) eligible social assets for 20% of the loan, and (iv) the remaining 25% to be allocated to any of the three types of eligible assets (the Project). The Project is well aligned with World Bank Group’s (WBG) Indonesia Country Partnership Framework (CPF) for FY2021-2025, which highlights the importance of targeted interventions in Micro, Small and Medium Enterprises (MSME) space and contains climate change as one of its cross-cutting themes. The Project also supports the ‘National Action Plan on Marine Debris (2017-2025)’, which calls for efforts to reduce 70% of its plastic debris from a 2017 baseline by the end of 2025.

SHB, the third largest bank in South Korea, is a long-standing strategic partner of IFC, with SHB participating in IFC B-loan syndications since 2012 and in IFC AMC Funds. As a strategically important subsidiary of SHB in the region, BSI will deliver development impacts in Indonesia through expanding blue, green and social lending businesses, utilizing the proceeds of the Project.

Associated Advisory Engagement

IFC and BSI are exploring two potential advisory services to supplement the proposed investment. The potential advisory for building capacity for climate financing (blue and green financing) may include (i) building a sustainable financing framework, (ii) assessing climate financing portfolio and supporting the Bank in developing climate financing pipelines, and (iii) building an E&S risk management system. The potential advisory for supporting MSME financing includes building capacity for supply chain financing to diversify the Bank’s product offering and expand the MSME client base.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	200.0
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
Straight Senior Loan	Labeled: Green;Blue;Social-Loans/Bonds
Straight Senior Loan	Labeled: Green;Blue;Social-Loans/Bonds

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

Development Impact

The Project is expected to provide blue financing that will contribute to improving sustainability in fishery and/or waste leakage and reducing the amount of untreated wastewater discharge through supporting fishery improvement projects and wastewater treatment projects. Given majority Indonesia's territory at sea, keeping marine ecosystem sustainable is critical for livelihood of many Indonesians involving the ocean-related activities. Additionally, financing demand for climate mitigation and adaptation projects remains unmet and the Project is anticipated to increase the availability of green financing and to contribute to reduction of GHG emissions by supporting projects involving renewable energies, green mobility, etc. Last but not least, on the Project level, this investment is also expected to bridge the MSME financing gap though social loans. While on the market level, this Project will contribute to market sustainability, via demonstration, replication, and standard-setting channels. IFC will help validate to the market the viability of blue finance and showcase best practices. This will encourage other FIs to tap into blue financing adhering to IFC's Guidelines for Blue Finance or equivalents, and other investors to consider blue instruments as a viable investment product option.

Financial - Innovative financial instrument: This Project will entail the first non-sovereign financing facility dedicated towards blue finance in Indonesia which will be compliant with IFC's Guidelines for Blue Finance. To achieve this, IFC will provide financing to BSI through SHB, exclusively for BSI's financing of eligible blue, green and social loans in Indonesia. Moreover, IFC will ensure that the Bank follows best practices for green and blue finance which would not only promote the Bank's first green and blue debt financing but would also direct financing towards green projects and help create a blue financing market. Financial - Financing structure: The Project will provide the Bank with access to longer tenor US dollar-denominated funding, which is not readily available in the local market. The Bank's primary source of long-term funding (95% of wholesale funding with over one year tenor) is through borrowings from SHB. By diversifying funding structures with a longer-term financing solution, the Bank will be able to cater to its clients' long term funding needs which otherwise would not be fulfilled. Non-Financial - Knowledge, innovation and capacity building: IFC will provide technical support to the Bank in building capacity for sustainable financing to allow it to undertake blue, green and social financing in compliance with IFC’s Climate Definitions, IFC's Guidelines for Blue Finance, and the Loan Market Association's Principles for Green and Social Loans.

E&S Category Rationale / Risks and Mitigation

The proposed project entails a senior unsecured loan to support eligible blue, green and social sub-projects. The proceeds of this loan will be used mainly for direct financing of eligible sub-projects through loans, but they may also be used for a limited number of investments in eligible blue, green and social bonds issued in the market. The project will support only medium/medium-low E&S risk sub-projects and has been categorized as FI-2 in accordance with IFC’s Sustainability Policy. The applicable E&S performance requirements for the project include: (i) compliance with the IFC Exclusion List; (ii) screening out of higher risk E&S business activities of the type contemplated in the Performance Standards such as: (a) involuntary resettlement (including physical and economic displacement), (b) risk of adverse impacts on Indigenous Peoples, (c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, (d) risk of significant retrenchment, (e) significant occupational health and safety risks to employees; (iii) exclusion of hydro sub-projects, K-12 education facilities, coal related sub-projects and non-RSPO certified palm oil related activities; (iv) compliance with relevant national E&S laws. The client will be required to apply Performance Standard 2 requirements to its own operations. The main E&S risks and impacts of the project derive from the E&S risks associated with the project-supported activities, the client’s capacity to manage these risks and the systems in place to manage the risks. Typical E&S risks associated with the project may be related to labor and working conditions, occupational health and safety, pollution control and materials management, or supply chain related risks, amongst others. The client will disclose climate-related sub-projects supported by the proceeds of this project for loans of US$20 million or more, unless prohibited by law from doing so. The client will disclose a summary of its Environmental and Social Management System (ESMS) relevant to the asset class supported by the IFC’s proceeds on its website.

The client will be required to develop an ESMS for the asset class to be supported by the proceeds from the project and to nominate E&S staff to oversee the implementation of the ESMS. The ESMS will include the screening-out of higher risk transactions as well as review of eligible sub-projects under this project against the applicable E&S performance requirements. The client will also be required to use appropriately qualified E&S specialists to conduct required E&S due diligence (ESDD). The client will be required to provide training on the ESMS for relevant staff involved in the implementation of the project. The client has in place human resources practices which are generally aligned with Performance Standard 2 on Labor and Working Conditions, although will be required to formalize its Internal Grievance Mechanism and a non-discrimination policy. Additionally, the client will be required to obtain, where not already held, relevant regulatory building safety permits for the premises in which it operates.

Title	Anticipated Completion Date
Formalize an Internal Grievance Mechanism and a non-discrimination policy and additionally, BSI will be required to obtain where not already held relevant building safety permits for the premises in which it operates.	03/20/2024
Develop staff training plan on the ESMS	03/20/2024
Develop ESMS and E&S capacity	03/20/2024

Contacts

For Inquiries About the Project, Contact

PT Bank Shinhan Indonesia
Seong Won Kim
Chief Financial Officer
+62-21-2975-1719
kimi1009@shinhan.com
International Financial Center 2, 30th and 31st Floor., Jl. Jend Sudirman Kav 22-23, South Jakarta 12920, Indonesia
www.shinhan.co.id

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IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

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