49688 - NMB Bond I

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Summary of Investment Information

Project Number

49688

Company Name

NMB BANK LIMITED

Date SPI Disclosed

Sep 9, 2024

Country

Nepal

Region

South Asia

Projected Board Date

Oct 9, 2024

Environmental Category

FI-2 - Limited

Status

Pending Disbursement

Last Updated Date

Jan 1, 2025

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Oct 30, 2024
Signed : Dec 27, 2024

Sector

Commercial Banking - General

Additional Project Attributes

Blended Finance

Project Description

The proposed investment consists of up to US$50 million equivalent in Nepalese Rupees (NPR) in a 5-year, privately placed, green bond (the Green Bond) to be issued by NMB Bank Limited (NMB or the Bank), an existing IFC client, to facilitate its lending program to eligible climate assets (the Project). IFC subscription of the green bond will be up to a maximum of US$40 million and IFC will invite other investors to subscribe to the green bond for an additional minimum amount of US$10 million, with IFC acting as an anchor investor. The proposed Green Bond will be the first by any institution in Nepal. This will also be the first time that foreign investors would be subscribing to a bond issuance by a local issuer. The proposed investment would contribute to developing the long-term (LT) debt capital market, along with climate financing, which are both at nascent stages in Nepal.

Associated Advisory Engagement

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	25.0
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	Others (only if UoP is not available)

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

Development Impact

Increased access to climate finance, including to MSMEs: While Nepal’s contribution to GHG emissions remains low, it is amongst the most vulnerable countries to climate change. Nepal ranks the 10th most affected country in the world according to the Climate Risk Index 2021. The country faces high risks of flooding and landslides, triggered by rapid snow and ice melt in the mountains as well as by torrential rainfall, especially during the monsoon season. The proposed investment will support NMB in continuing to increase financing for climate related projects including climate finance to SMEs, and broaden their scope of climate-related sectors. Competitiveness: IFC will promote greater competitiveness in the market for climate financing by supporting the issuance of a new instrument, green bonds, to raise financing for climate-linked projects. The market for climate financing remains dominated by government financing, and concessional loans and grants from multilateral agencies and bilateral donors, whereas financing from private sector remains very limited. In this context, IFC will support a systemically relevant financial institution in the country to issue the country’s first green bond. The bond will be issued in line with Green Bond Principles by International Capital Markets Association (ICMA) and international standards of green lending, thus reinforcing harmonized green practices in the market via demonstration and market enabling channels. IFC’s investment in the first green bond will send a strong signal to the market, motivating other financial and non-financial institutions to also issue green bonds, and contribute to the development of the green finance market.

IFC’s additionality in the Project is both financial and non-financial. Financial additionality is provided via innovative financing structure, as IFC will support NMB in issuing in the first green bond by any institution in Nepal. IFC’s non-financial additionality is in the form of Knowledge, Innovation, and Capacity Building as IFC will assist NMB in building its capacity to identify and appraise climate projects, and updating its Green Finance Framework to include green bonds.

Indicator	Metrics	Comments	Calendar Year 2022	Calendar Year 2023	Calendar Year 2024
Number of Outstanding Loans, Climate	number	Green bond.	Not Available	Not Available	Not Available
Value of Outstanding Loans, Climate	USDMill	Green bond	Not Available	Not Available	Not Available

E&S Category Rationale / Risks and Mitigation

The project entails an investment of US$50 million equivalent in Nepalese Rupees (NPR) in a 5-year, privately placed, green bond to be issued by NMB Bank Limited (NMB or the Bank) to support eligible climate assets (50% EV- retail and distribution and 50% solar- rooftop and utility scale). The main E&S risks and impacts of the project are related to, i) occupational health and safety, labor and working conditions, life and fire safety, supply chain risks and pollution aspects, at sub-borrower's premise; ii) potentially land and biodiversity impacts depending on the nature and location of the sub-borrower’s operations, and iii) the bank’s capacity and procedures in place to manage these risks. IFC funds will not be used to support any coal-related activities, hydro-power development 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, d) risk of significant retrenchment, or e) significant occupational health and safety (OHS) risks. Hence, the E&S risk of the proposed investment is medium, and the project is categorized as FI-2 in accordance with IFC’s Environmental and Social Sustainability Policy. The applicable Performance requirements will be i) the IFC- FI Exclusion List; and ii) the host country E&S laws and regulations.

NMB is an existing IFC client and has an E&S risk management system (ESMS) and E&S officer responsible for implementation. The ESMS includes screening against IFC exclusion list and critical sectors as identified by the Central Bank’s (NRB) ESRM Policy. It also outlines guidance and mechanisms for E&S due diligence and E&S performance monitoring through periodic reviews and engagement with the sub-borrowers. As a part of this project, NMB will be required to upgrade its ESMS to include the solar supply chain requirements. The Bank’s HR policies are aligned with Performance Standard 2 on labor and working conditions and it follows the applicable Life and Fire Safety requirements in its own operations.

S.no	Title	Anticipated Completion Date
1	Upgrade the ESMS to include the solar supply chain policy	12/16/2024

Contacts

For Inquiries About the Project, Contact

NMB Bank Ltd.
Susheel Kumar Bhujel
Head – International Business & Treasury
+977 1 4246160
susheel.bhujel@nmb.com.np
Babermahal, Kathmandu, Nepal
www.nmb.com.np

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