Summary of Proposed Investment
Project Number
11494
Company Name
BANCO DAVIVIENDA S A
Date SPI Disclosed
Sep 11, 2002
Country
Colombia
Industry
Financial Markets
Projected Board Date
Oct 15, 2002
Status
Completed
Sector
Commercial Banking - General
Department
Global Industry, Financial Markets
Environmental Category
C - No Impact
Previous Events
Approved : Nov 8, 2002
Signed : Dec 26, 2002
Project Description
Davivienda has approached IFC for a subordinated debt (tier 2 capital) enhancement facility to help the bank grow and diversify its operations following Colombia''s financial sector crisis. While the bank is adequately capitalized today (15.8% at December 31, 2001) its management recognizes the need to strengthen its capital for the following reasons:
Second, portfolio diversification is a means to improve the significant maturity and interest rate mismatches which resulted after the regulated change in mortgage indexation (mortgage loans are long term and indexed to inflation while liabilities are short term with market based rates). By extending the duration of the maturities, IFC will also contribute to reducing this mismatch on the liabilities side.
The proposed tier two equity facility would be the first of its kind to be implemented in Colombia since the regulations were established in August 2001. Based on IFC''s legal and financial due diligence, the investment will be structured to ensure that it achieves the goals of 1) qualifying for tier two capital and 2) having the ability to be replicated in the financial system.
This project will also have the following impacts:
- Strengthen Colombian banking system after the recent economic recession;
- Develop Colombian capital markets by providing a new type of financial instrument.
- Davivienda intends to grow its assets 4-5% annually in real terms over the next five years thereby increasing its capital needs.
- In addition to growing its asset base, the bank is trying to diversity its assets and loan portfolio to achieve the following two goals.
Second, portfolio diversification is a means to improve the significant maturity and interest rate mismatches which resulted after the regulated change in mortgage indexation (mortgage loans are long term and indexed to inflation while liabilities are short term with market based rates). By extending the duration of the maturities, IFC will also contribute to reducing this mismatch on the liabilities side.
- Davivienda expects to take additional provisions in the future to cover for market, operational, and legal risks according to new regulations from the Banking Superintendence which will be according to Basel II.
The proposed tier two equity facility would be the first of its kind to be implemented in Colombia since the regulations were established in August 2001. Based on IFC''s legal and financial due diligence, the investment will be structured to ensure that it achieves the goals of 1) qualifying for tier two capital and 2) having the ability to be replicated in the financial system.
This project will also have the following impacts:
- Strengthen Colombian banking system after the recent economic recession;
- Develop Colombian capital markets by providing a new type of financial instrument.
Sponsor / Cost / Location
Development Impact
Related ESRS/ERS
Contacts
For Inquiries About the Project, Contact
Mr. Alvaro Carrillo Buitrago, Asistente de Presidencia
Banco Davivienda
Carrera 7 No.31-10 Piso 22
Bogotá, DC, Colombia
Phone:+57-1-330 0000
Fax:+57-1-285 6817
Banco Davivienda
Carrera 7 No.31-10 Piso 22
Bogotá, DC, Colombia
Phone:+57-1-330 0000
Fax:+57-1-285 6817