VCB commenced operations in 1993 and by the end of 2006 had total assets of about US$54.5 million and total equity of US$11.2 million. VCB is a private domestic bank with approximately 50 staff. Initially focused on the ethnic-Chinese business community in Vientiane, VCB has evolved to provide trade-related financing to vehicle distributors and other trading firms, as well as corporate loans, primarily to SMEs, in a variety of sectors, including industry and handicraft, agriculture, construction, and services. VCB is 81% owned by the founder and Chairman, Mr. Sop Sisomphou and his family, with remaining 19% held by various outside investors. Founded in 1835 and headquartered in Melbourne, Australia, ANZ has extensive offices in 13 countries and regions in Asia, including Singapore, Hong Kong, Indonesia, Malaysia, Vietnam, Cambodia, Taiwan, the Philippines, Thailand, Japan, Korea, India and Mainland China. ANZ is one of the five largest companies in Australia with assets of A$293 billion, 30,000 employees globally, and more than six million personal, private banking, small business, corporate, institutional, and asset finance customers worldwide. The bank is currently rated Aa3/AA- by Moody’s and Fitch.

IFC’s expected equity investment will be for acquisition of common shares of up to 10% shareholding in VCB, alongside ANZ which expects to acquire 60% of VCB. The investment would shift majority ownership and control from the current founder-Chairman to ANZ which, post-investment, will aim to upgrade the capacity of VCB and position the bank toward sustainable growth. IFC will have the ability to nominate one representative to the VCB board.

2.10 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	2.10

* These investment figures are indicative

VCB is headquartered in Vientiane, Laos and currently operates only this one headquarter-branch. Most of VCB’s lending activities are located in and around the Vientiane area.

The proposed investment, alongside a strong international partner, ANZ, would help upgrade the governance, management, strategy and commercial operations of VCB, the largest private-sector bank in Laos, which, in turn, would help deepen much-needed bank-intermediation in this frontier market. A baseline survey done by GTZ in 2006 shows that only 7.5% of enterprises surveyed (primarily SMEs) have received financing through banks while 68% indicated demand for loans. With regard to household and retail finance, penetration of banking services in Laos is extremely low as an estimated 90% of household savings are in the form of “under-the-mattress” cash instead of bank accounts; it is estimated that only 5% of the population has a bank account. Underpinned by increasing trade and industrial expansion (mainly infrastructure and mining), Laos recorded real GDP growth at 7.3% in 2005, a level that is forecasted to reach 7.2% for 2006 (EIU) and averaging 6.7% in 2007-2008. In light of the fledging banking sector, and one where less-efficient SOCBs maintain dominant share, upgrade of private-sector banking services is vital to foster and sustain economic growth going forward.

IFC’s proposed shareholding and board representation in VCB will help to enhance VCB’s corporate governance and, through potential provision of technical assistance, IFC will seek to upgrade the bank in sustainability areas such as environmental and social safeguards. This pioneering financial market investment in Laos for IFC will also highlight the positive contribution of IFC’s technical assistance which has provided inputs and assistance in the drafting of the recently issued and revised Commercial Banking Law in Laos.

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.

During appraisal, IFC analyzed VCB’s portfolio, for types of transactions, size, tenor and industry sectors and determined the Applicable Requirements based on an analysis of the potential social and environmental risks associated with VCB’s portfolio and considering IFC’s investment. The Applicable Requirements are:

- The IFC FI Exclusion List; and
- The applicable National Social and Environmental Laws and regulations.

IFC also reviewed VCB’s existing procedures and capacity to implement the same.

Based on the Applicable Requirements and procedure and capacity review, VCB will be required to:

- Develop a Social & Environmental Management System (SEMS), prior to disbursement to the satisfaction of IFC.
- Identify responsible, qualified persons to manage and implement the SEMS.
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Requirements.
- Commit to take action to remedy any gaps in SEMS implementation on an ongoing basis.
- Submit a periodic report to IFC as per a format to be provided by IFC.