The project sponsor is VTBE, the London based and international operations branch of JSC VTB Bank (VTB Bank), formerly known as Vneshtorgbank. VTBE is effectively the integrated operations of Moscow Narodny Bank Ltd which was acquired by VTB Bank in 2005. VTB Bank, created in 1990, is a Russia-based bank mainly engaged in providing banking services for corporate and retail clients. At mid- year 2006, VTB Bank had total of assets of over $45 billion and net loans of over $23 billion.

The proposed IFC investment in the portfolio comprises: a secured senior debt financing of up to $35 million equivalent in local currency and an equity investment in the same for an amount of up to $10 million equivalent. In addition, it is proposed that IFC make an equity investment of up to $150,000 equivalent in the newly formed AMC.

47.72 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	33.69
Equity	14.02

* These investment figures are indicative

The project assets are located across several region of Thailand.

The developmental impact of well-structured distressed debt transactions is well recognized. Such transactions help improve the stability of the banking system by encouraging transparency in balance sheets as true value of assets is exposed by the market value paid by buyers of NPLs and financial institutions are obligated to take losses and contribute additional capital where necessary. This helps the banking system achieve a capital adequacy level that is more consistent with the actual risks in bank portfolios. In addition the systematic and vigorous pursuit of NPLs contributes to the development of a much better credit culture especially in countries where the willingness to repay (as opposed to the ability to repay) has been the cause of serious portfolio problems in the banking systems which have had to be resolved at an enormous fiscal cost. The systematic and efficient work-out of NPLs thus helps allocate the burden of bearing the losses more towards where it actually belongs; on the non-performing borrowers.

IFC’s development contribution in this project comprises two main elements:

- First, IFC is supporting the entry of a new player in the NPL market in Asia. IFC has been approached by VTBE in the light of its strong relationship and positive experience in previous transactions. Through this partnership IFC would encourage VTBE not only to increase its participation in the NPL business but also VTBE’s business activities in the Asia region.
- Second, IFC’s financing will enable VTBE to develop a transaction model that will help it justify a more active participation in the market in accordance with its strategy for the NPL sector in Asia.

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

The project involves IFC support for reworking a known distressed asset pool and considering the nature of activities supported, the Asset Management Company will need to provide information pertaining to the pool regarding exposure to excluded activities on IFC''s FI Exclusion List as well as information on any known unresolved social and environmental issues or high risk projects in the pool.

If the review indicates that the pool is broadly in compliance with the above requirements, the Asset Management Company will be required to establish a Social & Environmental Management System (SEMS), relevant to its business process, that is satisfactory to IFC, to work with the assets being restructured to ensure that the projects are operating in compliance with Applicable National Environmental and Social Laws and regulations, or have an action plan to achieve the same within a reasonable time frame, in any case not exceeding 18 months.

The Asset Management Company will also be required to demonstrate commitment and resources to implementing the SEMS, take action to remedy any gaps in implementation on an ongoing basis and submit a periodic report to IFC as per a format to be provided by IFC.