Established in 1993, Techcombank was one of the first private-sector banks founded in Vietnam post market liberalization initiated in the late 1980s. The current shareholding structure of Techcombank is diversified, with 71.43% of shares held by 846 individuals. Key institutional shareholders, holding 28.57% of shares, comprise HSBC 9.98%, and Vietnam Airlines 3.19%, the state-owned carrier. As at August 2007, there was only one individual shareholder owning more than 5%. Techcombank, while not yet listed, is actively traded in the over-the-counter market. In 2006 Moody’s assigned Techcombank with ratings of Ba2 and Ba1 for long and short term foreign and local currency issuance, respectively, as well as BFSR of D- which equates to base line credit assessment of Ba3. In 2007, the BFSR remains unchanged at D- (positive outlook). The Global Local Currency Deposit Ratings remain unchanged at Ba1 (stable outlook). The Foreign Currency Deposit Ratings remain unchanged at B1 (positive outlook), and are constrained by the country ceiling. The Local and Foreign Currency Issuer ratings remain unchanged at Ba1 and Ba2 (stable outlook), respectively.

The proposed VND-denominated loan to Techcombank is up to $20 million equivalent with tenor of up to 7 years for the purpose of supporting Techcombank’s growth in lending activities to SME clients.

19.89 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	19.89
Equity

* These investment figures are indicative

Techcombank is headquartered in Hanoi, Vietnam and currently operates only this one headquarter-branch. Most of Techcombank’s borrowers, particularly SME clients, are located in northern Vietnam. As July 2007, Techcombank operates 104 branches and sub branches in 20 provinces and cities throughout the country.

Vietnam’s banking sector is underdeveloped and credit to the private sector, at 50% of GDP, remains low. The sector is dominated by 5 state-owned banks with market and asset shares of around 60-70%. A sector diagnostic conducted by IFC’s regional Advisory Services team, the Mekong Private Sector Development Facility (MPDF), showed that:

- Only 20%-40% of households and private enterprises have access to finance;
- private financial institutions serve larger corporates and secure a large percentage of their revenues through payment and foreign exchange services;
- banking products and services are limited to basic loan and savings instruments, many of which do not address the needs of SMEs; and
- lending is generally very reliant on collateral, typically immovable assets.

As a result, a large segment of the private sector, particularly SMEs, remains un- or underserved. This project is expected to directly expand credit access to SMEs, build capacity for a strong SME-focused local bank, and indirectly improve market perception to commercially-priced long-term funding for SME lending, which could catalyze similar funding from commercial sources for further SME-lending activities.

IFC aims to achieve the following roles and expected contributions in this project:

- Improve financial intermediation through enhancing the capacity of Techcombank via a holistic and packaged support of investment products (SME loan, trade finance line) and advisory services (capacity building for SME lending). Moreover, IFC expects to play a long-term role with Techcombank to jointly develop other areas of potential support, such as housing loans, capital market products, tier II capital, and larger SME senior loans and trade finance lines as the client grows; and
- Increase access to finance for SME borrowers benefiting from the expanded depth and breadth of Techcombank’s SME-lending platform.

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

During appraisal, IFC analyzed the FI portfolio and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determined the Applicable Performance Requirements based on an analysis of the potential Social and Environmental risks associated with the FI portfolio and considering IFC’s investment. The Applicable Performance Requirements are: The IFC FI Exclusion List and The applicable National Social and Environmental Laws and regulations. Based on the Applicable Performance Requirements and the review of the Bank’s capacity to manage social and environmental risks, the project will be required to:

- Develop a Social & Environmental Management System (SEMS), prior to disbursement or according to a time-bound action plan related to the SEMS, 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 supported by IFC financing are in compliance with the Applicable Performance Requirements
- Submit a periodic report to IFC as per a format to be provided by IFC