Established in 1992 in Shantou Guangdong primarily by M Thai Group, a Thai real estate development company and Thai Farmers Bank, BDB was the first foreign wholly-owned bank approved by the People’s Bank of China. The current shareholders are Charoen Pokphand Group (CP Group), the largest agribusiness conglomerate in Thailand (58.24%), M. Thai, (20.56%), Kasikornbank, the 3rd largest commercial bank in Thailand (6.85%), and German Investment and Development Company (DEG), a development finance organization owned by the German government (14.35%).

UCBH Holdings (UCBH) announced at end March 2007 to acquire 100% of BDB as part of its growth strategy to expand its presence in the Greater China region. UCBH is a NASDAQ-listed U.S. based banking company primarily focused on ethnic Chinese markets, offering the traditional consumer and commercial products and services including trade finance and broker dealer services. Regulatory approvals are expected to be obtained in the next six months with a target closing by the fourth quarter of 2007.

The total project cost is $45 million financed by an IFC A loan for IFC’s own account.

45.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	45.0
Equity

* These investment figures are indicative

BDB is headquartered in Shanghai, operates a branch in Shantou and representative offices in Beijing and Guangzhou plus has applications pending for expansion into other parts of the country.

The proposed project is expected to have many positive impacts on China’s financial market and economic development. The SME sector, mostly privately owned, account for a significant proportion of employment of the country. A growing and robust SME sector is critical to help accelerate China’s transition to a market economy. However due to the small scale of the SMEs, this sector has always been under served by banks which provide over 90% of funding to the economy. Among all the difficulties, lack of access to bank’s financing is always cited as the top challenge faced by SMEs.

The project is expected to have the following developmental benefits:

- Increase access to credit for the underserved SME sector;
- With term financing available, SMEs will be able finance investments in long term assets which is important to improve its operations and competitiveness, therefore, stimulating business growth, income and employment generation;
- Strengthen BDB to expand its lending activities to SME and improve its sustainability. This would have a strong demonstration effect to illustrate that SME financing is commercially viable and encourage other banks in China to engage in the sector.

The IFC involvement will help strengthen the institutional capability of the smaller scale banks (such as BDB) that has been less focused by the Chinese government whose main focus of its numerous reforms to strengthen banking sector is towards the nation’s larger, premier banks. The IFC’s expected development contribution in this project are:

- IFC would play a strong role in helping this small SME-focused bank to grow its lending operations to become a mainstream institution. The IFC loan would provide much needed matched funds to the Bank to finance its pipeline of SME credits which need medium term funding.
- IFC is strengthening BDB to enable the Bank to provide a broader range of credit products like medium term loans to SMEs which there is strong demand.
- IFC would be supporting UCBH which is expanding its presence in China and widen the reach of BDB to reach more SME customers throughout the country.
- The IFC loan is an important component of the funding requirements of the Bank to finance asset growth and enhance its capacity to provide financing to SMEs.

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC will analyze the FI portfolio and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:

- The IFC Exclusion List;
- The applicable National Social and Environmental Laws and regulations; and/or
- The IFC Performance Standards.

IFC will also review, if required, the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS.

Based on the review, the project will be required to:

- Develop an, or upgrade, if necessary, any existing 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 supported by IFC financing are in compliance with the Applicable Performance Requirements;
- Sbmit a periodic report to IFC as per a format to be provided by IFC.