Banco GyT is a full range commercial bank and the country’s second largest banking institution with total assets of $2.88 billion as of October 31, 2007. Through its network of 266 branches and mini-banks and 1,100 ATMs in Guatemala, the client serves four market segments: - corporate banking for medium-sized and large companies, - banking for small businesses, - retail banking with individuals, and - institutional banking. Corporate banking is clearly the largest of the four segments. Although the client has a strong focus on commercial banking, Banco GyT is also a major player in the remittance business with a 18.4% and 15% market share in total remittances and family remittances, respectively. Its 21 branches in Los Angeles, USA, are a crucial tool to capture these remittances from the strong Guatemalan diaspora in California.

The proposed investment will consist of a $68 million investment in preferred shares, which are convertible into common shares of Banco GyT or its parent company, Corporacion GyT Continental S.A.

70.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	70.0

* These investment figures are indicative

Banco GyT is headquartered in Guatemala City, but has 266 branches and mini-banks throughout Guatemala. Moreover, it operates 21 branches in Los Angeles, California.

The objective of IFC’s proposed investment in Banco GyT will address some of the Guatemalan banking sector’s deficiencies, thereby creating the following development impacts: - Recapitalization: One of the financial sector’s most pressing needs is the infusion of fresh Tier I capital into the system. The proposed investment will help recapitalize a major player and will go a long way to improve the system’s solvency issues. - Restoring the Banking Sector’s Credibility: The need for intervention of Bancomer and Bancafé put the regulatory authorities in an awkward position and has partly undermined the sector’s credibility, even though the authorities managed to reduce wide spread damage. The fact that a foreign institution will invest in Tier I capital will enhance Banco GyT’s credibility and bolster the sector’s overall image. - Reducing Fragmentation: Given its size, Guatemala’s banking industry has too many players, and they therefore have not been able to reach the crucial size to achieve efficiency levels common in this sector in other countries. The investment in a leading player’s Tier I capital will equip it to grow its balance sheet and have the means to acquire smaller competitors in the domestic market. Thus, the proposed investment will contribute to further consolidation. - South-to-South Investments: As part of its strategic plan, Banco GyT intends to further expand into neighboring countries through merger and acquisitions. A stronger capital base will facilitate the implementation of the client’s expansion. - Access to Finance: Guatemala is one of the most under-banked markets in Latin America, but banks with economies of scale and higher efficiencies are better prepared to provide access to financial services to underserved regions. While certain areas of Guatemala’s urban centers are well penetrated, large swaths of rural areas are poorly or not at all served. A strong capital base will provide the means to a player with a strong market presence to reach the unbanked.

- Maintain Independence: IFC will provide Tier I capital which is crucial to strengthen Banco GyT’s capital base. Tier I capital cannot be easily obtained through the market, as international players are not willing to invest in Tier I capital without gaining a controlling stake in the equity and without having influence over the strategic direction. With IFC investing into Tier I capital, the client will benefit from a strategic partner who does not want to attain a controlling stake and who has no intention to change Banco GyT’s group of controlling shareholders. - Downscaling Operations: IFC brings a distinct value from any other investor, given its commitment to serve unattended segments in markets of a premature stage. As seen very clearly by Citigroup’s recent divestures of non-core assets in the region, foreign banks lack the drive to support financial needs to the low-income borrowers. IFC’s contribution is, therefore, extremely valuable as there is an alignment of interest, not likely to be replicated through a partnership with any other foreign investor. - Sustainable Banking: IFC will require Banco GyT to follow environmental and social practices which set higher standards in the domestic market. As Banco GyT expands regionally, it will become an agent for disseminating sustainable banking practices in the regional financial sector.

This transaction 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 FI 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 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; and
- Submit a periodic report to IFC as per a format to be provided by IFC.