Absa Group Central Bank Mandatory Reserves Coverage
On December 6, 2019, MIGA agreed to issue guarantees of up to USD 94.05 million for a tenor of up to 15 years covering the risk of expropriation of the mandatory reserves held by Absa’s subsidiary in Mauritius, Barclays Bank Mauritius Limited at the Central Bank of Mauritius.
Absa Group, South Africa-based, is one of the largest pan-African financial institutions in terms of total assets with operations in ten countries in Sub Saharan Africa. Its subsidiary banks outside of South Africa are required to maintain reserves at the central banks in their respective jurisdictions, based on the volume of customer deposits that these subsidiaries have. Mandatory reserves contribute to Absa Group’s overall risk-weighted assets (RWA) at the consolidated level, resulting in less headroom for other assets at a given level of capital.
This project is a Category FI-1 project according to MIGA’s . Absa Group’s subsidiary is a universal bank providing finance to retail customers, small and medium-sized enterprises (SMEs), corporate and project finance clients.
MIGA analyzed the subsidiary’s portfolio for types of transactions, size, industry sectors, and exposure to MIGA’s Exclusion List. Corporate and project finance transactions primarily include among others exposure to sectors with low-medium environmental and social risk, including wholesale and retail, transportation, communication, and services. The portfolio also includes exposure to potentially high-risk environmental and social sectors such as extractive industries and energy. The main environmental and social (E&S) risks of this project are associated with the subsidiary’s lending activities in high-risk sectors and its capacity to manage these risks. The applicable environmental and social requirements are MIGA’s Exclusion List; applicable national environmental and social laws and regulations; and the MIGA’s Performance Standards.
MIGA assessed the existing environmental and social management system (ESMS) and labor practices of the subsidiary against the requirements of Performance Standards 1 and 2. Its ESMS includes Absa Group’s corporate policies on sustainability and the Equator Principles to which Absa Group is a signatory. The Equator Principles constitute an E&S assessment for defined financial products (particularly, applicable project and corporate finance transactions) benchmarked to the Performance Standards. The ESMS of the subsidiary is comprised of processes and procedures for the management of E&S risk tailored to the local context as well as a set of sector guidelines for environmental risk management.
The supervision of the ESMS is the responsibility of the Social Ethics Committee and Environmental Credit Risk Management function at Absa Group Headquarters. ESMS policies and procedures are communicated and explained to relevant staff and are available for all employees through internal communications channels. In addition, when applicable, Absa Group hires external consultants to carry out E&S due diligence and monitoring of applicable project and corporate finance transactions that are assessed per the Equator Principles. The ESMS will be updated, within an agreed time frame, to reflect applicable MIGA E&S requirements.
As part of its commitment to the Equator Principles, Absa Group reports annually on the total number of project finance transactions and total number of project-related corporate loans that reached financial close considering appropriate confidentiality considerations. Absa Group also submits project name data of project finance transactions directly to the Equator Principles Association for publication on their website. Furthermore, Absa Group publishes an annual report that among others states its commitment to environmental and social sustainability, in line with the Global Reporting Initiative standards for sustainability reporting. Absa Group’s subsidiary also maintains a communication channel through the contact centre of its website for the general public.
MIGA also considered Absa Group’s health & safety standard and the related procedures of its subsidiary as part of the management system which was determined to be adequate. Human resources and labor practices are aligned with the requirement of MIGA’s Performance Standard 2 on Labor and Working Conditions.
Based on MIGA’s review and applicable performance requirements, an environmental and social action plan (ESAP) will be agreed with Absa Group’s subsidiary prior to entering into a MIGA guarantee and will be implemented within an agreed timeframe. The ESAP would be expected to contain the following items: (1) Revise and update the ESMS to incorporate MIGA’s applicable environmental and social requirements; (2) Implement a training program for staff on the revised and updated ESMS; and (3) Appoint an E&S officer to ensure effective implementation of the ESMS.
Absa Group’s subsidiary will report periodically to MIGA on the implementation of the ESMS and application of the Performance Standards.
MIGA’s guarantees de-risk some of Absa Group’s assets, which leads to a reduction in the group’s RWA on a consolidated basis. Absa Group plans to deploy this headroom of consolidated RWA across its Africa operations, including Mauritius and including in the climate finance space, thus increasing the potential reach, development impact, and financial returns of the foreign investment.
MIGA’s coverage to Absa Group is aligned with the most recent World Bank Group’s strategy for Mauritius, as it seeks to promote private-sector-led growth via increased access to finance in the country and to promote sustainable investments.
MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring direct investment clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities. MIGA support to Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations as per the requirements of Performance Standards 1.
In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.
Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.
Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:
International Finance Corporation
2121 Pennsylvania Avenue NW
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400