ADCB Egypt Capital Optimization
Project Description
This summary covers equity investments by Abu Dhabi Commercial Bank PJSC (ADCB or the Group), in its subsidiary in Egypt, Abu Dhabi Commercial Bank - EGYPT S.A.E (ADCB-E or the Subsidiary). The investor has applied for a MIGA guarantee of up to USD237.5 million for capital optimization cover for a period of up to 3 years (the Project).
The ADCB Group is one of the UAE’s leading financial institutions, based in Abu Dhabi, UAE. Serving around 2 million customers with a wide range of market-leading products and services, the ADCB Group’s core businesses are Retail Banking, Corporate & Investment Banking and Treasury & Investments. With a host of award-winning digital solutions and market firsts, the ADCB Group is driving digital innovation in the financial services industry, helping provide the highest levels of service and convenience to its customers and partners. The ADCB Group operates major financial and non-financial subsidiaries. These subsidiaries include Al Hilal Bank, providing Islamic banking services for retail customers, and ADCB Egypt, providing both corporate and retail banking services. The ADCB Group is 60.69% owned by the Government of Abu Dhabi through Mubadala Investment Company through its wholly owned subsidiary One Hundred and Fourteenth Investment Company – Sole Proprietorship LLC and trades on the Abu Dhabi Securities Exchange (ADX) under the ticker “ADCB”. Further information on the ADCB Group can be found at www.adcb.com
ADCB-E, a 100% subsidiary of the ADCB Group since 2019, offers a universal range of products and services, catering to both retail and corporate clients, across 50 branches.
Environmental Categorization
ADCB Egypt provides retail, small and medium enterprise, and corporate finance services to clients in Egypt. The MIGA guarantee will support key segments within the bank’s lending activities. ADCB-E’s portfolio is considered medium risk as the sectors financed and types of transactions have limited environmental and social (E&S) risks and impacts, or impacts that are few in number, site-specific, largely reversible and can be readily addressed through mitigation sectors. Long-term corporate loans to clients in potentially high-risk sectors is limited. This project has thus been categorized as FI-2 in accordance with MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S aspects of this project relate to ADCB-E’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor and working conditions at ADCB-E. MIGA analyzed ADCB-E’s portfolio for types of transactions, tenors, sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed ADCB-E’s E&S risk management procedures for lending activities against the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2).
For the purposes of the MIGA guarantee, ADCB-E will be required to assess the targeted asset class against: (i) MIGA Exclusion List; and (ii) applicable E&S laws and regulations in Egypt. Eligible corporate loans will also be assessed against MIGA Performance Standards.
As of December 2023, ADCB-E’s portfolio included the following business segments: corporate loans, 51% (long-term – 9.4% and short-term – 41.7%); trade finance, 25.4%; retail/consumers loans, 16.5%; financial institutions – 3.7%; and small and medium enterprise loans, 3.3%. The main sectors financed include construction and building, financial services, chemicals, agriculture and forestry, real estate, food and beverage, and wholesale and retail trade. ADCB-E has no exposure to activities on the MIGA Exclusion List or coal-related projects. The bank has exposure to oil and gas activities – most of the transactions are short-term transactions.
In relation to E&S risk management, ADCB Group has an Environmental and Social Risk Management Policy which was adopted by ADCB-E in October 2023. The policy covers E&S risk identification, assessment, and monitoring as part of the bank’s credit cycle. The policy also references excluded and restricted activities as well as the application of the MIGA Performance Standards to Equator Principles transactions and high-risk sectors. ADCB-E will be required to update the list of excluded activities to include all activities on the MIGA Exclusion List and revise the scope of application of the MIGA Performance Standards to include eligible corporate loans in line with MIGA’s requirements. In addition, in line with PS1, ADCB-E will be required to develop and implement an external communication mechanism for receiving and addressing E&S concerns raised by third parties about projects financed by the bank.
MIGA’s review of ADCB-E’s emergency preparedness and response measures, revealed that the measures are in line with the requirements of PS1. MIGA’s review of the bank’s labor policies and procedures also indicated alignment with the requirements of PS2. ADCB-E has labor policies and procedures that address terms of employment, recruitment, renumeration, benefits, grievance management and non-discrimination.
For the proposed guarantee, ADCB-E will be required to report annually to MIGA regarding the bank’s portfolio, the implementation of the E&S procedures as well as labor practices.
Development Impact
The aim of MIGA’s proposed guarantees is to help ADCB reduce the risk of some of its assets in Egypt, which would lead to a reduction in the group’s risk-weighted assets (RWA) on a consolidated basis. The RWA capacity that is freed up is expected to be used by ADCB to support the growth of its lending operations in Egypt, as possible, where the lending gap is large. The proposed Project is therefore expected to increase on a best effort basis access to finance businesses, including micro, small and medium enterprises (MSMEs), operating in Egypt while encouraging climate-related lending consistent with ADCB-E’s strategy.
The project is expected to support ADCB’s overall business strategy in Egypt. MIGA’s guarantee allows ADCB to achieve RWA relief at the group consolidated level and provide the enabling conditions to the parent bank to pass the benefits of this support to its operating subsidiary, as possible. As reserves, held at each respective central bank, attract lower risk weights because of MIGA, assets in Egypt can be deployed more productively, thereby either accelerating the pace of leveraging (i.e. expansion of loans to customers) or slowing down the pace of deleveraging (i.e. retention of loans to customers), according to market conditions and ADCB risk policies prevailing at that time.
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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:
Compliance Advisor/Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue NW
Room F11K-232
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400
E-mail: cao-compliance@ifc.org