Banco Davivienda S.A.
On June 30, 2020, MIGA issued a guarantee for up to US$47.5 million to cover a non-shareholder loan from the OPEC Fund for International Development (The OPEC Fund) to Banco Davivienda S.A. (Davivienda) in Colombia. The MIGA guarantee will provide coverage for the loan principal against the risk of Transfer Restriction and Currency Inconvertibility for a period of up to 10 years.
The non-shareholder loan from the OPEC Fund to Davivienda is a Basel III compliant Tier 2 (B3T2) subordinated loan, the proceeds of which will be used to (i) strengthen and diversify Davivienda’s capital base; and (ii) support Davivienda’s further on-lending to women-owned small and medium sized-enterprises (WSMEs), social housing and green building projects in Colombia. The B3T2 subordinated loan instrument from the OPEC Fund forms part of a larger IFC-led syndication in which the OPEC Fund is participating on parallel loan terms.
As described above, the proposed Project involves targeted loans to WSMEs, social housing and green buildings. Given that the targeted use of proceeds are expected to have low to moderate Environmental and Social (E&S) risks, this Project has been categorized as FI-2 according to MIGA’s Policy on Environmental and Social Sustainability (2013).
Davivienda is majority owned by Grupo Bolivar, a financial conglomerate based in Colombia. Davivienda is an important regional player and serves more than 12.3 million clients through a network of 672 branches and over 2.7 thousand ATMs across six countries (Colombia, Panama, Costa Rica, El Salvador, Honduras and the USA).
The Bank has over 48 years of track record in the local market. Davivienda offers a wide range of financial services to retail, Small Medium Enterprises (SMEs) and corporate clients. The Colombian operation has a diversified loan portfolio comprised by commercial (49%), consumer (28%) and housing (23%) loans and is the largest housing lender in the country, with a 25% market share as of March 2020.
As previously mentioned, the Project involves targeted loans to WSMEs, social housing and green buildings.
Davivienda, will be required to assess all loans within the Project against the MIGA’s Exclusion List, applicable E&S laws and regulations, and the MIGA Performance Standards. The Project will not support any activities with significant E&S impacts such as (a) involuntary resettlement, (b) risk of adverse impacts on Indigenous Peoples, (c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or (d) significant occupational health and safety risks. It will also not support any activities related to coal such as coal mining, coal transportation, coal-fired power plants, or infrastructure services dedicated to support any of these activities.
The main E&S risks of this project are associated with Davivienda's capacity to identify and manage the E&S risks associated with the lending activities supported by the project in Colombia, particularly lending to SMEs and green buildings (as applicable). The potential risks in these types of investments revolve around occupational health and safety, pollution prevention & mitigation, and community health, safety and security.
Davivienda is an existing IFC client with a long-standing relationship and IFC guided Davivienda in the implementation of an Environmental and Social Management System (ESMS) that covers the Bank’s entire portfolio (as needed) and that of its subsidiaries. MIGA worked in close collaboration with IFC in assessing the Bank’s systems and capacity to manage E&S risks. Davivienda has implemented a comprehensive ESMS to identify, manage and avoid E&S risks. The Bank has a qualified team trained to manage E&S risks and impacts and covers project finance, corporate lending, and SMEs.
MIGA has also reviewed Davivienda’s labor practices and life and fire safety risks and determined that these are being managed in line with MIGA’s requirements.
As part of this project, Davivienda will be required to: (i) maintain the existing ESMS to assess applicable the project against the MIGA’s Exclusion List, applicable national environmental and social laws and regulations and the MIGA’s 2012 Performance Standards (if applicable), (ii) apply the labor standards established by the MIGA Performance Standard 2: Labor and Working Conditions, (iii) submit a periodic report to MIGA.
MIGA’s guarantee will enable the OPEC Fund to provide funding to a systemically important bank in Colombia at a time when liquidity in the banking sector is especially important to counter the adverse economic effects of the COVID-19 crisis. The additional Tier 2 capital will allow Davivienda to strengthen its capital buffers, while implementing its loan portfolio growth strategy aimed at addressing the lack of access to finance for underserved segments of the Colombian population. Specifically, the project will support Davivienda’s lending targets for social housing and WSMEs, thereby allowing low-income households access to affordable mortgages and access to funding for female entrepreneurs. Besides promoting financial inclusiveness, the project will support a counter-cyclical effect at a time when these segments of society are facing additional challenges from the deteriorating economic outlook due to COVID-19. Additionally, the project’s support for Davivienda’s lending targets for certified green buildings will provide an important economic benefit to the Colombian population through an improved quality of life and job creation.
The project is well aligned with the World Bank Group’s Country Partnership Framework for FY2016-2021 for Colombia, particularly the pillar “Deepened Financial Intermediation for Productive Purposes”, which emphasizes World Bank Group support to increase the reach and effectiveness of financial institutions, as well as deeper financial intermediation to support individuals, small businesses and microenterprises. By removing barriers to female ownership through improved access to finance, the project is also consistent with the World Bank Group’s Gender Strategy FY2016-2023: Gender Equality, Poverty Reduction and Inclusive Growth.