Banco de Comercio Exterior de Colombia S.A.
Project Description
This summary covers an application made by Banco de Comercio Exterior de Colombia S.A. (Bancoldex) to cover a proposed lending facility to be provided to Bancoldex by a group of lenders yet to be identified.
MIGA’s coverage has been sought in relation to a Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHFO-SOE) guarantee for a US dollar debt financing structure of up to US$ 475 million with a tenor of up to 3 years.
The MIGA guaranteed loan will be used by Bancoldex to finance several of the Government initiatives aimed at providing liquidity for companies and preserving employment in response to the current COVID-19 crisis. The MIGA guaranteed loan will be used to fund programs, such as “Colombia Responde” and “Colombia Responde para Todos”, among others (the Programs), which provide short-term working capital loans of up to US$1.2 million with tenors of up to 36 months to Corporates and Micro, Small and Medium Enterprises (MSMEs) through financial intermediaries.
Environmental Categorization
As described above, the proposed Project involves targeted loans to Programs in response to the COVID-19 crises encompassing working capital loans up to 36 months, capped at US$750,000 for MSMEs and US$1.2 million for Corporates. 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).
Bancoldex is a majority state-owned bank, which mainly on-lends through financial intermediaries (banks, financial cooperations, financial cooperatives and commercial finance companies and specific to microenterprises, financial Non-Government Organizations, cooperatives with savings and credit activity, employee funds and compensation funds).
Bancoldex’ s main products, include among others, a rediscount credit line and a direct credit line. MIGA’s facility will be used in the rediscount credit line which involves Bancoldex on-lending through financial intermediaries targeted to COVID-19 response Programs. The direct credit line and any other funding activity other than the directed use of proceeds are out of the scope of this Project.
MIGA analyzed the portfolio of Bancoldex for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. Bancoldex tracks the segments and sectors where its funds are used in both the rediscount and direct credit lines. As of March 2020, Bancoldex portfolio composition per segment was 48% corporates, 35% Small Medium Enterprises and 17% microenterprises, in the following economic sectors: financial and insurance services, manufacturing, wholesale and retail trade, repair of motor vehicles, transportation and storage, electricity, gas, steam, and air conditioning supply, construction, human health and social work activities among others. Bancoldex has minimal exposure through its rediscount credit line to both activities in MIGA’s Exclusion List (alcohol) and exposure to some sensitive sectors including extractive industries, coal and palm oil. There are no direct credit line exposures to these activities.
As indicated above, the proceeds of the MIGA Facility will be used for existing and planned COVID-19 Government response Programs which provide working capital loans up to 36 months in tenor to corporates and MSMEs. Through these Programs, the MIGA facility will be specifically targeted to address immediate working capital needs resulting from the economic consequences of the COVID-19 pandemic. Bancoldex will assess all loans under the Programs against MIGA’s Exclusion List and applicable national E&S laws and regulations. The Project will not support any corporate/project financing 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, palm oil or coal such as coal mining, coal transportation, coal-fired power plants, or infrastructure services dedicated to support any of these activities.
Bancoldex has implemented a robust E&S Management System (ESMS) to identify, manage and avoid E&S risks related to its direct credit line operations and rediscount credit line transactions per the Bank’s E&S manual. In addition, as part of its Credit Risk Management System, Bancoldex assesses the E&S process and capacity of its financial intermediary clients.
MIGA also considered the business continuity, emergency response plan and human resources and labor policies and practices of Bancoldex and determined that these are being managed in line with MIGA’s requirements. Bancoldex Human Resource policies and procedures include conditions of employment and compensation, working time, benefits and performance management, talent management, non- discrimination, grievance redress, provisions for the employees’ organizations.
Bancoldex participates in the Global Reporting Initiative (GRI) and discloses on its website a Sustainability Report and Annual Report that provides information on the Bank’s portfolio by business lines and economic segments, and human resources performance among other information in line with GRI standards. In addition, Bancoldex has an external communication mechanism in place that allows it to receive, track and respond to inquiries and complaints from the public regarding its operations.
Based on MIGA’s review and applicable E&S requirements, an Environmental and Social Action Plan (ESAP) will be agreed with Bancoldex prior to entering a MIGA guarantee. The ESAP will be implemented within an agreed timeframe. Key measures identified to address the requirements of an ESMS include:
- Review and update Bancoldex’s ESMS to incorporate MIGA’s E&S requirements
Bancoldex will report periodically to MIGA on the breakdown of the portfolio, implementation of the ESMS and all applicable E&S requirements.
Development Impact
The Project will support Bancoldex’ s capacity to continue providing liquidity at concessional rates to commercial banks which would on-lend to corporates and micro, small and medium enterprises (MSMEs) in key economic sectors during this acute crisis; increasing their resiliency and allowing them to be better positioned as the crisis abates. MIGA’s guarantee will enable Bancoldex to access US dollar funding from commercial lenders in the current environment of global credit tightening at favorable terms. MSMEs represent an important part of the Colombian economy contributing to 40% of GDP, generating 80% of employment and constituted 90% of the country's productive sector. This segment is the one expected to bear the brunt of the COVID-19 crisis, intensifying the economic downturn. MSME financial stress could erode the asset quality and profitability of the financial sector. In addition, escalating job losses in MSMEs will hurt consumer-facing sectors more broadly. By contributing with timely credit lines to commercial banks in a context of liquidity shortages, Bancoldex will help to avoid major disruptions in the availability of credit to MSMEs that are currently or are expected to experience limited access to credit and financial stress as a result of the unprecedented COVID-19 crisis.
Colombia is currently facing an unprecedented dual shock of the COVID-19 global pandemic and a sharp decline in oil prices. A reduction in investments, including foreign direct investment, could affect the short and medium-term prospects of the economy. The MIGA’s NHFO-SOE product is one of the tools available for Bancoldex to access international financing at present to support the country navigate the crisis. The Project is aligned with MIGA’s US$6 billion COVID-19 response package under its pillar of countering adverse economic impacts during the COVID-19 crisis by providing liquidity to the financial sector as well as with the US$14 billion World Bank Group (WBG) Fast Track COVID-19 Facility to assist member countries in addressing the current global pandemic and its impacts.