Banco Nacional de Panama

Project Description:

This summary covers a Loan Facility from bank(s) yet-to-be-identified to Banco Nacional de Panama (BNP), a state-owned bank in Panama. MIGA is considering issuing guarantee(s) of up to US$589 million for a period of up to 10 years against the risk of Non-Honoring of a Financial Obligation by a State-owned Enterprise (NHFO-SOE).

In the absence of a central bank, BNP is considered systemically important and plays certain traditional central bank roles, including acting as a clearing house for the financial sector and lender to the domestic financial system. As such, the proceeds of the Loan Facility will be used to provide financing to domestic banks in response to liquidity constraints that are emerging from the COVID-19 crisis. Remaining amounts may be used to provide financing to micro, small and medium enterprises (MSMEs) and priority sector companies, either directly from BNP or indirectly through BNP’s client banks. Once the acute phase of the crisis is over, the proceeds would be used to help promote economic recovery by financing MSMEs and priority sector companies, either directly or indirectly.

Specifically, the Loan Facility would allow BNP to provide (i) liquidity to the financial system, should needs arise in the event of a banking crisis that result from COVID-19; (ii) working capital loans, directly or indirectly, to SMEs and priority sectors companies to keep businesses operating during the acute phase of the crisis; and (iii) working capital, directly or indirectly, to SMEs and priority sector companies reestablish to help them rebuild towards achieving normality once the acute phase of the crisis is over.

Environmental Categorization:

This Project is a Category FI-2 project according to MIGA’s Policy on Environmental and Social Sustainability (2013). BNP is a state-owned bank providing universal banking services to corporations and individuals across Panama. It has 70 branches.

MIGA analyzed BNP’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of March 31, 2020, retail banking accounts for approximately 55%, of BNP’s total portfolio, corporate finance is about 21%, the SME portfolio is about 17% and lending to the public sector is about 7%. Corporate finance includes among others exposure to sectors such as agribusiness, energy, construction and food processing that may have potentially medium to high environmental and social risks. BNP has some small exposure to palm-oil production, corresponding to around 0.2% of the total portfolio. BNP does not have exposure to sectors on the MIGA Exclusion List or coal-related activities. The use of proceeds of the Loan Facility will exclude high-risk activities that may include (a) involuntary resettlement; (b) potential 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.

The main environmental and social (E&S) risks of this project are associated with the BNP’s and the client bank’s lending activities and its capacity to manage these risks. The applicable E&S requirements are the MIGA’s Exclusion List; applicable national environmental and social laws and regulations; sector risk-screens as applicable; and the MIGA’s Performance Standards.

BNP does currently not screen transactions against host country environmental and social laws and/or regulations. There is a strategy and commitment to Corporate Social Responsibility (CSR) and BNP supports various related initiatives and associations in the field of education, health, sport, culture, and ecology. A CSR Report is published annually on BNP’s website. In addition, BNP has a process to receive and respond to external communication regarding BNP’s operations and business activities.

BNP has a set of policies related to human resources reflecting national requirements, including conditions of employment and compensation, working time, benefits and performance management, talent management, redundancy policy (which covers retrenchment), non- discrimination, grievance redress, provisions for the employees’ organizations and a worker’s grievance mechanism.

BNP has a Business Continuity Plan and an Emergency Response and Evacuation Plan in place. These documents cover emergency response procedures, crisis management and business recovery protocols for the critical business processes, internal/external notification, requirements for training and drills and the requirements for auditing of the business continuity plans.

BNP has a framework for managing security, including alarms and surveillance equipment, training, and code of conduct applicable to both BNP staff and any third-party security provider.

Based on MIGA’s review and applicable performance requirements, an environmental and social action plan (ESAP) will be agreed with BNP 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. Appointment of an Environmental and Social Officer responsible for the Environmental and Social Management System (ESMS).
2. Develop the ESMS in line with the requirements of MIGA Performance Standard 1. The ESMS will include, but will not be limited to: E&S Policy; internal organizational capacity and competency; E&S due diligence processes/procedures to identify risks and impacts of borrowers’ activities against applicable requirements; monitoring and review of portfolio; and reporting
3. Develop and Implement a training program for staff on the ESMS.
4. Update the emergency response plan and security management plan in accordance with the requirements of Performance Standards 1.
5. Update the procedure for external communications in line with requirements of Performance Standards 1.
6. Update the Human Resources (HR) policies and procedures in line with the Performance Standards 2 requirements.

BNP will report periodically to MIGA on the development and implementation of the ESMS and related procedures.

Development Impact:

The Project aims to support the financial sector of Panama during the COVID-19 pandemic. MIGA’s proposed guarantee will enable BNP to access US dollar funding from commercial lenders in the current environment of tightening global credit. BNP would use these funds to provide credit lines to commercial banks, which may experience liquidity pressures as a result of the crisis. The funds would also help banks continue to serve MSMEs and priority sector companies as they weather the economic pressures imposed by the crisis. As a dollarized economy that is heavily dependent on trade and logistics, Panama cannot respond to shocks through ordinary monetary policy tools, making it more vulnerable to impacts of the COVID-19 crisis. The MIGA’s NHFO-SOE product is one of the tools available for BNP to access international financing at present to support the country to navigate the crisis.

The Project is aligned with MIGA’s COVID-19 response package under its pillar of countering adverse economic impacts during the COVID-19 crisis by providing liquidity to the financial sector. By augmenting BNP’s capacity to provide liquidity to domestic banks, the Project will help maintain confidence in Panama’s financial sector, particularly in the context of payment moratoriums on certain bank loans and potential deterioration of asset quality due to the crisis. Providing additional credit lines to domestic banks that are experiencing liquidity pressures will help these banks maintain their operations and continue lending to key sectors (agribusiness, health, sanitation, food imports and SMEs).