Banco Nacional de Panama
On July 23, 2020, MIGA issued guarantees totaling US$533 million covering loans from Goldman Sachs (through an SPV) and Société Générale to Banco Nacional de Panamá (BNP) of Panama for a period of 7 years against the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NHFO-SOE). The loan from Goldman Sachs is being structured to crowd-in capital from institutional investors.
The MIGA-guaranteed loans are being used to support the creation of a Trust Fund, administered by BNP and sponsored jointly by BNP and the Government of Panama, which plays two important roles to support the Panamanian economy as the country weathers the effects of the COVID-19 crisis. As Panama has a dollarized economy, without a Central Bank to serve as lender of last resort to the domestic banking system, BNP, together with other parts of the Government of Panama, have established this Trust Fund to provide emergency liquidity to banks with proven liquidity needs to support the country’s financial sector. The Trust Fund will also provide credit to domestic banks for on-lending to SMEs and companies in key sectors, bolstering the real economy. The MIGA-guaranteed loans will complement a loan facility from the IMF to the Government of Panama that is also being used to finance the Trust Fund.
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:
- Appointment of an Environmental and Social Officer responsible for the Environmental and Social Management System (ESMS).
- 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
- Develop and Implement a training program for staff on the ESMS.
- Update the emergency response plan and security management plan in accordance with the requirements of Performance Standards 1.
- Update the procedure for external communications in line with requirements of Performance Standards 1.
- 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.
The Project aims to support SMEs, companies in priority areas, and the financial sector in Panama during the COVID-19 pandemic. MIGA’s guarantees allow BNP to access US dollar funding at lower interest rates and with longer tenors by crowding in both commercial lenders and institutional investors. Acting through the Trust Fund, BNP will provide liquidity to banks and companies to help maintain economic activity in the country. This is especially important in the current environment of loan forbearance, credit tightening, and decreased cashflow to companies affected by the crisis.
Through the Trust Fund, BNP will help Panama’s economy and banking sector that are particularly vulnerable, as the country has no central bank and its dollarized economy is heavily dependent on sectors that have been particularly affected by the crisis, including tourism, trade, and logistics. The creation of the Trust Fund will have strong signaling effects about the ability of the Panamanian banking sector to withstand the adverse shocks of the crisis.