Caja de Ahorros Panama – COVID-19 Response
Project Description:
This summary covers a Loan Facility from bank(s) yet-to-be-identified to Caja de Ahorros, a state-owned bank in Panama. MIGA is considering issuing guarantee(s) of up to US$190 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, Panama’s two state-owned banks, Caja de Ahorros and Banco Nacional de Panama, expect to provide liquidity to companies and other financial institutions to help the economy weather and rebuild from the COVID-19 crisis. Specifically, the proposed Loan Facility would allow Caja de Ahorros to provide (i) working capital loans to financial institutions, micro, small and medium enterprises (MSMEs), and corporations to keep businesses operating during the acute phase of the crisis; and (ii) once the acute phase is over, working capital loans to sustain businesses until they are fully recovered. This Facility, addressing corporate and MSME lending needs, will complement another proposed MIGA guaranteed facility to support Caja de Ahorros mortgage lending activities .
Environmental Categorization:
This Project is a Category FI-2 project according to MIGA’s Policy on Environmental and Social Sustainability (2013) because the existing and proposed portfolio comprises business activities that have potentially limited adverse environmental and social risks and impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. Caja de Ahorros is a wholly-owned financial institution of the Government of Panama, which has two primary social objectives: (i) helping provide adequate housing to the low-income segments of the Panamanian population; and (ii) helping encourage financial literacy and personal savings. It has approximately 60 branches across Panama.
MIGA analyzed the portfolio of Caja de Ahorros for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of the end of December 2019, consistent with its objectives, retail banking and consumer loans comprise approximately 95% of the Caja de Ahorros portfolio. The remaining 5% of the portfolio is comprised of corporate loans (over 4%) and MSME loans (less than 1%). Within retail banking and consumer loans, approximately 65% is mortgages, 30% is personal loans and the remaining 5% is automobile loans, other loans for retail goods and credit cards. Over 70% of the corporate loan portfolio is in construction and real estate, and the remaining approximately 30% is retail, hotels and services. MSME lending is primarily in the services and real estate sectors. Caja de Ahorros does not do any project financing and has no exposure to MIGA Exclusion List sectors or sensitive and high-risk sectors including coal, palm oil and extractive industries.
As indicated above, the proceeds of the Loan Facility will be used to support corporates and MSMEs coping with the COVID-19 crisis. MSME lending is expected to be achieved in large part through a network of financial intermediaries. As described above, these loans will be short-term (less than 36 months in tenor) to help companies address short-term, immediate needs resulting from the economic consequences of the COVID-19 pandemic. Given limited risk in the portfolio and the short-term nature of the loans, the applicable E&S requirements for most of the portfolio are the MIGA Exclusion List, applicable national environmental and social laws and regulations and key objectives of relevant MIGA Performance Standards. Given the portfolio and the use of proceeds, the Project will not include 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.
Caja de Ahorros commitment to environmental responsibility is codified in its Code of Ethics and Conduct (Código de Ética y Conducta, August 2019). Caja de Ahorros is in the process of developing an Environmental and Social Management System (ESMS) for its operations, which will include an Environmental and Social Policy; procedure for review and categorization of proposed transactions and an indication of environmental and social requirements commensurate with the risk of the transaction. To that end, Caja de Ahorros have prepared a draft Environmental and Social Risk Manual, which is based on national law and the Equator Principles.
Caja de Ahorros has a Business Continuity Plan (BCP) in place, which is consistent with the requirements of an emergency preparedness and response plan as per Performance Standard 1.
Caja de Ahorros has an external communication mechanism in place that allows it to receive, track and respond to inquiries and complaints from the public regarding their operations. They also have Human Resource Policies and procedures in place, which are in line with national requirements and cover conditions of employment and compensation, working time, leave (maternity, paternity, sick), compensation and benefits, workers code of conduct, workers grievances and redress mechanism, whistleblower policy, retrenchment policy and the responsibilities of the employees and the employer.
Based on MIGA’s review and applicable E&S requirements, an environmental and social action plan (ESAP) will be agreed with Caja de Ahorros prior to entering a MIGA guarantee. The ESAP will be implemented within an agreed timeframe. The ESAP will be expected to contain the following items:
- Update and finalize the Draft Environmental and Social Risk Manual to reflect the requirements of Performance Standard 1.
- Appointment of an Environmental and Social Officer responsible for implementation and management of the ESMS
- Develop and Implement a training program for staff on the Environmental and Social Risk Manual.
Caja de Ahorros 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 aims to provide long-term liquidity to Caja de Ahorros to on-lend to corporate and MSMEs clients during this unprecedented crisis generated by the COVID-19 pandemic. MIGA’s guarantee will enable Caja de Ahorros to access US dollar funding from commercial lenders in the current environment of global credit tightening. MSMEs represents 96% of the private sector companies and provide 49% of the employment in the country. 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 increasing access to credit lines, the Project aims support the resiliency of these companies to the crisis while also helping them to be better positioned during the recovery period as the crisis abates. Caja de Ahorros could also provide liquidity to financial institutions to help maintain a functioning financial sector in Panama during the crisis.
As a dollarized economy heavily dependent on trade and logistics, Panama cannot respond to shocks through the 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 Caja de Ahorros 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.