FirstRand Rest of Africa Central Bank Mandatory Reserves Coverage
Project Description
On June 30, 2020, MIGA issued guarantees covering the equity investments by FirstRand EMA (Pty) Ltd of South Africa (FirstRand), which is the Rest-of-Africa holding company for FirstRand Limited (FirstRand Group or FSR) into, FNB Moçambique, S.A. (FNBM). FirstRand Group’s interest in FNBM is held by FirstRand being the investor. The investor received coverage from MIGA for up to US$29.7 million in mandatory reserves for a period of up to 15 years.
FirstRand Group, South Africa-based, is one of the largest pan-African financial institutions in terms of total assets with operations in ten countries in Sub Saharan Africa. Its subsidiary banks outside of South Africa are required to maintain reserves at the central banks in their respective jurisdictions, based on the volume of customer deposits that these subsidiaries have. Mandatory reserves contribute to FirstRand Group’s overall risk-weighted assets (RWA) at the consolidated level, consuming a level of capital that could have otherwise been deployed in productive assets.
Environmental Categorization
This Project is a Category FI-1 project according to MIGA’s Policy on Environmental and Social Sustainability (2013). FNBM is a commercial bank providing retail and corporate banking services across Mozambique. It has 15 branches.
MIGA analyzed the portfolio of FNBM for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of June 2019, corporate finance accounts for approximately 34% of the bank’s total advances portfolio, SME portfolio is at 39%, retail banking at 22% and vehicle asset finance at 5%. Corporate transactions denominated in USD, while originated in-country, are booked onto FSR’s hard currency platform being FirstRand Bank Limited in South Africa. The Corporate project transactions include among others exposure to sectors such as hydro, oil and gas and mining, food and beverages, fabricated metal product manufacturing, chemicals, and telecommunications, that may potentially have medium to high environmental and social risks. FNBM has exposure to coal and some minor exposure to timber production. The main environmental and social (E&S) risks of this project are associated with the subsidiary’s lending activities in medium to high-E&S risk sectors and its capacity to manage these risks. The applicable E&S requirements to FNBM portfolio are: MIGA’s Exclusion List; applicable national environmental and social laws and regulations; and the MIGA’s Performance Standards.
FirstRand Group became an Equator Principles (EP) signatory in 2009 and has developed a Guideline for the Management of Environmental and Social Risks in Financing which describes the Environmental and Social Risk Assessment (ESRA) due diligence process implemented in a number of the Group’s business units including FNBM. FirstRand Group has policy statements on environmental sustainability, policy statements relating to restrictions on the financing of certain sectors/activities, and thermal coal financing policy. FSR has developed an Exclusion List and a Sensitive Industries Matrix. The Exclusions List indicates activities that FSR will not finance at all (“strict exclusions” such as projects involving child labor/forced labor, activities and material deemed illegal under host country laws and international agreements, cross border trade in waste, destruction of high conservation value areas, unbounded asbestos fibers, pornography/ prostitution, racist and anti-democratic media), or sectors within which the amount of financing provided has been limited to a selected limit (“limited exclusions” including radioactive materials, substantial involvement in alcoholic beverages, tobacco, weapons and munitions, gambling/ casinos, commercial logging operations for use in primary tropical moist forest and production or trade of wood or other forestry products other than sustainably managed forest). The activities on the Sensitive Industry Matrix potentially raise significant environmental and social issues which require a position to be taken by the bank regarding potential lending to these industries. They include nuclear power generation, fracking, biofuels, political party funding, hunting of exotic and endangered species, trade of conflict minerals and cannabis-based products. FSR policies are publicly disclosed on the FSR website. In addition, FSR publishes on its website Equator Principles performance reports, that have been attested by an independent third party and reflect information about project finance activities and E&S performance in line with the requirements of the EPs.
FNBM does not have an ESRA policy and the ESRA system is pending implementation. Due to lack of the ESRA system in FNBM, all the transactions within FNBM threshold are screened manually per the credit team’s discretion and not against the FSR policy statements relating to restrictions on the financing of certain sectors/activities and host country environmental and social laws and/or regulations as part of the credit review and approval process. All the transactions that are above the country threshold, the FirstRand Bank South Africa (FRBSA) E&S specialists screen these transactions against the FSR policy statements relating to restrictions on the financing of certain sectors/activities within the ESRA online system. During the due diligence, MIGA reviewed selected FNBM files and confirmed that, since FNBM does not have the ESRA system in place, they do not conduct screening of transactions against the FSR policy statements relating to restrictions on the financing of certain sectors/activities and host country environmental and social laws and/or regulations as part of the credit review and approval process.
FNBM has a Business Continuity Plan (BCP) in place indicating clear responsibilities and detailed procedures/plans for different potential emergency scenarios. FNBM’s BCP reflects the requirements of the emergency preparedness and response plan.
In line with the national legislation FNBM has developed a set of Human Resources (HR) policies and procedures which 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. Moreover, FNBM has a draft security policy and security framework that are pending internal approvals, implementation and operationalization. Currently there are no external communications mechanism/procedures.
Based on MIGA’s review and applicable E&S requirements, an environmental and social action plan (ESAP) was agreed with FNBM prior to entering the MIGA guarantee and will be implemented within the agreed timeframe. The ESAP contains the following items:
- Develop ESRA policy for FNBM, update the ESRA system to include MIGA E&S requirements and implement the system.
- Appoint an E&S specialist/officer responsible for the Environmental and Social Management System (ESMS)/ESRA. This item has been completed.
- Develop and implement a training program for staff on the updated ESRA policy and process.
- Update the emergency response plan in accordance with the requirements of Performance Standards 1.
- Develop and implement a procedure for external communications to screen and assess the issues raised by the public through its open channel and document responses in line with requirements of Performance Standards 1.
- Update the Human Resources (HR) policies and procedures in line with the Performance Standards 2 requirements.
- Develop the FNBM security policy and framework including a policy/procedure on rules of engagement with private security companies (armed and unarmed) and implement it effectively.
FNBM will report periodically to MIGA on the implementation of the ESRA/E&S Management System and all applicable E&S requirements.
Development Impact
The aim of MIGA’s guarantees is to help FirstRand Group reduce the risk of some of its assets, which would lead to a reduction in the group’s RWA on a consolidated basis. FirstRand Group plans to deploy this headroom of consolidated RWA across its Africa operations, including Mozambique, thus increasing the potential reach, development impact, and financial returns of the foreign investment.
MIGA’s coverage to FirstRand Group is aligned with the most recent World Bank Group’s strategy for Mozambique, as it seeks to promote private-sector-led growth via increased access to finance in the country and to promote sustainable investments.
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MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring direct investment clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities. MIGA support to Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations as per the requirements of Performance Standards 1.
In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.
Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.
Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:
Compliance Advisor/Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue NW
Room F11K-232
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400
E-mail: cao-compliance@ifc.org