Hungarian Export - Import Bank PLC
This summary covers a loan by ING Bank, a branch of ING-DiBa AG (ING), Germany to Hungarian Export-Import Bank Plc (Hungary Exim) in Hungary, a wholly-owned financial institution of the Government of Hungary. ING has applied for a MIGA guarantee of up to €450.3 million for a period of up to 13 years against the risk of Non-Honoring of a Sovereign Financial Obligation (NHSFO).
MIGA has a long-standing relationship with Hungary Exim, having supported its lending expansion in 2013 and 2017. The proposed project would be MIGA’s third transaction with Hungary Exim, but would be the first focused on supporting climate related financing
Hungary Exim provides export finance loans and counter-cyclical financing to SMEs and corporate clients in Hungary. Hungary Exim fulfils its mission through direct lending and through financial intermediaries (indirect lending). The MIGA project will support climate finance lending to SMEs and corporates to support climate projects in Hungary such as renewable energy, energy efficiency and sustainable real estate. Although the project portfolio could include potentially high-risk projects, these are expected to be limited in number. Most of the projects are expected to be medium risk projects, with E&S risks and impacts that can be addressed through mitigation measures. This Project has thus been categorized as FI-2 in accordance with MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S risks of this project relate to Hungary Exim’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed Hungary Exim’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed Hungary Exim’s E&S risk management procedures for direct and indirect lending in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and the Hungary Exim’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2).
The applicable E&S requirements for the lending portfolio will be: (i) MIGA Exclusion List; (ii) applicable E&S laws and regulations in Hungary; and (iii) the Performance Standards (for eligible corporate transactions).
As of December 2022, Hungary Exim’s portfolio included the following business segments – corporates, 35.7%; SMEs, 32.5%; public sector, 12.7%; investments in equity funds, 8.2%; microfinance, 5.5%; project finance, 2.9%; guarantees, 1.7%; financial institutions, 0.7%; and trade finance, 0.1%. The main sectors supported include manufacturing, transportation and storage, wholesale and retail trade, and agriculture. Hungary Exim has no exposure to activities on the MIGA Exclusion list and no exposure to coal-related projects.
In relation to E&S risk management, Hungary Exim has E&S protocols that are in line with PS1. Hungary Exim has an E&S officer who is responsible for overseeing E&S risk management procedures; the E&S officer is supported by other officers from credit and risk functions across Hungary Exim. Hungary Exim implements an Environmental and Social Management System (ESMS) which covers all lending activities and details the process of E&S risk management throughout the credit cycle. The ESMS incorporates elements of MIGA’s E&S requirements i.e., MIGA Exclusion List, applicable E&S laws and MIGA Performance Standards. Hungary Exim conducts E&S due diligence and monitors the E&S performance of its clients; credit agreements include E&S covenants, and where required, E&S action plans are developed to address identified gaps. For export finance transactions, Hungary Exim applies OECD Common Approaches for E&S due diligence, which include the IFC/MIGA Performance Standards. For climate finance transactions, Hungary Exim has developed a questionnaire for E&S due diligence which covers key E&S risks and impacts; the questionnaire is applicable to direct lending and is also disseminated to other financial intermediaries for indirect lending.
Hungary Exim has an external communication procedure for receiving and addressing E&S concerns and requests for information from third parties, in line with the requirements of PS1. In addition, Hungary Exim has emergency response procedures which are in line with the requirements of PS1.
Hungary Exim has labor policies and procedures that are consistent with PS2. Amongst other aspects, Hungary Exim has labor policies and procedures that address terms of employment, recruitment, renumeration, benefits, grievance management and non-discrimination.
Hungary Exim will report periodically to MIGA on its portfolio, the implementation of the ESMS, and on its labor practices.
Hungary Exim plays a strategic role in helping the country improve its trade competitiveness, as well as create and maintain jobs. This is important given the weight of exports in Hungary’s economic activity (representing 81.5% of GDP in 2021). Hungarian companies currently face challenging prospects with high inflation - particularly rising energy costs - which impact the competitiveness of their exports. This in turn constrains their ability to make the investments necessary to reduce the economy’s carbon footprint. Through the Project, Hungary Exim will offer affordable climate financing to a critical backbone of the economy. Hungary Exim’s use of financial intermediaries also mainstreams the analysis of climate risks and the focus on climate-aware investments in the Hungarian banking sector which should contribute to creating a more sustainable basis for the country’s economic development.
The Project is consistent with MIGA’s Strategy and Business Outlook FY21-23 focus on climate finance and with MIGA’s goal of having at least 35% of its guarantees in support of Climate Finance on average between FY21 and FY25, as per the WBG target. The Project is also aligned with the strategic direction of continuing to serve all client countries and complement market creation through the Cascade approach by supporting Hungary.