NLB Group Mandatory Reserves Coverage
Project description
This summary describes equity investments (including retained earnings) by Nova Ljubljanska banka d.d., Ljubljana (NLB d.d., Ljubljana) into its subsidiary NLB Banka AD Podgorica (NLB Podgorica) in Montenegro. The investor has applied for MIGA guarantees of up to €32,408,000 in Expropriation of Funds cover for mandatory reserves for a period of up to 7 years.
NLB Group is the largest banking and financial services group in Slovenia with operations across southeastern Europe. NLB Group’s six banking subsidiaries outside of Slovenia are required to maintain mandatory reserves at the central banks in their respective jurisdictions, based on the volume of customer deposits. Mandatory reserves affect NLB d.d., Ljubljana’s overall Risk-Weighted Assets (RWA) at the consolidated level, resulting in less headroom for other assets at a given level of capital.
Environmental Categorization
This Project is a Category FI-2 project according to MIGA’s Policy on Environmental and Social Sustainability (2013). NLB Podgorica is a universal bank providing retail and corporate banking and has a network of 18 branches.
MIGA analyzed the portfolio of NLB Podgorica for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. The corporate finance transactions include among others some exposure to sectors which may potentially have Environmental and Social (E&S) risks. The main E&S risks of this project are associated with the subsidiary’s lending activities in these high and medium E&S risk sectors and its capacity to manage these risks. The applicable E&S requirements for the NLB Podgorica portfolio will be: MIGA’s Exclusion List, applicable national environmental and social laws and regulations, and applicable MIGA’s Performance Standards; all as to be agreed in the MIGA guarantee.
NLB Podgorica has a strict prohibition on the financing of certain sectors/activities including: any illegal activities, production and trade in arms; political parties and political forums. Relationship managers ensure
that transactions are screened against these requirements and conduct screening that includes checking with the borrower to ensure compliance with the host country laws and regulations. Groups of connected clients are treated as materially important for the NLB Group whenever exposure exceeds EUR 7 million. Materially important clients are after approval by NLB Podgorica submitted to the NLB d.d., Ljubljana Credit Committee.
NLB Podgorica has a corporate social responsibility policy but has not yet developed an Environmental and Social Management System (ESMS) to cover lending. As such, NLB Podgorica will develop and implement an ESMS, appoint an E&S officer to oversee the ESMS, and offer training to its employees on the ESMS.
NLB Podgorica has a set of Human Resources (HR) policies and procedures, in line with NLB Group corporate practice and requirements and national legislation, that 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, and the responsibilities of the employees and the employer. NLB Podgorica will develop a retrenchment policy and procedure in line with Performance Standard 2.
NLB Podgorica has a Business Continuity Plan (BCP) and the Emergency Response Plan (ERP) in place that cover emergency response procedure, crisis management and business recovery protocols for the critical business processes, internal/ external notification and decision tree, requirements for training and drills and the requirements for auditing of the business continuity plans. The BCP plan as per MIGA’s review meets the requirements as outlined in Performance Standard 1 and the ERP will be updated. The Bank has established an Information Security Management System (SUSI / ISMS) that has been prepared in accordance with the requirements of the international standard ISO / IEC 27001:2013.
Based on MIGA’s review and applicable performance requirements, an Environmental and Social Action Plan (ESAP) will be agreed with NLB Podgorica prior to entering into a MIGA guarantee and will be implemented within an agreed timeframe to ensure compliance with MIGA’s applicable Performance Standards. Key measures identified to address the requirements of an Environmental and Social Management System (ESMS) include:
1. NLB Podgorica to appoint an Officer responsible for the ESMS.
2. NLB Podgorica will develop and implement an ESMS.
3. NLB Podgorica will implement a training program for staff on the ESMS policy and procedures.
NLB Podgorica will report periodically to MIGA on the development and implementation of the ESMS and application of the relevant Performance Standards.
Development impact
The aim of MIGA’s proposed guarantees is to help NLB Group reduce the risk of some of its assets, which would lead to a reduction in the NLB d.d., Ljubljana’s RWA on a consolidated basis. The RWA capacity that is freed up is expected to help NLB Podgorica to maintain the supply of credit at a time of unprecedented pressure due to the COVID crisis, thereby alleviating the deleveraging risks and supporting employment in the country.
MIGA’s proposed coverage to NLB Group is aligned with the World Bank Group Country Partnership Framework (CPF) for Montenegro, as it will support enhancing macroeconomic and financial resilience as well as increase stability and efficiency of the financial sector.
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