NLB Group Voluntary Cash Reserves Coverage
This summary describes equity investments (including retained earnings) by Nova Ljubljanska banka d.d., Ljubljana (NLB) into its subsidiary NLB Banka AD Podgorica (NLB Podgorica) in Montenegro. The investor has applied for MIGA guarantee of up to €29,000,000 in Expropriation of Funds cover for voluntary cash reserves for a period of up to 3 years.
NLB Group is the largest banking and financial services group in Slovenia with operations across southeastern Europe. NLB Group’s nine banking subsidiaries outside of Slovenia hold reserves in excess of the required amount (i.e. mandatory reserves) with the central banks in their respective jurisdictions, based on the volume of customer deposits. Voluntary cash reserves affect NLB’s overall risk-weighted assets (RWA) at the consolidated level, resulting in less headroom for other assets at a given level of capital.
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 20 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 medium to high environmental and social risks. NLB Podgorica has limited exposure to sectors on MIGA’s Exclusion List. 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 for the NLB Podgorica portfolio are the 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 is an existing MIGA client. In line with MIGA’s E&S requirements, NLB Podgorica is developing an Environmental and Social Management System (ESMS), has appointed an E&S officer to oversee the ESMS. The ESMS includes a detailed procedure for identifying, assessing and managing the E&S risks and impacts associated with NLB Podgorica’s lending activities; the procedure meets the requirements for financial intermediaries as per MIGA Performance Standard 1: Assessment and Management of E&S Risks and Impacts. The implementation of components of the ESMS started in early 2021 and the full roll-out is expected to be achieved by mid 2021, in line with the E&S Action Plan (ESAP) agreed with NLB in June 2020.
As an existing client, NLB Podgorica has a set of Human Resources policies and procedures which meet the requirements of MIGA Performance Standard 2: Labor and Working Conditions, as well as national labor regulations in Montenegro.
NLB Podgorica also has a Business Continuity Plan and an Emergency Response Plan (ERP) in place that cover emergency response procedure (including pandemic response), crisis management and business recovery protocols.
NLB Podgorica is in compliance with the requirements of the ESAP which was agreed in June 2020 as part of MIGA’s original support. NLB Podgorica will continue to report periodically to MIGA on implementation of the ESMS and application of the relevant Performance Standards.
The aim of MIGA’s proposed guarantee is to help NLB Group reduce the risk of some of its assets, which would lead to a reduction in the NLB’s RWA on a consolidated basis. The RWA capacity that is freed up is expected to help NLB Podgorica grow the supply of credit, thereby 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:
International Finance Corporation
2121 Pennsylvania Avenue NW
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400