ProCredit Mandatory Reserves Coverage
Project description
On December 22, 2020, MIGA issued guarantees for €33.25 million to ProCredit Holding AG & Co. KGaA (ProCredit) of Germany covering its equity investments in its subsidiary ProCredit Bank Sh.a, Kosovo (ProCredit Kosovo) against the risk of expropriation of mandatory reserves held with the subsidiary’s central bank for a period of up to 5 years.
ProCredit is parent company headquartered in Germany and operates 12 banking subsidiaries in Southeastern Europe, Eastern Europe, Ecuador, and Germany. ProCredit is a development-oriented banking group with a primary focus on lending to Small and Medium-Sized Enterprises (SMEs). ProCredit’s subsidiary banks outside of Germany 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 ProCredit’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 categorized as FI-2 under MIGA’s Policy on Environmental and Social Sustainability (2013). ProCredit Kosovo is a commercial bank providing loans to SMEs and retail clients and has a network of 18 branches throughout Kosovo. ProCredit Kosovo is a subsidiary of ProCredit Germany and it has been a MIGA client since 2010.
MIGA analyzed the portfolio of ProCredit Kosovo for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of December 2019, SME finance accounts for approximately 69.7% of the bank’s total outstanding portfolio exposure and retail banking 30.3%. The largest sector exposures in the SME portfolio include wholesale and retail trade, consumer goods, food and beverages, construction and real estate, furniture and related products, and other sectors. In addition, ProCredit Kosovo promotes investments in renewable energy projects and its portfolio includes support to solar photovoltaic, hydropower, geothermal, biomass and biogas projects. ProCredit Kosovo does not have any exposure to activities on MIGA’s Exclusion List and is not engaged in supporting coal projects. 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 ProCredit Kosovo portfolio will be: (1) MIGA’s Exclusion List; (2) applicable national environmental and social laws and regulations; and (3) the MIGA’s Performance Standards.
Being an existing MIGA client ProCredit Kosovo has an E&S officer and has implemented a ProCredit Environmental Management System (EMS) which is in line with the requirements of MIGA Performance Standard 1.The group system consists of three pillars: i) internal environmental performance; ii) E&S risk assessment in lending and, iii) the green finance. The Bank is following the Group Standards for Managing the Environmental and Social Risk of Lending June 2020 that reflects the requirements of ProCredit Exclusion List, national laws and regulations and MIGA Performance Standards. Thus, Procredit Kosovo is in compliance with the E&S requirements under MIGA’s existing guarantee.
ProCredit Kosovo has developed a set of human resources policies and procedures, in line with ProCredit Human Resources Management Policy, requirements of the national legislation and all the applicable requirements of MIGA Performance Standards 2: Labor and Working Conditions.
ProCredit Kosovo follows a group level Business Continuity Policy that describes among other things business continuity planning and strategies at the various stages of emergency, requirements for trainings and regular testing. The Bank also has in place a subsidiary specific Business Continuity Plan) and an Emergency Response Plan 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 plan. To respond to COVID-19 pandemic and following the national guidelines, ProCredit Kosovo has implemented social distancing and hygiene measures, work from home arrangements, as well as the awareness training on travel and safety at work. ProCredit Kosovo policy and plans reflect the requirements of the emergency preparedness and response plan under MIGA Performance Standard 1.
Based on MIGA’s review and applicable performance requirements, ProCredit Kosovo will update its procedures on external communications in line with the MIGA Policy on E&S Sustainability 2013 requirements.
ProCredit Kosovo will report periodically to MIGA on the development and implementation of the EMS and application of the Performance Standards.
Development impact
MIGA’s guarantees will help ProCredit reduce the risk of some of its assets, which will lead to a reduction in the group’s RWA on a consolidated basis. The RWA capacity that is freed up is expected to be used by ProCredit to extend more credit in Kosovo, primarily to SMEs.
MIGA’s proposed coverage to ProCredit is aligned with the World Bank Group Country Partnership Framework (CPF) for Kosovo, as it will support private sector led growth through access to finance particularly through provision of credit to SMEs.