ProCredit Mandatory Reserves Coverage
On December 22, 2020, MIGA issued guarantees for €47.5 million to ProCredit Holding AG & Co. KGaA (ProCredit) of Germany covering its equity investments in its subsidiary ProCredit Bank JSC, Ukraine (ProCredit Ukraine) 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.
This Project is categorized as FI-2 under MIGA’s Policy on Environmental and Social Sustainability (2013). ProCredit Ukraine is a commercial bank providing loans to Small and Medium Enterprises (SMEs) and retail clients in Ukraine. The bank operates through seven branches in Ukraine. ProCredit Ukraine is a subsidiary of ProCredit Group, Germany. ProCredit Ukraine has been a MIGA client since 2010.
MIGA analyzed the portfolio of ProCredit Ukraine for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of December 2019, SME finance accounts for approximately 99.8% of the bank’s total outstanding exposure, with retail banking accounting for 0.2%. The largest exposures in the SME portfolio by sector include – animal and crop production, wholesale and retail trade and food and beverage. In addition, ProCredit Ukraine promotes investments in renewable energy projects and its portfolio includes photovoltaic solar projects. ProCredit Ukraine does not have any exposure to activities on MIGA’s Exclusion List and does not finance coal-related activities. Overall, the bank’s portfolio is considered medium risk as its lending activities cover sectors with limited environmental and social (E&S) risks and impacts. The main E&S risks of this Project are associated with ProCredit Ukraine’s capacity to identify, assess and manage the E&S risks of its lending activities. The applicable E&S requirements for the ProCredit Ukraine portfolio will be: (i) MIGA’s Exclusion List; (ii) applicable national environmental and social laws and regulations; and (iii) the MIGA Performance Standards.
As an existing client, ProCredit Ukraine has an E&S officer and has implemented the ProCredit Environmental Management System (EMS) which is in line with the requirements of MIGA Performance Standard 1 regarding Environmental and Social Management Systems (ESMS). The Group EMS consists of three pillars: (i) internal environmental performance; (ii) E&S risk assessment in lending; and (iii) green finance. The Bank also implements 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. Procredit Bank Ukraine is compliant with the E&S requirements under MIGA’s existing guarantee.
ProCredit Ukraine has developed a set of human resources policies and procedures, which is 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 Ukraine implements the Group Business Continuity Policy which describes among other aspects, 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 procedures, 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 the COVID-19 pandemic and national guidelines, ProCredit Ukraine has implemented social distancing and hygiene measures, work from home arrangements, as well as awareness training on travel and safety at work. ProCredit Ukraine’s 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 Ukraine will update its procedures on external communications in line with the MIGA Policy on E&S Sustainability 2013 requirements.
ProCredit Ukraine will report periodically to MIGA on the development and implementation of the EMS and application of the Performance Standards.
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 Ukraine, primarily to SMEs.
MIGA’s proposed coverage to ProCredit is aligned with the World Bank Group Country Partnership Framework (CPF) for Ukraine, as it will support private sector led growth through access to finance particularly through provision of credit to SMEs.