RBI Central Bank Reserves Coverage
Project description
This summary covers equity investments by Raiffeisen Bank International AG (RBI) in its subsidiary in Serbia, Raiffeisen banka a.d. (Raiffeisen Serbia). The investor has applied for a MIGA guarantee of up to €143 million ($162 million equivalent) for a period of up to three years against the risk of expropriation of funds.
Vienna-based RBI is a universal banking group that has operated for over 25 years in up to 15 markets with a network of retail banks across Central, Eastern and Southeastern Europe. RBI’s subsidiary banks abroad are required to maintain reserves at the central banks in their respective jurisdictions, generally based on the volume of customer deposits that these subsidiaries have. This exposure leads to higher risk weights on assets at the consolidated level, resulting in increased capital allocation for country risk exposure. At the consolidated level, the risk weighting determines the amount of equity required to maintain a specified capital adequacy ratio in accordance with Austrian banking law.
Environmental Categorization
This project is a Category FI-1 project according to MIGA’s Policy on Environmental and Social Sustainability. MIGA has performed a preliminary analysis of Raiffeisen Serbia’s portfolio for types of transactions, size, tenor, and industry sectors. This analysis indicates that corporate lending constitutes a significant portion of the portfolio, and that some of the sectors receiving financing are likely to include high to medium environmental and social risks. Based on the environmental and social risks associated with Raiffeisen Serbia’s portfolio, the applicable performance requirements are MIGA’s Exclusion List, applicable national environmental and social laws and regulations, and MIGA’s Performance Standards.
MIGA has performed an initial review of the Raiffeisen Serbia’s labor practices and environmental and social management procedures and their capacity to implement them. Raiffeisen Serbia’s group level Code of Conduct includes screening for transactions against a “sensitive business fields” list that was found to reflect some similar activities on the MIGA Exclusion List. The Code of Conduct also reflects aspects of RBI’s labor practice policy that capture some of the requirements of MIGA’s performance standard for labor and working conditions. Raiffeisen Serbia has an Environmental and Social Management System (ESMS) in place, including procedures to manage environmental risks and an Environmental Policy that outlines procedures to ensure screening against national laws.
To ensure compliance with the applicable performance requirements, the following actions will be expected to be implemented by Raiffeisen Serbia: upgrading their ESMS; implementation of the upgraded ESMS, to ensure that its investments/activities are in compliance with the applicable performance requirements; update of human resource policies and procedures to reflect the requirements of MIGA’s performance standard for labor and working conditions, and submission of a periodic report to MIGA documenting implementation of the ESMS.
Raiffeisen Serbia has an active MIGA guarantee, information on which is available here.
Development impact
MIGA’s proposed guarantee will help RBI obtain relief from the capital adequacy requirements by reducing the risk weighting for the reserves maintained by RBI’s subsidiary in Serbia. This will free up equity tied up for country risk purposes and allow RBI’s subsidiary to extend more credit that will stimulate growth, generate employment, and reduce poverty in the country.
MIGA’s proposed coverage to RBI is consistent with the goals of the crisis response initiative for the Europe and Central Asia region launched by the World Bank Group in January 2012. As part of the initiative, MIGA seeks to support capital-constrained banks active in the region. The project is also aligned with the World Bank Group’s strategy for Serbia, as the country seeks to address the spillover from the financial crisis.