RBI Central Bank Reserves Coverage

Project description

This summary covers equity investments by Raiffeisen Bank International AG (RBI) in its subsidiary in Bosnia and Herzegovina, Raiffeisen BANK d.d., Bosna i Hercegovina (Raiffeisen BiH). The investor has applied for a MIGA guarantee of up to €115 million ($130.7 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 BIH’s portfolio for types of transactions, size, tenor, and industry sectors. This initial 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 BIH’s portfolio, the applicable performance requirements are MIGA’s Exclusion List, applicable national environmental and social laws and regulations, and MIGA’s Performance Standards.

Raiffeisen BiH is included in an existing equity investment in RBI by the International Finance Corporation (IFC), and has established an Environmental and Social Management System (ESMS) compliant with MIGA Performance Standard 1 as part of IFC’s involvement. The IFC Summary of Investment Information, including review of environmental and social issues, and Environmental and Social Action Plan, 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 Bosnia and Herzegovina. 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 Bosnia and Herzegovina, as the country seeks to address the spillover from the financial crisis.