RBI Central Bank Reserves Coverage

Project description

This summary covers equity investments by Raiffeisen Bank International AG (RBI) in its subsidiary in Albania, Raiffeisen sh. a. (Raiffeisen Albania). The investor has applied for a MIGA guarantee of up to €104 million ($117.7 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 Albania’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 Albania’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 Albania’s labor practices and environmental and social management procedures and their capacity to implement them. Raiffeisen Albania’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 Albania has appointed a sustainability officer, with responsibilities including environmental and social reporting.

To ensure compliance with the applicable performance requirements, the following actions will be expected to be implemented by Raiffeisen Albania: development and implementation of an Environmental a Social Management System (ESMS) related to level of environmental and social risks in the portfolio; 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.

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 Albania. 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 Albania, as the country seeks to address the spillover from the financial crisis.