RBI Central Bank Reserves Coverage
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 (RBBH). The investor has applied for additional MIGA guarantees of up to EUR180.0 million for a period of up to three years under the existing RBI Central Bank Reserves Program in Bosnia and Herzegovina.
Vienna-based RBI is a universal banking group that has operated for over 30 years in Central, Eastern and Southeastern Europe (CEE), with subsidiary banks in 12 CEE markets. RBI’s subsidiary banks 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 European banking regulations.
The MIGA project will support all lending activities at RBBH. The bank provides financial products and services to individuals as well as small and medium enterprises (SMEs) and corporate clients in BiH. RBBH supports SME and corporate clients in sectors mostly considered medium-risk sectors; the Environmental and Social (E&S) risks and impacts associated with these sectors are considered limited and can be addressed through mitigation measures. The project has thus been categorized as FI-2 according to MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S risks of this project relate to RBBH’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed the RBBH’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed the bank’s E&S risk management procedures in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and the bank’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2). The applicable E&S requirements for this project will be: (i) MIGA Exclusion List; (ii) applicable E&S laws and regulations in BiH; and (iii) the Performance Standards.
As of June 2022, RBBH’s portfolio composition by segment was retail loans at about 67%, SME loans at 21%, and corporate loans at 11%. The main sectors supported include wholesale and retail trade, downstream oil and gas, manufacturing, and construction. RBBH has limited exposures to activities on the MIGA Exclusion List, mainly to “production or trade in alcoholic beverages, excluding beer and wine”, and “production or trade in tobacco”.
As a MIGA client (since 2015), RBBH has policies and procedures in place for E&S risk management and labor management. RBBH implements an E&S risk management system (ESMS) and has a designated E&S officer who is responsible for the implementation of the ESMS. The ESMS includes the applicable requirements defined as the MIGA Exclusion List, compliance with national laws and regulations, and application of the Performance Standards to eligible sub-projects. The implementation of the ESMS is considered adequate. In addition, RBBH has emergency response procedures in place which meet the requirements of PS1, and the banks’ labor practices are also in line with PS2.
Based on the above review, RBBH’s implementation of MIGA’s E&S requirements is considered adequate. RBBH will continue to report periodically to MIGA on its portfolio, the implementation of the ESMS and labor practices.
The project is expected to support RBI’s overall business strategy in Bosnia and Herzegovina. MIGA’s guarantee allows RBI to achieve RWA relief at the group consolidated level and provide the enabling conditions to the parent bank to pass the benefits of this support to its operating subsidiaries. As reserves, held at each respective central bank, attract lower risk weights because of MIGA, assets in Bosnia and Herzegovina can be deployed more productively, thereby either accelerating the pace of leveraging (i.e. expansion of loans to customers) or slowing down the pace of deleveraging (i.e. retention of loans to customers).
The aim of MIGA’s proposed guarantees is to help RBI reduce the risk of some of its assets, which would 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 RBI to support its lending operations in Bosnia and Herzegovina, including to SMEs and climate finance activities.
MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring direct investment clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities. MIGA support to Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations as per the requirements of Performance Standards 1.
In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.
Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.
Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:
International Finance Corporation
2121 Pennsylvania Avenue NW
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400