Santander Central Bank Mandatory Reserves Coverage
On December 14, 2018, MIGA agreed to issue guarantees of up to US$1,500 million, for up to seven years, covering the risk of expropriation of Banco Santander Chile’s mandatory reserves held at the Central Bank of Chile.
Spain-based Banco Santander is one of the largest global financial institutions in the world in terms of market capitalization with retail and commercial operations in countries across Europe, Latin America, and North America. Its subsidiary banks abroad 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 Santander’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 a Category FI-1 project according to MIGA’s Policy on Environmental and Social Sustainability (2013). Santander Chile is a universal bank providing finance to retail customers, small and medium-sized enterprises (SMEs), corporate and project finance clients.
MIGA analyzed the portfolio of Santander Chile for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of June 2018, long term corporate finance accounts for approximately 23% of the bank’s total portfolio. Corporate and project finance transactions include among others exposure to potentially high-risk environmental and social sectors such as mining, utilities (water, gas, electricity), manufacturing and chemicals. The main environmental and social (E&S) risks of this project are associated with the bank’s lending activities in high-risk sectors and its capacity to manage these risks. The applicable environmental and social requirements are MIGA’s Exclusion List; applicable national environmental and social laws and regulations; and MIGA’s Performance Standards.
MIGA assessed Santander Chile’s existing environmental and social management system (ESMS) and labor practices against the requirements of Performance Standards 1 and 2. Santander Chile’s ESMS is underpinned by Santander Group’s corporate policies on sustainability and the Equator Principles to which Santander Group is a signatory. The Equator Principles constitute E&S assessment for defined financial products (including applicable corporate and project finance) benchmarked to the Performance Standards. Santander Chile’s ESMS is comprised of processes and procedures for the management of E&S risk tailored to the local context and is reviewed annually. The supervision of the ESMS is the responsibility of the Global Compliance and the Integral Risk Committees, which report back to Santander Chile’s Board. ESMS policies and procedures are communicated and explained to relevant staff and are available for all employees through internal communications channels. In addition, Santander Chile hires an external E&S consultancy company to carry out E&S due diligence and monitoring of project and corporate finance transactions that are assessed per the Equator Principles. Overall, Santander Chile’s ESMS is materially in line with the requirements of Performance Standard 1. The ESMS will be revised and updated, within an agreed time frame, to reflect applicable MIGA’s E&S requirements.
As part of its commitment to the Equator Principles, Santander Group reports annually on the total number of project finance transactions and total number of project related corporate loans that reached financial close considering appropriate confidentiality considerations. Santander Group also submits project name data of project finance transactions, directly to the Equator Principles Association for publication on their website which includes applicable corporate and project finance transactions. Furthermore, Santander Chile publishes an annual report that among others states its commitment to environmental and social sustainability and broadly outlines its ESMS. Santander Chile also maintains a communication channel through the sustainability section of Santander Chile’s website for the general public.
MIGA also considered the emergency response plan of Santander Chile as part of the management system which was determined to be adequate. Human resources and labor practices are aligned with the requirement of MIGA’s Performance Standard 2 on Labor and Working Conditions.
Based on MIGA’s review and applicable performance requirements, an environmental and social action plan (ESAP) will be agreed with Santander Chile for implementation within an agreed timeframe prior to entering into a MIGA guarantee. The ESAP would be expected to contain the following items: (1) Revise and update the ESMS to be commensurate with the level of E&S risks in its portfolio and incorporate MIGA’s applicable environmental and social requirements; (2) Implement a training program for staff on the revised and updated ESMS; and (3) Implement a procedure for external communications to screen and assess the issues raised by the public through its open channel and document responses.
In such event, Santander Chile will report periodically to MIGA on the implementation of the ESMS and application of the Performance Standards.
The aim of MIGA’s proposed guarantees is to help Santander 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 Santander Chile to extend more credit in Chile, including in the climate finance space, thereby supporting growth and employment in the country.
MIGA’s proposed coverage to Santander is aligned with the most recent World Bank Group’s strategy for Chile, as it seeks to support one of the largest private sector bank in the country and to promote sustainable investments.
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