Santander Central Bank Mandatory Reserves Coverage
On June 23, 2017, MIGA issued a guarantee of $250 million covering equity investments by Banco Santander S.A. (Banco Santander) in its subsidiary in Argentina, Banco Santander Rio S.A. On December 14, 2017, MIGA issued additional guarantees of US$1,100 million under the Santander Central Bank Mandatory Reserves Program in Argentina. As a result of the increased coverage, MIGA’s aggregate gross exposure under this project is US$1,350 million. The mandatory reserves coverage is for a period of up to 3 years.
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. Santander is a universal bank and its subsidiary in Argentina, Santander Rio, provides finance to retail customers, small and medium-sized enterprises (SMEs), and corporate clients.
MIGA analyzed the portfolio of Santander Rio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of September 2017, Santander Rio’s portfolio has 40% corporate finance exposure, including 12% long term corporate finance. Corporate finance transactions include among others exposure to potentially high risk environmental and social sectors such as oil and gas, and manufacturing. The main 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 social and environmental laws and regulations; and MIGA’s Performance Standards.
MIGA assessed Santander Rio’s existing environmental and social management system (ESMS) and labor practices against the requirements of Performance Standards 1 and 2. Santander Group is signatory to the Equator Principles that constitute E&S assessment for project and corporate financing benchmarked to the Performance Standards. As part of its commitment to the Equator Principles Santander 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 also submits project name data of project finance transactions directly to the Equator Principles Association for publication on their website. Santander Rio’s ESMS is aligned with the Equator Principles and Santander Group’s corporate policies. These define Santander Rio’s general sustainability principles and management of E&S risks, which is aligned to some elements of Performance Standard 1.
MIGA also considered the emergency response plan of Santander Rio 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) was agreed with Santander Rio for implementation within an agreed timeframe. Santander Rio has satisfactorily progressed with the development and implementation of the agreed actions which are: (1) nominate an E&S officer to develop and implement the ESMS; action completed. (2) 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 and strengthen the E&S capacity to implement the ESMS; Santander Rio is currently updating its existing ESMS to incorporate MIGA’s requirements, whereby applications for financing that are submitted to Santander Rio will be screened against MIGA Exclusion List and national social and environmental laws and regulations. Project finance (in the event of its occurrence) and corporate finance will be required to apply relevant requirements of the Performance Standards. Upon implementation of the ESMS Santander Rio will undertake training programs to its staff on the new requirements. (3) Implement a procedure for external communications to track issues raised through its open channel and document responses; Santander Rio has an existing channel “Creamos Valor” available through the sustainability sector to receive E&S related issues or concerns. The procedure to ensure adequate treatment and tracking of issues and concerns is being developed.
Santander Rio will report periodically to MIGA on the update and implementation of the revised ESMS as well as ongoing compliance with applicable elements of the Performance Standards
Environmental and Social Action Plan
Task Title & Description Anticipated Completion Date
Nominate an E&S officer Completed
Establish an ESMS On track
Conduct staff training On track
Establish a communications procedure On track
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 Rio to extend more credit in Argentina, primarily to SMEs and other priority sectors, thereby supporting growth and employment in the country.
MIGA’s proposed coverage to Santander is aligned with the World Bank Group’s strategy for Argentina, as it seeks to enhance access to finance for private sector firms which has been identified as one of the main obstacles to private sector development and firm productivity in the country.