Santander Central Bank Mandatory Reserves Coverage
This summary describes equity investments that Banco Santander S.A. (Santander) has in its subsidiary in Argentina, Banco Santander Rio S.A. (Santander Rio), and potential additional MIGA support under the Santander Central Bank Mandatory Reserves Program in Argentina. The investor has applied for additional MIGA guarantees of up to US$500 million in mandatory reserves cover for a period of up to 6 months.
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 December 2019, Santander Rio’s portfolio has 42% corporate finance exposure, which 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.
Santander Rio has also satisfactorily completed and implemented the agreed E&S Action Plan (June 2017). Santander Rio reports annually to MIGA on the implementation of the revised ESMS as well as ongoing compliance with applicable elements of the Performance Standards.
Given the weakening macroeconomic conditions and the rapidly deteriorating global outlook post COVID-19, pressure is mounting on banks to optimize capital allocation and reduce risk exposures. 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 be expected to be used by Santander Rio to extend more credit in Argentina, primarily to SMEs and other priority sectors.
MIGA’s proposed coverage to Santander is aligned with the World Bank Group’s strategy for Argentina under its objective of leveraging private financing for development which calls for more SMEs reached by WBG supported financial institutions. The Project is also aligned with the MIGA US$6 billion COVID-19 response package under its pillar of countering the adverse economic impacts during the crisis.