UniCredit Group MR Coverage (UniCredit Bank a.d.)

Project Description

On December 29, 2016, MIGA issued a guarantee of $49.7 million covering the equity investments by UniCredit Bank AG’s (UBA) of Austria and UniCredit S.p.A.’s (UC) of Italy (together UCG) in its subsidiary UniCredit Bank a.d. in Bosnia and Herzegovina. The $49.7 million MIGA guarantee will cover the equity investments for a period of up to 10 years against the risk of expropriation of funds.[1]

UCG is the leading banking group in Central and Eastern Europe, with over 1,000 branches in 13 countries, and has a long-term strategy to develop its business with both corporate and private clients throughout the region. UCG’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 and Italian banking law.

Environmental Categorization

This is a category FI-2 project under MIGA’s Policy on Environmental and Social Sustainability, given the exposure to mainly SMEs and corporates in the construction, food and beverage and manufacturing sectors.  With regard to environmental and social risk management, UniCredit implements a corporate wide Environmental and Social Management System to all subsidiaries in line with MIGA’s Performance Standard 1 on Assessment and Management of Environmental and Social Risks and Impacts and also complies with the requirements of MIGA’s Performance Standard 2 on Labor and Working conditions.

Development Impact

MIGA’s guarantee will help UCG obtain relief from the capital adequacy requirements by reducing the risk weighting for the reserves maintained by UCG’s subsidiary in Bosnia and Herzegovina. This will free up equity tied up for country risk purposes and allow UCG’s subsidiary to extend more credit that will stimulate growth, generate employment, and reduce poverty in the country.

[1] The guarantee was cancelled on December 29, 2020.