Transcript Corporate Governance as Integral Part of Risk Assessment: The IFC

Международная финансовая корпорация
Член Группы Всемирного банка
Corporate Governance as Integral Part of
Risk Assessment –
The IFC Approach
Yerevan May 2005
Presentation Purpose and Outline
Outline:
1. About IFC
2. Working with banks on Corporate Governance
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1. About the IFC
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Private Sector Arm of the
World Bank Group
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The World Bank Group
International Bank for
Reconstruction and
Development (IBRD)
Established in 1945
International Development
Association (IDA)
Established in 1960
International Finance
Corporation (IFC)
Established in 1956
Multilateral Investment
Guarantee Agency (MIGA)
Established in 1988
 IFC’s role: Promote economic development by encouraging private
investment in developing member countries
 IFC products and services include:
 Long-term financing (corporate / project / equity / quasi-equity)
 Mobilizing capital (syndication, co-financing)
 Providing technical assistance and consulting.
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IFC in Brief
 Largest financier for private sector in
emerging markets
 Global: US$ 17.9 bln. portfolio (own
account, as of FY04)
Asia &
Pacific
29%
Latin
America
38%
 In Armenia: about 9 million US$
 Hotel Armenia: about 5 million US$ Equity
 ACBA Leasing: 2 million US$ Loan and
equity
 Armeconombank : 2 million US$ Credit
Line for SME and Mortgage
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Sub-Sahara
Africa
9%
Middle East
& North
Africa
5%
Europe &
Central Asia
19%
IFC and Armenian Financial Sector
Problems:

small sector, low monetisation ( total assets/ GDP about 20% ,
Loans/GDP less than 10% )

absence of long term funding

Relative small banks with small equity
IFC:
 difficult to find projects because of small amounts
 “cheap funding”
 combine investment with TA work
 Sectors of interests: SME, Mortgage, Leasing
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Procedure
1.
2.
3.
4.
5.
6.
7.
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9.
10.
Initial review by the region
Structuring the deal
Management Approval
Mandate Letter
Appraisal/Due Diligence by HQ team
Credit Committee
Board Approval
Transactions Documents
Commitment
Disbursement
Total time: not less than 3 months, average 8 months
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How IFC works
Key Criteria assessed:
Financial Status
Management
Market Position
Corporate Governance
Environmental and Social Issues
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2. Working with Banks on Corporate Governance
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IFC Methodology to Identify
Risk & Opportunity
Level 1
Complies with law
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Level 2
Commitment to CG
Board Practices
Level 4
CG leadership
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
Shareholder Rights
Disclosure & Transparency
Level 3
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Systematic part of investment process

Adapted to different types of companies
 small vs. large, listed vs. closely held, banks vs. real sector

Purpose: To reduce portfolio risk and to contain reputational risk

Output: CG assessment, consultations, improvement program
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The Four Basic Parameters
Commitment
 Substance over form
 Full set of documents
 Public recognition
 Officer and Board committee
to implement & review cg
Shareholder Rights
 Well organized GMS
 Cumulative voting
 Dividend policy in place
 Protection of minority rights
 Independent registrar
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Good Board Practices
 Independent directors
 Expertise, competence & skill
 Proper organization
 Presence of specialized
committees
Disclosure & Transparency
 Ownership structure disclosed
 Financials prepared with IFRS
 Internal control procedure
 External, independent auditor
 Risk mgmt. policy implemented
Contact Details
121069 Moscow
Bolshaya Molchanovka 36
Теl.: (095) 411-7555
Fax: (095) 411-7562
E-mail: [email protected]
Web: www.ifc.org/eca
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