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| Bank Republic |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 25704 |
| Company name | JSC Bank Republic |
| Country | Georgia |
| Sector | Finance & Insurance |
| Environmental category | FI |
| Department | Global Financial Markets Group |
| Status | Active |
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| Date SPI disclosed | February 9, 2007 |
| Projected board date | March 15, 2007 |
| Previous Events | Invested: November 8, 2007
Signed: September 20, 2007
Approved: August 1, 2007 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
Bank Republic (BR or the Bank) was founded in 1991, when Georgia was making its first steps towards democracy and free market economy by a group of private entrepreneurs and companies from aviation, transport, telecom, and energy sectors. Since inception, the Bank has focused on corporate banking including large state-owned and private companies of strategic importance to Georgia. Acquisitions of two smaller local banks in 1995-96 contributed to the Bank's growth of assets and resource base. In 1996, the Bank’s first international audit was performed by KPMG. In 2002-2003 BR broadened its product range by adding retail banking, which is now the second major business line for the Bank.
As of December 31, 2006 the Bank’s total assets amounted to GEL 350 million ($204 million equivalent) representing 8.3% of the total assets of the Georgian banking sector. Bank Republic’s equity amounted to GEL 63 million ($36.6 million equivalent). The Bank holds a 11.3% share of total deposits and 12.2% share of deposits of individuals.
Most of the Bank’s business has historically concentrated in Tbilisi, but in 2000-2001, the management developed and started to implement a branch network expansion plan. Currently, BR operates 7 branches and 16 offices (service centers) located in Georgia’s main industrial and economic centers. All of Bank’s branches serve both corporate and individual clients, while offices (service centers) provide banking service solely to individuals. Over time, BR is planning to convert all offices into universal ones.
Bank Republic stands out among its peers in three respects:
- its strong record of profitability in the past few years;
- clearly formulated SME- and retail-oriented business development strategy; and
- as the first strategic acquisition of a Georgian bank by a leading West European banking group with the purchase of 60% of the Bank’s shares by Societe Generale (SG) in September 2006.
These three factors, and in particular, an opportunity to support growth of lending to private SMEs in a frontier country such as Georgia through IFC’s relationship with SG constitute the main rationale for this transaction.
The acquisition of a controlling stake in Bank Republic, one of Georgia’s leading banks, is in line with the development strategy of Societe Generale’s international retail business. It is expected that SG will build on strategic efforts of BR’s local shareholders in the past two years to develop retail lending in one of the most frontier countries of Eastern Europe. |
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| Project sponsor and major shareholders of project company |
Bank Societe Generale acquired a controlling stake of 60% in Bank Republic in September 2006 while European Bank for Reconstruction and Development (EBRD) bought another 10%. Societe Generale is one of the largest banking groups in Europe with shareholders’ equity of 26.5 billion Euro as of end-September 2006 and an AA credit rating from S&P. SG is IFC’s global partner in six different financial institutions, in Russia, Ukraine, and Jordan.
The remaining 30% of Bank Republic are held by two local individual shareholders. |
| Total project cost and amount and nature of IFC's investment |
| The transaction consists of a financing package of up to $20 million to Bank Republic. The senior loan of up to $10 million for expansion of the Bank’s SME lending activities will be provided to the Bank early in 2007. The remaining $10 million is expected to be provided at a later stage. |
| Location of project and description of site |
| Bank Republic is headquartered in Tbilisi and has branches and service centers in 8 other Georgian towns and cities: Samtredia, Zugdidi, Telavi, Gori, Rustavi, Poti, Kutaisi, and Batumi. In 2007, the Bank plans to open 2 new branches and 8 new service centers both in Tbilisi and in regional industrial and economic centers. Expansion of the Bank’s SME lending activities will be made throughout the country. |
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| Anticipated development impact of the project |
The expected development impact of this project is high, because of achieving the following objectives in a frontier country:
- Contribute to further development of one of the leading Georgian banks by assisting BR in meeting increasing demand for credit from SMEs. BR plays an important role in terms of strengthening public confidence in the banking sector in general, providing financial intermediation in the Georgian economy and providing a role model for other banking institutions in the market. The importance of BR for Georgian banking sector increased after its acquisition by SG, since the latter is expected to bring to the Bank best international practices in product structuring and risk management. The partnership of Societe Generale and Bank Republic is expected to result in a transfer of SG’s universal banking expertise and product know-how to Georgia. Combined with BR’s well-known local brand, its strong domestic distribution channels, local expertise, and high-quality local management, this is likely to make Bank Republic a leading financial institution in Georgia and broaden access of Georgian companies, including SMEs, and individuals to high quality banking services and products.
- Facilitate the development of the SME sector and subsequent job creation in the country by improving SME access to finance from a well-managed local bank supported by an international strategic investor.
- Support efforts of one of the leading Georgian banks to diversify and to increase the maturity of its liabilities and therefore, better manage its asset and liability position. |
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| IFC's expected development contribution |
| IFC’s main role in the project is to support Bank Republic’s efforts to expand its SME lending program, and also to support SG, IFC’s global partner in a number of emerging markets, in one of the most frontier markets in the region. |
| Environmental and social issues - Category FI |
This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.
During appraisal, IFC will analyze the FI portfolio, and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determine the Applicable Requirements, if any, that would include a combination of:
- The IFC FI Exclusion List(s); and
- The applicable National Social and Environmental Laws and regulations.
IFC will also review, if required, the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS.
Based on the review, the project will be required to:
- Develop a Social & Environmental Management System (SEMS), prior to disbursement to the satisfaction of IFC.
- Identify responsible, qualified persons to manage and implement the SEMS.
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Requirements.
- Commit to take action to remedy any gaps in SEMS implementation on an ongoing basis.
- Submit a periodic report to IFC as per a format to be provided by IFC. |
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| For inquiries about the project, contact: |
Lado Sakvarelidze, Director, Treasury and Strategic Development
Bank Republic
2, Gr. Abashidze Str.
Tbilisi 0179, Republic of Georgia
Telephone: +995 32 294 598
Fax: +995 32 227 566 ext.204
Website: www.republic.ge |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
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