RPSB Equity

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	27245
Company name	Commercial Bank Rostpromstroybank (OJSC)
Country	Russian Federation
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	May 23, 2008
Projected board date	July 2, 2008
Previous Events	Invested: August 19, 2008 Signed: August 8, 2008 Approved: July 28, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

IFC’s Financial Markets strategy in Russia places a high priority on improving access to finance in non-urban areas and on improving the stability of the banking system by assisting in the consolidation of a highly fragmented sector and by reducing the concentration of state-owned banks. As a result, IFC looks to support second- and third-tier banks in regions that are under-served by the banking system.

The proposed project consists of an equity investment of up to $22 million in RostPromStroyBank (RPSB or the Bank), a medium-size bank located in Rostov-on-Don (a frontier region), to purchase 20% of the voting shares of RPSB.

The Bank was established in 1922 under the name of Industrial Bank. In 1959, it was renamed as Stroybank USSR (Construction Bank of USSR), and in January 1992 registered as Rostpromstroybank. It is a universal bank specializing in corporate loans, consumer loans, mortgage lending and credit cards. Its client base is very diverse, and ranges from the largest companies of Rostov-on-Don and the Rostov region to small businesses and individual entrepreneurs. The branch network is yet not too large, and includes Head Office and 2 outlets in Rostov-on-Don, one outlet in Belaya Kalitva, and one outlet in Salsk. The Bank has 22 ATMs.

Anticipated development impact of the project

The project is expected to have a strong development impact. As the Bank’s shareholder, IFC will work together with the Bank at expansion of the banking penetration in the currently severely under-banked Southern Federal District of Russia, and also at further strengthening and consolidation of the banking system in the region.

The project will also strengthen the Bank’s capacity in social and environmental management. The Bank will need to comply with IFC’s environmental and social management standards and establish the Social and Environmental Management System (SEMS). This will improve the Bank’s standards in this area and create a demonstration effect for other banks active in the Southern Federal District.

Finally, the project will facilitate capacity and institution building of the Bank based on best practices of corporate governance and risk management. IFC will appoint a Director on the Bank’s Board of Directors, and participate in structuring the Bank’s business strategy and growth.

IFC's expected development contribution

IFC had a number of important roles in this project:

- Strengthening the banking sector in Southern Russia by supporting the expansion of RPSB both through organic growth and through mergers and acquisitions process;
- Implementing good governance through nominating a Director to the Bank’s Board;
- Improving RPSB’s profile and credit ratings and facilitating the Bank’s access to international debt market;
- Strengthening long-term partnership that could be the basis for future projects with the Bank; and
- Contributing to a consolidation of Russia’s banking sector.

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 activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:

- The IFC FI Exclusion List; and/or
- The applicable National Social and Environmental Laws and regulations; and/or
- The IFC Performance Standards.

Although part of an existing client group, RostPromStroyBank itself is a new IFC client. IFC will review the Social & Environmental Management System (SEMS) in the context of this investment and suggest supplemental actions to address any gaps in the SEMS, if required.

Based on the Applicable Performance Requirements and SEMS review, the Bank will be required to:

- Develop an, or upgrade, if necessary, any existing 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 supported by IFC financing are in compliance with the Applicable Performance Requirements;
- Submit a periodic report to IFC.

IFC PROJECTS