NBD SME/Energy Efficiency

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	25564
Company name	NBD Bank
Country	Russian Federation
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	April 20, 2007
Projected board date	June 8, 2007
Previous Events	Invested: December 21, 2007 Signed: December 12, 2007 Approved: October 9, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

NBD (NBD or the Bank) was established in 1992 under the initiative of the local government of Nijhny Novgorod, Russia. Despite its small size, NBD became one of the leading banks active in the SME segment in the region. NBD continues its focus on SMEs, entrepreneurs, individuals and aims to remain a leading regional, independent institution, providing services to smaller enterprises and limited non-lending specialized services to larger companies. According to the Bank, in Nizhny Novgorod region NBD has about 20% market share in the SME sector and a 60%-70% share in the sub-segment of sole proprietorship companies, catering to the needs of about 5,000 SME clients through its 17 branches in the region.

The proposed investment in NBD comprises of:

- a credit line (up to $7 million) to support the continued demand for credit from SMEs; and
- a credit line (up to $8 million) to work with NBD to introduce energy efficiency (EE) loans to corporates in the Volga region.

Anticipated development impact of the project

The project is expected to contribute to the promotion of Russia Sustainable Energy Finance Program and to support the development of a regional bank active in the SME segment which are IFC’s strategic priorities in Russia. This expected development impacts from this project are as follows:

- supporting development of a well-capitalized and well-managed privately-controlled bank such as NBD which aspire/adhere to international standards of risk management and corporate governance and providing it with support in the area of new product development and implementation (EE component);
- supporting provision of term funding to SMEs as the Bank clearly is unable to mobilize funding for tenors beyond 2 years from commercial sources;
- promoting IFC’s EE product in the region of Nizhny Novgorod and producing a demonstration effect for other Russian banks and entities; and
- testing IFC’s variable rate pure Russian Rouble loan for the first time in Russia.

IFC's expected development contribution

IFC’s EE Program with its substantial technical assistance component will enable NBD and its clients to:

- unleash the potential of energy efficiency projects;
- leverage from provision of guidelines that ensure that projects are environmentally and socially sustainable; and
- receive project structuring expertise: technical, economic, financial, legal and environmental consulting.

The SME sector remains underserved in Russia, as larger banks shy away from the smaller clients in pursuit of large corporates. NBD remains among the few regional banks with technical capacity and experience to effectively and efficiently serve this segment. In this respect, the SME credit line will:

- enable NBD to provide longer term funding to its SME clients,
- support one of the leading regional institutions specializing in SMEs, and
- strengthen the Bank’s operational capacity.

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

While NBD is an existing client, as this project follows IFC's revised Environmental and Social Review Procedure IFC will also review, if required, the capacity of NBD 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, NBD 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 Requirements;
- Continue to submit periodic reports to IFC.

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