Centro BHD

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	26142
Company name	Centro Financiero BHD
Country	Dominican Republic
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	February 6, 2008
Projected board date	April 3, 2008
Date revised SPI disclosed	March 6, 2008
Previous Events	Signed: April 18, 2008 Approved: April 3, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Centro Financiero BHD (Centro or the company) is a diversified financial services holding company that currently comprises of fourteen subsidiaries which offer a broad range of financial services in the Dominican Republic, including corporate and commercial banking, credit card, consumer credit, SME and microfinance, pension administration, insurance, remittances and private banking, among others.

The investment proposal consists of an equity investment in Centro Financiero BHD, (Centro or the company). IFC will acquire up to approximately 9% in Centro from Grupo BHD, the largest shareholder of Centro.

The project is in line with IFC’s strategy in the Dominican Republic and presents a good opportunity for IFC to support the recovery of the financial sector from the crisis of 2003 by supporting the further expansion of a company that provides diversified financial services.

Anticipated development impact of the project

The proposed investment will:

- allow IFC to support the continued expansion of a company that provides diversified financial services, including retail banking through its commercial banking subsidiary, and serves nascent market niches such as housing finance and SME/Micro finance; and
- improve penetration of financial sector services.

IFC's expected development contribution

By entering at a time when Centro is embarking on a vigorous growth path, IFC will be supporting the Company’s growth strategy and its sustainability, thereby allowing it to play a more effective role in the development of the private sector. The additionality provided by IFC's investment in Centro is to:

- Continue the partnership with BHD as a long term investor that can provide support with new capital, and fulfill an existing gap, given the lack of a developed capital market in the Dominican Republic. Given its recent growth, Banco BHD would need ongoing support from its shareholders to maintain its plans for growth simultaneously with maintaining a healthy capital adequacy. IFC will be in a position to fulfill the gap, and help alleviate the capital pressures faced by the Bank.

- Bring balance as a neutral shareholder to a group of shareholders, consisting of local shareholders and foreign shareholders (Popular and Banco Sabadell). IFC expects to play a role mainly in providing balance and ensuring that good governance practices are adhered to.

- Enhance the Company’s environmental capacity as well as bring new areas of expertise to Centro in those areas where Centro could benefit from exposure to international best practices in financial institution management through the appointment of a Director with experience and track record in this business. In addition, IFC can contribute at the Board level in several areas such as: development of a Corporate Governance enhancement program, introduction of independent directorships, and assurance of minority shareholders rights.

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 analyzed the FI portfolio and the activities proposed to be supported with IFC financing for types of transactions, size, and tenor and industry sectors and determined the Applicable Performance Requirements based on an analysis of the potential Social and Environmental risks associated with the FI portfolio and considering IFC’s investment.

The Applicable Performance Requirements are: The IFC “FI” Exclusion List and The applicable National Social and Environmental Laws and regulations. Based on the Applicable Performance Requirements and the review of the Bank’s capacity to manage social and environmental risks, the project will be required to:

- Develop a Social & Environmental Management System (SEMS), prior to disbursement or according to a time-bound action plan related to the SEMS, 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; and
- Submit a periodic report to IFC per a format to be provided by IFC.

IFC PROJECTS