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Международная финансовая корпорация Член Группы Всемирного банка
Corporate Governance as Integral Part of Risk Assessment –
The IFC Approach
Yerevan May 2005
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Presentation Purpose and Outline
OutlineOutline:
1. About IFC
2. Working with banks on Corporate Governance
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1. About the IFC
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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.
Private Sector Arm of theWorld Bank Group
International Bank for Reconstruction andDevelopment (IBRD)
Established in 1945
International Finance Corporation (IFC)Established in 1956
International Development Association (IDA)Established in 1960
Multilateral Investment Guarantee Agency (MIGA)
Established in 1988
The World Bank Group
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IFC in Brief
Asia & Pacific29%
Latin America
38%
Europe & Central Asia
19%Sub-Sahara
Africa9%
Middle East & North Africa5%
Largest financier for private sector in emerging markets
Global: US$ 17.9 bln. portfolio (own account, as of FY04)
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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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. Initial review by the region2. Structuring the deal3. Management Approval4. Mandate Letter5. Appraisal/Due Diligence by HQ team6. Credit Committee7. Board Approval8. Transactions Documents9. Commitment10. 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 IdentifyRisk & Opportunity
Level 1Complies with
law
Level 2
Level 3 Level 4CG leadership
Commitment to CG
Board Practices
Shareholder Rights
Disclosure & Transparency
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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Commitment Substance over form Full set of documents Public recognition Officer and Board committee
to implement & review cg
The Four Basic Parameters
Disclosure & Transparency Ownership structure disclosed Financials prepared with IFRS Internal control procedure External, independent auditor Risk mgmt. policy
implemented
Shareholder Rights Well organized GMS Cumulative voting Dividend policy in place Protection of minority rights Independent registrar
Good Board Practices Independent directors Expertise, competence & skill Proper organization Presence of specialized
committees
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Contact Details
121069 Moscow Bolshaya Molchanovka 36
Теl.: (095) 411-7555 Fax: (095) 411-7562
E-mail: [email protected]: www.ifc.org/eca