Georgia: PROMOTING FINANCIAL SECTOR GROWTH AND SERVICE DIVERSITY

Nonsovereign Project | 46925-014

Summary

The ADB assistance is a senior loan to TBC Bank of $50 million with a tenor of five years. TBC Bank will use the proceeds to diversify its exposure to Georgia's regions outside the capital Tbilisi by (i) increasing lending to micro small and medium sized enterprises including farms; (ii) providing enhanced access to longer-term finance for the MSMEs in support of regional income and employment; and (iii) gradually fund smaller entities, thereby supporting diversification of TBC's loan book, and reducing TBC's large exposures. TBC will utilize its retail, SME, and corporate platforms, as well as its subsidiary Bank Constanta microfinance lending platform.

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Project Name PROMOTING FINANCIAL SECTOR GROWTH AND SERVICE DIVERSITY
Project Number 46925-014
Borrower/Company TBC BANK
Country Georgia
Location Georgia's rural regions outside the capital, Tbilisi.
Approval Number 7379/2985
Type or Modality of Assistance
7379/2985 Loan USD 50.00 million Committed
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Finance - Banking systems and nonbank financial institutions - Finance sector development - Inclusive finance - Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming
Responsible ADB Department Private Sector Operations Department
Responsible ADB Division Portfolio Management Division, PSOD
Responsible ADB Officer Stefan Hruschka
Project Sponsor(s)
Description The ADB assistance is a senior loan to TBC Bank of $50 million with a tenor of five years. TBC Bank will use the proceeds to diversify its exposure to Georgia's regions outside the capital Tbilisi by (i) increasing lending to micro small and medium sized enterprises including farms; (ii) providing enhanced access to longer-term finance for the MSMEs in support of regional income and employment; and (iii) gradually fund smaller entities, thereby supporting diversification of TBC's loan book, and reducing TBC's large exposures. TBC will utilize its retail, SME, and corporate platforms, as well as its subsidiary Bank Constanta microfinance lending platform.
Objectives and Scope

The impacts of the investment are (i) improved access to financial services for MSMEs operating in rural regions outside the capital and (ii) enhanced resilience of Georgia''s banking system. It is expected that more prudent financial intermediation by banks, with a special focus on the regions, will lead to greater consumer confidence. This will be reflected by an increase in bank deposits and loans, as well as an increase in the private credit to GDP ratio.

The outcome of the investment is that TBC remains profitable and becomes a more resilient bank, prudently serving the diverse needs of Georgia's economy. TBC is expected to set an example for other banks in the industry and position itself to be able to withstand possible future financial stress by putting in place advanced approaches for maintaining capital adequacy, improving its risk management capability to exceed minimum requirements of Basel II and III, and improving efficiencies.

TBC will improve its service outreach to MSMEs in the regions, and diversify its risk exposure by (i) reducing borrower (group), sector and regional concentration; (ii) maintaining adequate asset quality and asset liability management; and (iii) ensuring adequate investment is made in human resources, processes and systems to deliver sufficient liquidity, capital adequacy and profitability.

Linkage to Country/Regional Strategy

The Georgia Country Strategy 2013-2017 is currently under preparation. The Georgia Interim Operational Strategy 2008-2009 identified financial intermediation as a priority for private sector development, noting that sustaining growth will require broadening access to finance. The strategy also highlights that agriculture and SMEs have inadequate access to financial services, and that lending support through financial institutions presents the greatest opportunity for ADB''s private sector operations. The recent crisis highlighted the importance of resilient banking systems to protect against adverse impacts on its population.

Financial sector development is a key focus of ADB assistance as set out in ADB''s Private Sector Development Strategy and Enhanced Poverty Reduction Strategy, which note economic growth, stimulated by private sector investment, as a key contributing factor in reducing poverty. These strategies also note the importance of generating jobs, with private sector employment being the major source of income for workers and their families. The Private Sector Development Strategy emphasizes ADB''s role in strengthening the financial sectors in its DMCs. It provides that SME beneficiaries of financial intermediation are important employers and providers of income to contribute to poverty reduction. Support of financial intermediaries is also important to instill confidence and rehabilitate the financial sector in crisis hit countries. The proposed loan is consistent with ADB''s Financial Sector Operational Plan and the 2007 report of the Working Group on Rural Poverty, which underscores the importance of rural finance, and promotes financial inclusion of underserved poor households, farmers and SMEs.

Status of Development Objectives The loan was signed on 26 February 2013. Financial results and recent modifications in the Board are posted on TBC's website http://www.tbcbank.ge/ir/
Material Changes None
Safeguard Categories
Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI
Summary of Environmental and Social Aspects
Environmental Aspects

1. TBC has established an Environmental and Social Management System (ESMS) to manage the environmental and social impacts and risks of its investment activities. It takes into account performance standards and requirements established by its shareholders IFC, EBRD as well as FMO and DEG. Consistent with international practice, the ESMS classifies investments by the severity of environmental and social risks into categories A, B, and C. TBC has appointed in its Credit Risk Department an Environmental and Social (ES) Coordinator responsible for overseeing the operation and maintenance of its ESMS, an ES Risk Manager responsible for the day to day management of the ESMS, and an ES Reporting Manager responsible for reporting to IFIs. TBC has conducted training of 40 loan officers in the categorization and monitoring of high and medium risk investments. The international standard exclusion list for financial institutions is the first filter after which projects are classified and any remedial actions identified by dealing officers before being reviewed and approved by TBC's risk department as a standard package for consideration by the credit committee. The ESMS foresees the use of specialists if any issues warrant categorization into project category B or A.

2. The loan to TBC Bank (TBC) is classified as category FI on environment, FI treated as C on involuntary resettlement, and FI treated as C on Indigenous Peoples. Subloans under environment category A, and involuntary resettlement (IR) and Indigenous Peoples (IP) categories A and B will not be financed under the Loan. The proceeds of the loan will be used to finance small working capital and investment loans to SMEs, microenterprises, individual entrepreneurs and farmers normally not exceeding GEL 10 million. While these transactions are expected to have adverse impacts, these impacts are low and could range from minimal to those that can be readily predicted, prevented and/or mitigated.

3. An assessment of TBC's existing ESMS, commitment and capacity was conducted, and modifications identified and agreed with TBC are outlined in the linked document describing the ESMS arrangements. In summary, the agreed modifications with TBC include (i) incorporating two ADB prohibited activities in TBC's IFI Exclusion List and minor revisions of certain items in the list to ensure that the combined list appropriately takes into account ADB's PIAL, (ii) inclusion of appropriate references to ADB's Safeguard Requirements, in identified sections of the ESMS, to among others, clarify that for environment category B and C and IR and IP category C transactions funded using the proceeds of ADB loan, ADB requires compliance of these transactions with the Prohibited Investment Activity List or TBC's IFI Exclusion List, and with the applicable national laws on environment, health and safety, (iii) strengthening of the Environmental and Social Risk Management Procedures including the due diligence procedures, and the need for the Environmental and Social Risk Manager to review the dealing officers' due diligence findings prior to submission of such findings to the credit committee. In addition to the substantial training undertaken so far, two of TBC's staff participated in ADB's training for financial intermediaries in Georgia on 15 October 2012.

4. The existing ESMS established by TBC and agreed modifications are adequate to comply with ADB's safeguards requirements. The Bank has committed to update and make its ESMS responsive to ADB's Safeguard Policy Statement (2009) and to have it in place prior to ADB's first disbursement for subproject financing.

B. Other Social Dimensions

5. The loan is categorized with no gender element. TBC services will be offered equally to men and women. As of September 2012, it is noted that 67% of TBC retail clients are women. The ratio of women availing of TBC retail products will be tracked during project implementation.

6. The loan promotes social inclusion by creating job opportunities through expansion of financial services to the SME's and individual businesses in the rural areas, including the farmers. As Georgia has ratified the core labor standards, supported under its national laws, TBC is expected to comply with the relevant national labor laws, take measures to comply with the internationally recognized core labor standards, and ADB's Social Protection Strategy (2001).

Involuntary Resettlement The loan to TBC Bank (TBC) is classified as FI treated as C on involuntary resettlement. Subloans under involuntary resettlement (IR) and Indigenous Peoples (IP) categories A and B will not be financed under the Loan
Indigenous Peoples The loan to TBC Bank (TBC) is classified as FI treated as C on Indigenous Peoples. Subloans under environment category A, and involuntary resettlement (IR) and Indigenous Peoples (IP) categories A and B will not be financed under the Loan
Stakeholder Communication, Participation, and Consultation Necessary consultations will be carried out under TBC's ESMS described above, subject to annual review by ADB.
Timetable for assistance design, processing and implementation
Concept Clearance 11 Sep 2012
Due Diligence
Credit Committee Meeting 12 Nov 2012
Approval 14 Jan 2013
PDS Creation Date 14 Nov 2012
Last PDS Update 30 Sep 2014

Safeguard Documents

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Evaluation Documents

See also: Independent Evaluation

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