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: avgleich@ifc.orgWeb: www.ifc.org/eca