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Corporate Governance as Integral Part of Risk Assessment – The IFC Approach Yerevan May 2005. Presentation Purpose and Outline. Outline : About IFC Working with banks on Corporate Governance. 1. About the IFC. The World Bank Group. International Bank for Reconstruction and

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Corporate Governance as Integral Part of Risk Assessment – The IFC Approach Yerevan May 2005


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Presentation Transcript
presentation purpose and outline
Presentation Purpose and Outline

Outline:

  • About IFC
  • Working with banks on Corporate Governance
private sector arm of the world bank group

The World Bank Group

International Bank for

Reconstruction and

Development (IBRD)

Established in 1945

International Development

Association (IDA)

Established in 1960

International Finance

Corporation (IFC)

Established in 1956

Multilateral Investment

Guarantee Agency (MIGA)

Established in 1988

1

Private Sector Arm of theWorld Bank Group
  • 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.
ifc in brief

1

IFC in Brief
  • 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
ifc and armenian financial sector
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
procedure
Initial review by the region

Structuring the deal

Management Approval

Mandate Letter

Appraisal/Due Diligence by HQ team

Credit Committee

Board Approval

Transactions Documents

Commitment

Disbursement

Total time: not less than 3 months, average 8 months

Procedure
how ifc works
How IFC works

Key Criteria assessed:

Financial Status

Management

Market Position

Corporate Governance

Environmental and Social Issues

ifc methodology to identify risk opportunity

4

IFC Methodology to IdentifyRisk & Opportunity
  • 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
the four basic parameters

4

The Four Basic Parameters

Good Board Practices

  • Independent directors
  • Expertise, competence & skill
  • Proper organization
  • Presence of specialized committees
  • Commitment
  • Substance over form
  • Full set of documents
  • Public recognition
  • Officer and Board committee to implement & review cg

Shareholder Rights

  • Well organized GMS
  • Cumulative voting
  • Dividend policy in place
  • Protection of minority rights
  • Independent registrar

Disclosure & Transparency

  • Ownership structure disclosed
  • Financials prepared with IFRS
  • Internal control procedure
  • External, independent auditor
  • Risk mgmt. policy implemented
contact details
Contact Details

121069 Moscow

Bolshaya Molchanovka 36

Теl.: (095) 411-7555

Fax: (095) 411-7562

E-mail: avgleich@ifc.org

Web: www.ifc.org/eca