| Project Detail |
ABSA Group Limited (“ABSA” or “The Group”) has requested MIGA coverage for a portion of its new and existing equity investments in its subsidiary in Zambia, against the risk of Expropriation of Funds for mandatory and voluntary cash reserves held at the Central Bank of the host country (“the Project”). The new investment is expected to be in the form of retained earnings in ABSA’s subsidiary in Zambia (“the subsidiary”) relating to ABSA’s banking operations in the host country.
The proposed transaction would be MIGA’s second capital optimization project with ABSA, following the initial coverage in 2019, and is expected to provide regulatory capital relief to ABSA on a consolidated level by reducing the amount of Risk Weighted Assets (RWAs). The tenor of the proposed guarantee is expected to be up to 10 years for mandatory reserves (the remaining tenor of the first transaction) and 3 years for voluntary reserves. The proposed guarantee remains subject to approval by both ABSA and MIGA in accordance with their respective policies and procedures.
Headquartered in South Africa, ABSA is one of the largest financial institutions in Africa in terms of total asset size. The Group has a presence in 12 countries across the African continent, as well as offices in the United Kingdom, the United States, and China, along with technology support colleagues in the Czech Republic. Absa offers an integrated set of products and services across personal and business banking, corporate and investment banking, wealth and investment management and insurance.
Environmental Categorization
ABSA Zambia provides retail, small and medium enterprise (SME), and corporate finance services to clients in Zambia. The MIGA project will support all the bank’s lending activities. The environmental and social (E&S) risks and impacts associated with the main sectors financed by ABSA Zambia are typically moderate to high; however, long-term lending to high-risk sectors is limited in number. This project has thus been categorized as FI-2 in accordance with MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S aspects of this project relate to ABSA Zambia’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed ABSA Zambia’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed ABSA Zambia’s E&S risk management procedures for lending activities in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and the ABSA Zambia’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2).
As of November 2023, ABSA Zambia’s portfolio included the following business segments – corporate loans, retail loans (mortgages and consumer loans), and SME loans. The main sectors financed by ABSA Zambia include manufacturing, wholesale and retail trade, mining, and transport. ABSA Zambia has limited exposure to activities on the MIGA Exclusion List. The bank does have limited exposure to coal-related projects.
The applicable requirements for the MIGA project are: (i) MIGA Exclusion List; (ii) applicable E&S laws and regulations in Zambia; and (iii) the Performance Standards (for eligible loans, in line with MIGA requirements).
ABSA Zambia is an existing client and in relation to E&S risk management, ABSA Zambia has an E&S officer and implements the ABSA Group E&S risk management procedures. The procedures cover the general standards and procedures applicable to E&S risk management, the sectors and transactions that fall within the scope of the procedures, the Equator Principles and MIGA’s E&S requirements. Transactions are screened for E&S risks as part of the credit approval process, and where applicable, action plans are developed to address identified gaps. E&S covenants are included in facility agreements and monitoring assessments are conducted as required. ABSA Zambia also has a process for receiving and addressing E&S complaints associated with its lending activities.
ABSA Zambia has emergency response procedures which are in line with the requirements of PS1. In line with PS2, ABSA Zambia has labor policies and procedures that address terms of employment, recruitment, renumeration, benefits, grievance management and non-discrimination.
For the proposed guarantee, ABSA Zambia will continue to report annually to MIGA regarding its portfolio, the implementation of the E&S procedures as well as labor practices. |
