P-Z1-HAB-003

Project Details
ID: P-Z1-HAB-003 Name: AFRICAN BANKING CORPORATION HOLDINGS LTD Status: Approved Country: Multinational
Sector: Finance Approval date: 25-Nov-2009 Task Manager: MACHARIA Lilian Wanjiru, PIFD2
Total cost: 19053300
Currency: UAC
Source(s) of financing
AfDB: 19053425.81
Implementing Agency: AFRICAN BANKING CORPORATION HOLDINGS LTD Location: Botswana, Tanzania, Mozambique, Zimbabwe

Objectives

ADB's support will help ABCH; i) bridge liquidity gaps caused by rising NPL's and lack of liquidity in its financial markets; ii) mitigate the increased cost of funding; iii) allow ABCH remain competitive and take advantage of the opportunities and improvements of the macro-economic situation in SADC (including Zimbabwe) by funding its projects pipeline;and iv) focus resources on the roll out of the retail banking project which is critical to the creation of a stable and cost effective funding base for ABCH and its long term viability. ABCH expects to open up to 9 retail branches within SADC by the first quarter of 2010 and thus mobilize retail banking deposits and lower its cost of funds.

Description

This project aims to provide ABCH with a LOC for USD 30m to meet emergency liquidity needs of its subsidiaries in Botswana, Tanzania, Zimbabwe and Mozambique. The proposed LOC will feature a 5 year maturity period, with a 3 year grace period. This support will enable ABCH's subsidiaries' manage the negative impacts of the global economic crisis. The proposed support will be channeled to ABCH under co-borrowing agreements between ADB and ABCH and its subsidiaries according to pre-agreed allocation amounts. The overall oversight and monitoring of the facility will be done by ABCH while each country subsidiary shall manage its particular loan allocation.

Benefits

The proposed support will ultimately benefit enterprises that would otherwise have had to close down or down scale due to lack of financing to enable them deliver on their commercial deals. ADB's support to ABCH will enhance and demonstrate the Bank's countercyclical role and complement investments from other DFIs. Thefacility will help ABCH fund loans to target SMEs in four of its countries of operation; continue with its retail banking project including the installation of several ATM's in the countries of operation and introduce offline banking solutions to mines, benefiting an estimated 20,000 previously unbanked miners. It will also increase ABCH's net operating profit and help conserve and increase household incomes. It is estimated that this support will directly lead to the creation of at least 8,000 new (casual and permanent) jobs and consolidate at least 28,000 jobs over the project duration with the possibility of creation of additional jobs indirectly. It is anticipated that at least 20% of these jobs will be held by women. Support to ABCH will directly generate 110 new jobs at the group level. The project will also contribute to increased access to services and products to rural, low income and middle income communities as well as facilitate improvements in technology. The project will allow ABCH to continue to focus on its IT upgrade, install 20 new ATM's in the 5 countries of operation; roll out an average of 5 new consumer products. ADB's support to ABCH will increase liquidity and significantly enhance trade and trade flows. Some of the proceeds from the LOC will contribute to technology change among firms, development of commercial infrastructure. ABCH participates in environmental cleaning activities as part of CSR. The proposed ADB support will contribute to upgrading of the ABCH's environmental assessment and monitoring system thus ensure compliance with government and international standards. The improved policy will support various government efforts in ensuring and maintaining required environmental standards and contribute to higher environmental risk mitigation measures as well as better environment for the local communities. Increased profitability resulting from the ADB transaction will help ABCH contribute more to its corporate social responsibility programs which focus on women and youth empowerment and to charities that invest in child and/or women education programs (Tanzania, Zimbabwe and Botswana); Youth and Children HIV AIDS awareness and home care programs (Zambia and Botswana), running in its countries of operation. The project will, by facilitating finance to target subprojects, contribute to improved productivity of target enterprises, reduce reliance on imports, and facilitate the development and maintenance of local community infrastructure including roads, schools and health facilities. This transaction will also play a significant signaling role to other potential investors in ABCH and Zimbabwe (a fragile state) thus enhance ABCH's and other local market players capacity to attract additional financing from other sources Increased profitability and the creation of more job opportunities at the beneficiary subprojects level will contribute to increased governments' tax base and tax revenue and contribute to resources for poverty reduction efforts. Through proceeds of financed subprojects, the facility will contribute to forex earnings for the country in addition to reducing reliance on imports.

Rational

ABCH is a sound and well-established financial institution with presence in five SADC countries, expansion plans and demonstrated capacity to deliver to target market. ABCH is led by well skilled and seasoned management with regional and international experience. ABCH is a profitable institution. It has a strong management team. ABCH was rated by Global Credit Rating in June 2009 and given a national (local currency) rating of A3 (2006:A3; 2007/8: A2) for short-term debt and BBB- (2006/7/8: BBB) for long term debt. The internal ADB rating of ABCH is 5+. The transaction is well aligned with the priorities of beneficiary countries and region in poverty reduction, financial deepening and supporting private sector developments including SMEs. It is also well aligned with the private sector development strategy and operational priorities articulated in the updated PSO strategy and business plan for 2008-10 which includes: support regional financial institutions;support SMEs through financial intermediaries; strengthening financial systems and creating a vibrant banking sector. In addition, the project is also aligned to PSO objective of promoting regional integration and trade through finance programs that support inter- and intra-regional trade and strengthening the financial capacity of local trade financing institutions. The ABCH transaction is aligned with the Bank's current efforts to respond to the global financial crisis by providing emergency support to the African financial sector to counter investor risk aversion and investment outflows from the continent while assuring continued economic activity. The proposed transaction fits with the countries' development plans to promote regional integration and private sector and SMEs as a means of poverty reduction, economic growth and improved livelihoods. It is also in line with the ADB's PSO strategy to strengthen the financial markets; and promote trade and regional integration and support emerging private enterprises through financial intermediaries. The projects financed from the proceeds of the proposed LOC will contribute to job creation and consolidation, improve incomes, and promote trade and economic growth in the countries and sub region. Overall, the transaction is well aligned with the Bank strategy and priorities to support national and regional priorities, private sector development, regional integration and responds to the financial crisis.