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

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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  1. Corporate Governance as Integral Part of Risk Assessment – The IFC ApproachYerevan May 2005

  2. Presentation Purpose and Outline Outline: • About IFC • Working with banks on Corporate Governance

  3. 1. About the IFC

  4. 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.

  5. 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

  6. 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

  7. 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

  8. How IFC works Key Criteria assessed: Financial Status Management Market Position Corporate Governance Environmental and Social Issues

  9. 2. Working with Banks on Corporate Governance

  10. 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

  11. 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

  12. 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

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