PROJECT DESCRIPTION

This summary covers an application made by Banco del Estado de Chile (BancoEstado) for proposed non-shareholder loans totaling up to US$500 million, with a tenor of 15 years (the Loans). The Loans are to be provided by lender(s) yet-to-be-identified.

MIGA is considering issuing guarantees for an amount of up to US$780 million covering the Loans against the risk of Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHFO-SOE).

MIGA's NHFO-SOE instruments will be used to support various priority lending programs that are central to BancoEstado's social mission, including, climate finance initiatives, micro and small enterprises, subsidized mortgages and women financial inclusion and empowerment (the Project).

BancoEstado is the only state-owned bank in Chile and was established with the public-policy mandate to foster the development of Chile's economic activities through banking and financial services. It is dedicated to serving lower-income segments facing greater barriers to accessing private sector services, and to geographical financial inclusion, as the only financial institution with a physical presence in one third of the provinces (comunas) of Chile. As of September 30, 2024, the entity was the largest financial institution in Chile by client number and geographic coverage, and the third largest by loans.

In application of its public-policy mandate, BancoEstado has historically played a crucial role in promoting financial inclusion in Chile. The bank increases access to banking services for individuals and micro, small and medium enterprises (MSMEs), promotes women's economic empowerment to reduce gender gaps, and facilitates housing access for lower-income populations. Additionally, aligning with the Government of Chile's (GoC) sustainability and decarbonization goals, BancoEstado has strengthened its commitment to green and sustainable development. This includes promoting climate-focused financial products, reducing emissions with priority sector clients, developing a decarbonization plan for its portfolio, and enhancing specialized risk units to evaluate environmental, social, and climate risks.

ENVIRONMENTAL CATEGORIZATION

BancoEstado provides financial services to individuals and companies across various sectors in Chile. The MIGA guarantees will support loans to the following asset classes: (i) climate finance; (ii) working capital and credit lines for micro and small enterprises; (iii) subsidized mortgages for low-income households; and (iv) women financial inclusion and empowerment. These transactions are mostly considered to have potentially limited adverse environmental and social (E&S) risks or impacts that are site-specific, reversible and can be addressed through mitigation measures. The Project portfolio is thus considered medium risk, and the Project is categorized as FI-2 underMIGA's Policy on Environmental and Social Sustainability (2013).

MIGA analyzed BancoEstado's portfolio and the Project portfolio by types of transactions, tenor, size, industry sectors, and exposure to MIGA's Exclusion List. BancoEstado offers personal banking, credit and debit cards, consumer credit, insurance, mortgages, trade finance, liability management, payment and treasury services to its various clients, including individuals, MSMEs, corporate and government entities. As of June 2024, retail banking/consumer loans mainly for mortgages represent the majority of BancoEstado's portfolio, accounting for 52.6%, followed by MSMEs (15.5%), corporate finance and project finance (29.6%), and financial intermediaries (2.3%). The main sectors financed include retail commerce (21%), construction (13.1%), transportation, telecommunication and storage (10.1%), manufacturing (7.5%), corporate and real estate services (7.2%), wholesale trade (7.0%), social services (6.7%), student loans (6.5%), financial services (6.3%) and agriculture (4.7%).

The main E&S risks of this Project are associated with BancoEstado's ability to identify, assess and manage the E&S risks of its financing activities. The applicable E&S requirements for the MIGA Project portfolio will be: (i) MIGA's Exclusion List; (ii) applicable national environmental and social laws and regulations in Chile; and (iii) the MIGA Performance Standards (for eligible corporate loans).

MIGA assessed BancoEstado's E&S risk management procedures in line with the requirements of MIGA's Performance Standard 1: Assessment and Management of E&S Risks and Impacts (PS1), and also assessed the bank's labor practices in line with MIGA's Performance Standard 2: Labor and Working Conditions (PS2).

In relation to E&S risk management, BancoEstado has an E&S and climate-related risk policy and an E&S management system (ESMS) for identifying and managing the E&S risks and impacts associated with the activities of the clients financed by the bank. The bank also has an E&S team responsible for the implementation of the ESMS. The implementation of the ESMS commenced in 2019 and the ESMS was updated in 2023. The ESMS is primarily focused on the assessment of E&S risks and impacts associated with activities of clients involved in high-risk activities and large transactions. The activities are screened against BancoEstado's list of excluded activities, national E&S laws, the Equators Principles, and elements of the MIGA Performance Standards. Where applicable, E&S action plans are developed to address identified gaps. In line with MIGA's requirements for financial intermediaries, BancoEstado will be required to incorporate MIGA's Exclusion List into its existing list of excluded activities and broaden the scope of implementation of the ESMS to include the lending activities covered by the MIGA Project to ensure that these activities are assessed in line with the E&S requirements for this Project. BancoEstado will also be required to develop and implement an external communication mechanism for receiving and addressing E&S concerns from the public about the projects financed by the bank in line with MIGA PS1.

MIGA's review of the bank's emergency preparedness and response plan and life and fire safety measures revealed that the plan and the measures are in line with the requirements under MIGA PS1.

In relation to PS2, MIGA's assessment revealed that BancoEstado's labor policies are in line with the requirements of PS2 and national labor laws in Chile. The bank's policies cover amongst other aspects, terms of employment, grievance management, discipline, workers' organization, harassment, training and development, performance management and non-discrimination.

For the proposed guarantee, BancoEstado will report annually to MIGA regarding the implementation of the E&S procedures for the Project portfolio, as well as its labor practices.

DEVELOPMENT IMPACT

The Project is expected to support increased lending for micro and small enterprises in Chile, which are an important pillar of the country's economy for development and employability, as well as subsidized mortgages for lower-income households, contributing to inclusive homeownership. The Project will particularly contribute to increased lending to women across these focus areas as Chile lags peers in terms of financial inclusion of women, despite being a high-income country. In addition, it will support increased climate finance lending for mitigation and adaptation activities, contributing to the government of Chile's sustainability and decarbonization goals. It will also provide demonstration effects associated with the adoption of inclusive business models and climate mitigation and adaptation measures.

The Project is consistent with the WBG Country Partnership Framework (CPF) for Chile over the FY24-FY27 period, as it supports the two High-Level Outcomes (HLOs) of (i) Improved quality and inclusiveness of social and financial services, and (ii) Improved environmental sustainability and climate change resilience, by targeting increased lending for lower-income households, women, micro and small enterprises, and financing for climate mitigation and adaptation activities.

ACCESS TO INFORMATION

You can submit a request for information disclosure at: https://www.miga.org/contact/access_to_information

You can also request general information about MIGA and for information on guarantees by emailing: migainquiry@worldbank.org

ACCOUNTABILITY MECHANISM OF IFC/MIGA

The Compliance Advisor Ombudsman (CAO) is the independent complaint mechanism and fact-finding body for people who believe they are likely to be, or have been, adversely affected by an IFC or MIGA- financed project. If you submit a complaint to the CAO, they may assist you in resolving a dispute with the company and/or investigate to assess whether the IFC is following its own policies and procedures for preventing harm to people or the environment. If you want to submit a complaint electronically, you can email the CAO at CAO@worldbankgroup.org. You can learn more about the CAO and how to file a complaint at http://www.cao-ombudsman.org