Santander Central Bank Mandatory Reserves Coverage

This summary covers equity investments and shareholder loans by Banco Santander S.A. in its subsidiary in Uruguay, Banco Santander S.A. (Uruguay). The investor has applied for MIGA guarantees of up to €455 million (or $500 million equivalent) in mandatory reserves cover, for a period of up to 10 years. The guarantees are expected to be issued in MIGA’s 2016 fiscal year.

Madrid-based Banco Santander is one of the largest global financial institutions in the world in terms of market capitalization with retail and commercial operations in countries across Europe, Latin America, and North America. Its subsidiary banks abroad are required to maintain reserves at the central banks in their respective jurisdictions, based on the volume of customer deposits that these subsidiaries have. Mandatory reserves contribute to Santander’s overall risk-weighted assets (RWA) at the consolidated level, resulting in less headroom for other assets at a given level of capital.

Environmental Categorization

This project is a Category FI-2 project according to MIGA’s Policy on Environmental and Social Sustainability.  Banco Santander is a universal bank and its subsidiary in Uruguay provides retail, corporate, SME, trade, and mortgage finance. MIGA has performed a preliminary analysis of Banco Santander Uruguay’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s exclusion list. Corporate loans in Banco Santander Uruguay’s portfolio are mostly in sectors that have limited environmental and social risks. According, the applicable environmental and social requirements are MIGA’s Exclusion List; applicable national social and environmental laws and regulations; and MIGA’s Performance Standards.

MIGA also assessed Banco Santander Uruguay’s labor practices and existing environmental and social management systems. Banco Santander group is a signatory to the Equator Principles that constitute screening criteria for project and corporate financing against the Performance Standards. The group has an Environmental and Social Management System (ESMS) that reflects the requirements of the Equator Principles. Banco Santander Uruguay is mandated by the group’s policies. Similarly, human resources and labor practices are aligned at the group level and the Uruguay subsidiary abides by these. MIGA also considered the emergency response plan of the subsidiary as part of the management system.

Based on MIGA’s review and applicable performance requirements, the following actions will be expected to be implemented by Banco Santander Uruguay subsidiary within an agreed timeframe: revise and update the ESMS at the Uruguay subsidiary level to better reflect its portfolio, operation, local context, and MIGA applicable environmental and social requirements; continue to retain resources for the implementation of the ESMS; revise and update the human resource policy and procedures to reflect the requirements of MIGA Performance Standard for Labor and Working Conditions; and report periodically to MIGA on the update and implementation of the revised ESMS as well as ongoing compliance with applicable elements of the Performance Standards.

NOTE: As a result of environmental and social due diligence, MIGA revised the categorization of the project from FI-1 to FI-2 (implying a lower environmental and social risk) on December 9, 2015.

Development impact
MIGA’s proposed guarantees will help Banco Santander reduce capital requirements of some of its assets, which will lead to a reduction in the bank’s RWA on a consolidated basis. The RWA capacity that is freed up can then be used to grow the bank’s loan book by extending more credit in Uruguay, thereby supporting growth and employment in the country.

MIGA’s proposed coverage to Santander is aligned with the World Bank Group’s strategy for Uruguay, as the country seeks to enhance access to finance by private sector firms which has been identified as one of the key constraints to private sector development in the country.