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Summary of Project Information (SPI)

This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.
Project number24909
Project nameBanco del Bajio
CountryMexico
SectorCommercial Banking - SME Finance
Department
Company nameBanco del Bajio
Environmental categoryFI
Date SPI disclosedApril 21, 2006
Projected board dateMay 25, 2006
Date revised SPI disclosedJuly 18, 2007
StatusActive
Previous EventsInvested: December 21, 2006
Signed: June 23, 2006
Approved: June 6, 2006

Description of company and purpose of project
The proposed project consists of an equity investment and a standby line of credit to Banco del Bajio, S.A. (Bajio or the Bank), with the objective of supporting the expansion and consolidation of the Bank’s operations in Mexico.

Banco del Bajio is a regional bank with significant presence in the northern, western and central regions of Mexico. The Bank is one of the most dynamic niche financial institutions and the 8th largest bank in Mexico in terms of assets; it focuses on three principal business lines: SMEs, agribusiness, and commercial banking. In recent years, the bank has diversified into high growth segments like mortgages and consumer loans.

Leon-based Bajio is majority owned by Mexican investors with Spanish bank Banco Sabadell holding a 20% stake in the company. Since 1994, when the Bank initiated its operations, the network has grown significantly. As of December 31, 2005 total assets amounted to $3.69 billion, up from $463 million in 1994. Bajio currently employs close to 1,242 people in Mexico, compared with 25 in 1994, and the network is rapidly growing: Bajio ended December 2005 with 88 branches and plans to open more than 20 branches a year over the next decade in central and northwestern Mexico.

Project sponsor and major shareholders of project company
The largest institutional shareholder is Banco Sabadell, the fourth biggest bank in Spain, with a 20% stake of Banco del Bajío.

Mr. Salvador Oñate Ascencio is the bank's founder and largest individual shareholder. His shareholding, directly and indirectly through group holdings, totals 24.8%. Mr. Oñate, a prominent Mexican businessman, also holds significant investments in the segments of gas and vehicles distribution.

Other two important shareholders are Mr. Óscar Uribe de la Sierra, who also has investments in gas and vehicle distribution companies, and Mr. Héctor Martínez Martínez, who has investments in the real estate segment. Mr. Martínez holds, directly and indirectly, 12.8% of shares, and Mr. Uribe holds 17.5%. The remaining shares (24.9%) are distributed among other family members and Bajío's clients - but each has a stake of less than 2%. The parceling out of shares to clients is a result of a program called PROACCI, which was put in place to attract new shareholders. As of December 31, 2005 Banco del Bajio had 501 shareholders.

Total project cost and proposed IFC investment
The project’s total cost is $133.9 million. The proposed equity investment is for up to $58.9 million to acquire up to 10% of the capital of the bank. The proposed standby line of credit is a committed long-term line of credit for up to $75 million equivalent of which a portion would be available in Mexican Pesos and the rest in US Dollars.

Location of project and description of site
Banco del Bajio is headquartered in Leon, in the Mexican state of Guanajuato. As of FYE 2005 it operated 88 branches in 17 states in Mexico.

Project Development Impact and IFC's Role
Key development impact of the proposed project is expected to be the following:

- Support Tier 2 banks in their diversification strategy and expansion in the Mexican financial sector, currently underserved by large foreign-owned banks;
- The project will support productive SMEs and employment generation in Mexico. The SME sector plays a crucial role in achieving and maintaining economic growth and therefore key to the health of the economy. Bajio is already one of the leading providers of SME loans in Mexico, and its strategy is to grow the SME business.


The project would also help Bajio to improve its financial fundamentals by strengthening its capital base and diversifying funding sources. This will help Bajio achieve stronger fundamentals in order to issue the IPO.

IFC’s role in this project is threefold:


IFC will provide necessary risk capital and long term funding to support the growth of one of the most successful and most locally focused regional banking networks in Mexico. IFC’s investment will help Bajio to expand its consumer and SME lending activities, thereby allowing it to play a more effective role in the development of the private sector. This is especially important since smaller businesses’ access to credit is limited. Through the minority equity stake, IFC will actively support Bajio’s strategy of opening it to the capital markets in particular based on IFC’s solid experience of assisting banks for the IPOs globally.


IFC’s presence in the Bank prior to its planned IPO adds credibility to the opening strategy, and improves the prospects of successfully going public. IFC also has a role in increasing competitiveness through the development of Tier 2 banks, which target some sectors not currently served by large Mexican banks, such as microfinance, agribusiness, and SMEs.

IFC may provide Tier 2 banks with technical assistance (e.g. improved corporate governance, adoption of international best practices, and sustainability), long term USD funding, and equity and quasi-equity financing; in some cases long term peso funding may also be relevant. IFC is exploring other opportunities as well in this banking segment in Mexico, and the proposed project is one of the strongest proposals under discussion.

Environmental and social issues - Category FI
This is an FI type 1 project. The project must establish and maintain an Environment and Social Management System (ESMS) to the satisfaction of IFC, to ensure that its investments are in compliance with applicable Environment, Health, Safety and Social laws of Mexico. The Project must designate appropriate individuals who will have responsibility for the implementation of the ESMS. and must submit annual environmental performance reports to IFC, as per an IFC format. IFC will review the capacity of the project to implement the ESMS.

To contact the project company, please write to:
Mr. Joaquin Dominguez, Chief Financial Officer
Av. Manuel J. Clouthier No. 508
Col. Jardines del Campestre
Leon, Guanajuato 37128
Mexico


Tel: (52 477) 710-4646 main
Fax: (52 477) 773-4698


jdominguez@bb.com.mx

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