Banco de Oro

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Banco de Oro: From a small savings bank in the 1970’s, BDO has grown into a universal bank and has established a niche focused on consumer and middle market banking in high-growth urban clusters, and has also recently diversified into the insurance and investment banking businesses. BDO''s affiliation with the ShoeMart Group has also been instrumental to growth, as the bank has been able to leverage the relationships developed by the SM retailing businesses with their suppliers.Project Purpose: (1) By investing US$20 million (in the form of a convertible loan) that would qualify as Tier II capital under Central Bank regulations, IFC would allow BDO to increase its capital base, leveraging on its existing Tier I equity, to expand its operations. This would be one of the first instances of a Tier II instrument in the Philippines (following upon recently announced guidelines by the Central Bank), and the first by a private unlisted bank, allowing IFC to deploy a fairly new capital market instrument in the local market.(2) Under the Partial Guarantee Facility, IFC would guarantee up to 40% of new loans extended by BDO, primarily to its existing clients in the middle market in order to enable these borrowers to increase their borrowing capacities and, therefore, improve and expand their operations and/or restructure their balance sheets.Development Impact: The main development impact of the proposed Tier II instrument is the positive impact on the local capital market by the introduction of a financial product based on the new Central Bank Tier II guidelines, and the positive impact on BDO''s capital structure as it works towards becoming a successful medium-size bank in the Philippines. The proposed facility''s main development impact is the demonstration effect created by IFC''s support to the Philippine middle market, at a time when Philippine commercial banks are still reluctant to consider medium-tenor financing to medium sized Philippine companies. It is hoped that both components of the project will send a positive signal to international investors and restore confidence in the Philippine private sector, particularly viable borrowing businesses, which can generate employment.IFC''s Role: First, IFC is providing Tier II capital to BDO to increase its capital base in order to expand is operations and improve its capital structure. Second, by providing the Partial Guarantee Facility, IFC is acting in a catalytic role by enabling the bank to increase the size and the maturity of its medium-tenor financing to middle-market companies, thereby assisting local, middle market companies to strengthen operations in an environment where most commercial banks are hesitant to lend due to rising NPLs. With BDO being seen as a successful bank and by helping the middle market in this way, this facility may open doors for other Philippine banks to provide similar facilities, as they recognize the value of IFC involvement and credit due diligence.