Croatia Banka Pre-Privatization Loan

completed

CB is a medium sized Croatian bank and most of its clients are local private small and medium sized enterprises (SMEs). It is one of the few banks in Croatia which has a countrywide branch network. IFC''s loan will provide the bank with long-term funding, which CB needs to on-lend to SMEs prior to the privatization and to maintain its market share. SMEs are key to Croatia’s continued economic growth, yet their potential is not being realized due to scarcity of funding. This funding gap is still acute at present due to the shortage of alternative sources, such as leasing or factoring; and the preference of many banks for larger borrowers. CB is one of the few banks actively providing term finance in this sector, yet faces market demand in excess of its current funding resources. Further, CB’s lending activities extend to the regions, where access to financing is more limited than in Zagreb. The investment will make the bank more attractive to a potential strategic investor and improve the chances for successful privatization. With committed strategic partners and strong local management, CB would be well-positioned to become a leading provider of term finance. IFC’s provision of additional term funding would extend the maturity of, further stabilize, and diversify CB’s funding base; while the associated financial covenants would help ensure the Bank maintains appropriate portfolio diversification and a prudent risk profile during their further expansion. This will improve CB’s market position and institutional strength.