CAO Cases

Arne Hoel, The World Bank

Latin America & the Caribbean

Honduras / Ficohsa-01/ CAO Vice President Request

Complainant
CAO Vice President Request
Date Filed
August 21, 2013
Case Status
Closed
 

Synopsis

Background


Banco Ficohsa (‘the client’) is a large Central American commercial bank with its main operations in Honduras. Following earlier investments to support trade finance, housing and SME loans, in May 2011 the IFC Board approved an equity and sub-ordinated debt investment in Ficohsa (project #29257).

 

In the course of CAO’s compliance process in relation to Corporación Dinant, CAO became aware that Dinant was one of Ficohsa’s largest borrowers and as a result IFC had a significant exposure to Dinant through its equity stake in Ficohsa. As a result, the CAO Vice President initiated a compliance appraisal of IFC’s investment in Ficohsa in August 2013.  

 

In its appraisal report, released December 2013, CAO concluded that IFC’s environmental and social performance with regard to its investments in Ficohsa merited further enquiry. In August 2014, CAO released its compliance investigation report. CAO found that IFC lacked assurance that the client was applying IFC’s E&S requirements (which included the IFC Performance Standards) to higher risk business activities that it was funding. In response to the investigation report, IFC noted that it had agreed on an E&S action plan to address gaps in the client’s E&S Management System (ESMS). CAO released its first compliance monitoring report in January 2016.

 

CAO Action


In June 2019, CAO released its second compliance monitoring report. This monitoring report considers actions taken by IFC to address CAO’s non-compliance findings. CAO notes actions taken by IFC since the release of the investigation report to improve the client’s ESMS. After an IFC site supervision visit to the client in April 2017, IFC determined that there was sufficient information and evidence that the client was committed to implement IFC’s E&S requirements, and again concluded that the client was in material compliance. While acknowledging the progress reported by IFC, available documentation leads CAO to the conclusion that IFC has only partially addressed CAO’s non-compliance findings in relation to its investment in the client.

 

In particular, CAO concludes that IFC lacks assurance that the client is: (a) categorizing prospective investments in accordance with IFC’s requirements; (b) conducting and documenting E&S due diligence assessments of its higher risk loans in accordance with Performance Standards requirements; (c) including necessary covenants to require borrowers to operate in accordance with IFC’s Performance Standards and Exclusion List as relevant; (d) monitoring the E&S performance of borrowers in a manner that is commensurate to risk; and (e) implementing a grievance mechanism which is “readily accessible…to affected communities” and about which affected people are informed.

 

CAO’s report also considered IFC’s supervision of the client’s exposure to Dinant. CAO noted while IFC’s direct financing of Dinant was contingent upon a corrective action plan developed following CAO’s 2013 compliance investigation, IFC did not assure itself that the client’s ongoing financing for Dinant was contingent on binding commitments to implement the Performance Standards. CAO further concludes that IFC lacked assurance that its client was monitoring Dinant’s compliance with IFC’s E&S requirements.

 

In October 2015, CAO received a complaint from Organización Fraternal Negra Hondureña (OFRANEH), a non-governmental organization, filed on behalf of members of Garifuna communities in the Tela Bay area. The complaint related to the client’s investment in Indura Beach and Golf Resort. In its June 2017 compliance appraisal, CAO decided to merge the complaint with CAO’s ongoing monitoring of the client. In this monitoring report, CAO summarizes actions taken by IFC to assure itself of its client’s application of IFC’s requirements to the Indura project. Upon review of available documentation, CAO concludes that IFC lacked sufficient evidence that the Indura project was prepared and implemented in accordance with PS1, PS5, PS6, and PS7 requirements.

 

Status


Overall, CAO finds that IFC’s response to this compliance investigation only partially addressed its compliance findings. Nevertheless, CAO has decided to close its monitoring of the investigation considering that IFC divested from its Ficohsa equity and corporate loan investments. IFC continues to have active investments with Ficohsa to support its housing and SME business lines. However, these investments are not of a nature that requires IFC to monitor the application of its E&S requirements to the client’s corporate lending portfolio, which includes the loans to Dinant and Indura.

 

Updated June 13, 2019

 

All documents, including CAO’s appraisal, investigation, and monitoring reports in English and Spanish, together with IFC’s response, are available under “View Documents” below.

 

 

Project information

Institution
IFC
Project Name & Number
Ficohsa 26394, 27341, 29257
Department
Global Financial Markets
Company
Banco Financiera Comercial Hondureña S.A.
Sector
Banking
Region
Latin America & the Caribbean
Country
Honduras
Environmental Category
FI
Commitment
$20m, $35m, $70.1m

Case Tracker

Ombudsman

Compliance

  • Under Appraisal: Completed
  • Under Audit: Completed
  • Monitoring: Completed

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