Bai Tushum Bank - SME and Corporate Lending and Risk Management Capacity Building

Bai Tushum Bank (the “Company”, the “Client” or “BTB”) is the leading microfinance provider in Kyrgyz Republic with the largest MSME portfolio in the country.

As of January 2016, BTB is the 7th largest bank by gross loan portfolio and 9th largest bank by total assets in Kyrgyz Republic. BTB was the first microfinance institution in Central Asia to have successfully transformed into a full-fledged small business bank at the end of 2012. Historically, BTB specialised in lending to micro, small and medium enterprises as well as individuals primarily in the rural areas of the country, with a focus on agricultural finance.

However, with the transformation into a bank BTB has diversified its portfolio and expanded the range of financial services offered to its retails as well as corporate clients: deposits, remittances and currency conversions. BTB has a large customer base of about 31,000 borrowers and ca. 115,000 deposit accounts serviced through an extensive network of eight branches and 46 outlets across the country. With transformation into a fully pledge bank and continue to serve targeted clientele group in rural remote area.

The Project will help Bai Tushum to build internal capacity and strengthen its SME/Corporates lending capacity by implementing updated, internationally recognised best practices and procedures, rather than existing approach which may be more suitable to MSEs.

Assignment Description: The Client intends to engage a consultant (the “Consultant”) with the EBRD’s support to assist the Client to expand its capacities in SME/Corporate lending effectively and efficiently provide SME/Corporate loans to enterprises across Kyrgyz Republic on a sustainable basis (the “Assignment”).

The selected Consultant is expected to provide the following services:

A. SME/Corporate lending and risk management functions:

1) Conduct an overall assessment of BTB's existing SME/Corporate business functions and processes, SME/Corporate products specifications and exposure limits, SME/Corporates loan underwriting process and criteria, policies and procedures of respective credit risk management, and related IT systems. The Consultant shall then identify potential areas of improvement in each procedure, recommend changes, and provide support in their implementation. This would include reviewing, and suggesting improvement to the template for assessing historical financial performance, cash flow appraisal and future capital expenditure, future financial performance and financial ratios for SME/corporate customers. The improvements and new methodologies should take into consideration any lessons learned from BTB’s existent MSME business.

2) Conduct interviews of key members of management and staff involved in the product development and management process (Deputy CEO, Risk Manager, Head of SME, Head of Sales, IT Manager, Marketing Manager, and other members of staff as necessary)

3) Review existing, and introduce new policies and procedures for risk mitigation techniques for SME/Corporate loans;

4) Currency devaluation stress-tests: Support BTB in introducing and complying with best-practice requirements of (i) performing stress tests assuming various currency devaluation scenarios, to test the debt service capacity of unhedged Sub-borrowers, if a loan provided by BTB is denominated in a currency other than Kyrgyz Som and (ii) preparing a standard numerical example of a devaluation scenario shown on a generic sub-loan case, to be provided to borrowers, in order to ensure that borrowers are informed in writing of the risks involved in such foreign currency borrowing.

5) Review existing, and introduce new policies and procedures for:

a) stronger monitoring mechanisms for SME/Corporate loans on both an individual basis (including review of the SME borrowers’ reporting requirement), as well as an on a portfolio basis; and

b) credit portfolio stress-testing methodology for SME/Corporate loans. This may include, but not be limited to: i) Assessment of existing data base and recommendations for improvement;

c) Definition of stress scenarios and underlying assumptions, if possible based on BTB’s historic data and, if applicable, in line with Central Bank requirements;

6) Review existing, and introduce new policies and procedures for restructuring, bad-debt collection, work-out procedures and recovery techniques for SME/Corporate loans;

7) Review existing, and introduce strengthened SME/Corporate loan sales, marketing, and product development process;

8) Assessment and upgrading of the existing SME/Corporates rating:

a) Review and assess volume & quality of current data available and lending methodology;

b) Review adequacy of management information system (MIS) with BTB credit scoring/rating system implementation and assess opportunities for further improvements;

c) Develop and automated application processing system (APS) within existing MIS.

d) Provide support with the implementation

9) Develop manuals and training material related to the topics identified above, to be used in the training workshops and in the on-job coaching;

10) Reporting: the Consultant shall assist BTB to improve, or introduce an internal system for reporting on the overall SME loan portfolio of BTB, including number and volume of SME loans, and their geographic breakdown by main regions, and shall advise BTB on the content and quality of the bank’s reporting to EBRD.