UBI Banca Italian Social Impact Bond Pilot 2013

18th December 2013 UBI Banca – Retail Area Guido Cisternino Non Profit Resp. UBI Community Social Bonds, financial instruments to support important initiatives of social value 2 Contents The UBI Banca Group The importance of the non profit sector and the UBI Banca Group approach UBI Community Social Bonds: new instruments to support NPOs 3 The UBI><Banca Group (*): (*) Data as at the 30th June 2013; figures for branches as at the 31st March 2013 A broad regional presence  The largest Italian co-operative banking group by stock market capitalisation  Approximately 3.8m customers: a broad retail base and a significant presence in the private banking and SME segments  Loans of €91.3bn  Direct funding of €96.3bn  Sound capital ratios (Core tier 1 ratio: 12.1%, EBA Core tier 1 ratio: 10.8%; Tier 1 ratio 12.7%, Total capital ratio: 18.7%; Common Equity Tier 1 ratio > 10%)  1,726 branches in Italy + 8 branches abroad  National market share of 5.3%; market share higher than 10% in 15 Italian provinces Strong competitive positioning Molise (6) Basilicata (31) Market share >= 15% 5% <= Market share < 15% 2% <= Market share < 5% Market share < 2% 1,726 branches in Italy + 8 branches abroad Lombardy (810) Trentino Alto Adige (1) Valle d’Aosta (1) Friuli Venezia Giulia (10) Veneto (36) Emilia Romagna (44) Marches (85) Umbria (19) Abruzzo (17) Campania (85) Latium (114) Tuscany (8) Liguria (50) Sardinia (1) Calabria (98) Apulia (104) Piedmont (206) 4 8 OPERATIONAL NETWORK BANKS ON THE NATIONAL MARKET ASSET MANAGEMENT UBI Pramerica (partnership with Prudential US) THE PRINCIPAL PRODUCT COMPANIES 322 branches 219 branches 66 branches 25 branches 661 financial advisers FACTORING UBI Factor LEASING UBI Leasing BANCASSURANCE NON-LIFE UBI Assicurazioni (partnership with BNP Paribas/Ageas) BANCASSURANCE LIFE Aviva Vita (partnership with Aviva) Aviva Assic. Vita (partnership with Aviva) Lombarda Vita (partnership with Cattolica) ON LINE TRADING IW Bank UBI BANCA performs the functions of strategic policy making, co-ordination, oversight and the centralised supply of services to the network banks (a single IT system, centralised risk management, centralised finance and treasury management, commercial and credit co-ordination, logistics, purchases, online banking, etc.) Northern Italy Southern Italy 220 branches 255 branches Central Italy 357 branches 256+3 branches* Data as at the 30th June 2013; (*) foreign branches Group structure is based on a federal and integrated model: UBI Banca is a “popular” bank. It is a joint stock co-operative share company, the parent of a federal alliance of primarily retail local banks, with a strong vocation for being close (both physically and in terms of ideals) to families, to SMEs and to local communities 5 Contents The UBI Banca Group The importance of the non profit sector and the UBI Banca Group approach UBI Community Social Bonds: new instruments to support NPOs 6 The non profit sector has become a fundamental player in the Italian economy. In part this is due to the transfer of parts of welfare services away from government management and a consequent growing need for finance on the part of Nonprofit Organisations (NPOs), even though at the same time we are seeing a reduction in government funding destined for NPOs and a contraction in the support provided by individuals as a consequence of the economic crisis. It is becoming essential for NPOs to develop relations with the banking sector, which is called upon to provide dedicated services and products. For banks relationships with NPOs: • offer an important return in terms of ties with local communities, because of the key function that they perform as social multipliers and aggregators; • have become strategic from a commercial viewpoint, in consideration of the substantial growth they have undergone in recent years and developments currently in progress Nonprofit organisations Individuals connected with the nonprofit world (volunteers, employees, others) The economic and social importance of the Italian nonprofit sector + 28% + 46% Source: Istat –2011 Census of Industry and services The Non Profit Sector , , 235,000 301,000 3,900,000 5,700,000 + 28% 7 Nonprofit organisations nationally – trends + 28,0 % (1) Of the 269,353 associations, 68.349 are recognised and 201,004 are not recognised (2) committees,mutual societies and others Source: Istat –2011 Census of Industry and services The Istat’s (Italian national office for statistics) 9th census of industry, services and the nonprofit sector published in July confirmed the substantial growth of the nonprofit sector in Italy, the only sector which displayed “+” signs for its trends. Two segments in particular show dynamic performance: that with an entrepreneurial orientation (cf. social co-operatives, +98%) and the philanthropy segment (the foundations, +102%), which are becoming increasingly more production oriented. 257,579 +28.0% 235,232 301,191 Associations (1) + 23.4 % 218,364 269,353 Foundations + 102.1 % 3,077 6,220 Social cooperatives + 98.5 % 5,674 11,264 Other types of organisation (2) + 76.8 % 8,117 14,354 8 Historically the UBI Group maintains a greater share of its deposits from and loans to the non profit sector than that for the banking sector nationally, thanks to a firm market presence in regions where NPOs are more numerous and to strong ties developed over the years. UBI Community: the service model (1 of 2) Source: Studies Area processing of Bank of Italy Account Matrix data (December 2012) – SAE 500 (Church and religious organisations) and 501 (non-commercial organisations) lancio The challenge that has been grasped is to create social value through the provision of high quality banking products and services and to create a dedicated “UBI Community” model of service, which goes beyond a “general” approach in order to fully respond to the specific needs of this strongly developing segment. lancio For a retail bank with a community vocation like the UBI Group, relations with the non profit world are strategic from two viewpoints: in terms of development and commercial potential, in consideration of the sector’s huge growth in recent years because it represents an important interpretation of the more general strategy “fare banca per bene” (to be a good banker), through its ability to provide finance at the service of people, in virtue of its ties with local communities and its function as a multiplier and social aggregator 9 In order to fully respond to the specific needs of the non profit strongly developing segment, in the last quarter of 2011, UBI Banca embarked on a policy to support the non profit sector by developing a distinctive, specialist commercial approach, which involves the creation of a platform of services and tools named UBI Community dedicated to non profit organisations and church-related institutions. UBI Community: the service model (2 of 2) UBI Comunità High-quality dedicated solutions and specialist staff Evolved service model Added services Tools to support customer relationships and to assess NPO credit ratings Detailed database classification for the registration of NPOs Finance and non profit sector Research A dedicated brand Special services and products for NPOs and stakeholders Specialist training for central and branch staff Services to support NPOs with fundraising ( e.g. solidarity credit transfers) Development of schemes to involve employees 10 Contents The UBI Banca Group The importance of the non profit sector and the UBI Banca Group approach UBI Community Social Bonds: new instruments to support NPOs 11 UBI Community Social bonds: what are they?  They are bonds designed to support initiatives of high social value for the community, issued by UBI Banca or by another Group bank (the former are also listed on the MOT (electronic bond market))  They guarantee subscribers a return on their investment (comparable to that offered by ordinary investments) and they allow the bank to use part of the funds obtained to support socially worthy initiatives (more specifically the bank donates a set proportion of the funding acquired to support those initiatives, or – a solution adopted for the first time in Italy – it is used to grant loans for non profit sector development initiatives)  They involve and reward significant non profit organisations in their local communities, that have good capabilities to mobilise stakeholders in local communities and have projects with a high social impact.  Subscription may be open to all current and potential Group customers or limited to set categories of investors (e.g., registered shareholders, employees, volunteers, users and other stakeholders of beneficiary organisations) or to set geographical areas.  Last March UBI Community Social Bonds won the 2013 edition of the Italian Banking Association prize for innovation in banking services (the “Social Bank” category). In June the President of the Italian Republic awarded Bank the prestigious 2013 National Prize for Innovation (known as the “Prize of Prizes”) in the category “Services – Innovation in Banking Services”. Total issues: €362 million Charitable donations: €1.82 million Launched in April 2012, they were very positively received by customers, which bears witness to the extent to which the bank, with its values and objectives is in tune with local communities: today the UBI Banca Group has placed 40 social bonds, the large majority of which were fully subscribed well before the issue period came to an end. Total issues: € 422 million Charitable donations: €2.11 million 12 UBI Community Social Bonds support the local communities of Group Banks Banca Popolare Commercio e Industria Banca Regionale Europea Banco di Brescia Banca Popolare di Bergamo Banca Popolare di Ancona Banca Carime Banca di Valle Camonica Banca Private Investment * Branch network data for January 2013. It includes ordinary branches, mini-branches and company branches 13 UBI Community Social Bonds (2 of 3) Public authorities Churchrelated institutions Foundations Other NPOs Social advocacy associations Voluntary organisations 1 Donations The bank uses social bonds, which allow the donation to charity of a set proportion of the funding obtained from these bonds, to support initiatives with a high social impact organised by public and private sector entities in local communities. This type of social bond is particularly useful for supporting the projects of associations, foundations and church-related institutions, that is distribution and advocacy nonprofit organisations. The beneficiaries must have good capabilities to enlist stakeholders in local communities and efficient management and they must operate preferably in the areas of health, disabilities, new poverty, infancy, education, the elderly and the environment. Social value 14 UBI Community Social Bonds (3 of 3) 2 Financing The bank uses social bonds which allow the use of the funding placed to grant loans at competitive terms and conditions to non profit sector organisations and/or those associated with them to help develop social forms of enterprise in local communities that are able to provide social innovation (i.e. efficient answers to new social needs in a context of the severe crisis of current economic and welfare systems). The beneficiaries must have a strong capacity to enlist stakeholders in local communities, efficient management, adequate cash flow and good credit rating assessments (carried out following specific criteria for the non profit sector). Network of Co-operatives and social enterprises Single Co-operatives and social enterprises 15 The strengths of Social Bonds  In line with the expectations of a growing number of investors to combine individual and general interest objectives in their investment decisions, social bonds provide adequate remuneration and at that time help – by acting as “social financiers/bankers” – to implement projects which create value for society and favour the development of an “economy of the common good”.  They represent an extra investment opportunity for investors/savers in addition to conventional instruments on the market (like ordinary bond, ethical funds). FOR CUSTOMERS FOR NPOs FOR THE BANK  They are consistent with the mission of the UBI Group, a federal alliance of retail banks who base their common identity on the values of co-operation and local communities, interpreted as a desire to be close, both physically and in terms of values, to stakeholders (particularly those who create value for society and favour the development of an economy for the common good).  They are consistent with the commercial strategy of the UBI Group – firmly based on the UBI Community service model – to accompany nonprofit organisations on a path to growth and innovation and also to support projects with a high social impact organised by public and private sector organisations in local communities.  They represent an alternative fundraising/financing instrument, which increases the autonomy that is indispensable to this sector, which is an increasingly more important player in the satisfaction of emerging social needs.  They are in synergy with the action plan drawn up by the European Commission to support social enterprises as fundamental players for sustainable growth. 16 UBI Community Social Bonds won the 2013 Italian Banking Association prize for Innovation… The "UBI Community Social Bond" project won the 2013 edition of the Italian Banking Association prize for innovation in banking services in the “Social Bank” category. The award was made following a selection from projects on social, humanitarian and environmental initiatives submitted by the banks participating . The “Italian Banking Association for Innovation” jury awarded the prize to the UBI Banca project for “its concreteness and effectiveness in generating immediate positive impacts on the social and environmental context, contributing directly to support development of the welfare economy, by increasing social cohesion”. 17 …and the 2013 – 5th Edition of the National Prize for Innovation Last June the “UBI Community Social Bond” project won the prestigious 2013 National Prize for Innovation (known as the “Prize of Prizes”) in the category “Services – Innovation in Banking Services”. The “Prize of Prizes” is awarded by the President of the Republic of Italy to winners of awards for innovation made periodically in the following sectors: industry and services, university and public research, public administration and advanced services. The objective is to underline the importance attributed to companies, public and private sector authorities and individual innovators as protagonists of innovation, by supporting their role in the social, economic and scientific development of the country. 18 Some of the UBI Community Social Bonds placed since April 2012 Most of the social bonds were subscribed before the end of the offer period, which demonstrates the alignment of the Group’s values and objectives with those of the community. 19 Focus: UBI Community Social Bonds for Comunità di Sant’Egidio €100,000 for Comunità di Sant’Egidio A project designed to prevent social isolation and support the living conditions of the elderly, an important resource for our society. 20 Focus: UBI Community Social Bonds for Fondazione Cesvi Onlus €100,000 for Cesvi A project designed to allow local populations to restart their farming activities in Central Uganda, where many years of war have interrupted agricultural production and subsistence farming by families. 21 Focus: UBI Community Social Bonds for social enterprises in the CGM system Deadline for grant of loans: 30/04/2014 Amount of the loans: €15,000 – €500,000 beneficiaries: CGM social consortia, enterprises and co-ops Duration: up to 60 months Rate: Euribor 3 m + spread (from 330 bps to 500 bps) Support for social enterprise and co-operative members of the CGM system (the most important network of social enterprises in Italy) in making investments in social aggregation and innovation projects, in development programmes with knock-on effects in terms of new jobs and in meeting needs to increase working capital and balance the capital and financial structure of social enterprises themselves. 22 Retention Obiettivi  Social consortia, enterprises and co-operatives that are CGM consortium members, with a UBI internal rating (if available) classified as maximum “mediumhigh risk” (max rating 7), unless particular factors result from the UBI credit rating assessment model.  Period for granting the loans: from 19/11/2012 until 31/3/2014  From € 15,000 to € 500,000 (the Bank may consider exceptions to these amounts)  Up to 60 months, inclusive of an optional maximum grace period of 6 months; constant monthly repayments (at the end of each month)  Average Euribor over the 3 preceding months plus a spread based on the purpose of the loan, the rating and the possible presence of consortium guarantees (see details on the following slide)  At the discretion of the Bank (inclusive of any guarantees issued by guarantee bodies and funds)  To support investments connected with products and services of public utility and social interest, by granting loans to support the following: tangible and intangible investments in production (relating also to projects for groups or networks of enterprises and for “social product” innovation, in areas such as social housing, health and the environment), in development projects with knock-on effects in terms of new jobs and in vocational retraining programmes for worker members and/or employees.  To meet needs to increase working capital, resulting, amongst other things, from the implementation of projects, and to balance capital and financial structure. Characteristics of the loans BENEFICIARIES OBJECTIVES INTEREST RATE GUARANTEES AMOUNT / DURATION Focus: UBI Community Social Bonds for social enterprises in the CGM system 23 (*) with Guarantee Body/Fund guarantees  Reduced to 0.50%, a minimum of €100.00 (0.30%, a minimum of € 100.00 with guarantees from guarantee bodies or funds which have agreements with the bank, e.g. Cooperfidi Italia)  Loan applications must be submitted to the bank subject to prior verification of the subjective requirements of the beneficiaries and the purposes of the loan by CGM or CGM Finance, which will also assist the beneficiaries in filling in the “nonprofit organisation – social enterprises and co-operatives particulars form”. OPERATIONAL AND ASSESSMENT PROCEDURES INTEREST RATE PROCESSING FEES  Average Euribor over the 3 preceding months plus a spread based on the purpose of the loan, the rating and the possible presence of consortium guarantees as follows: Characteristics of the loans Focus: UBI Community Social Bonds for social enterprises in the CGM system pricing range spread for working capital/balancing financial structure spread for development investment spread for creating new jobs A 380(360*) 360 (340*) 350 (330*) B 420(400*) 400 (380*) 390 (370*) C 500(450*) 480(430*) 470(420*) 24 Focus: the UBI Community Banca Valle Camonica Social Bond for Fondazione Opera Caritas San Martino Max nominal amount of bond: €10 million Type: Mixed Rate Duration: 36 months Offer period: from 7/11/2013 until 07/12/2013 Coupon payments: half yearly Annual interest rate: 1st and 2nd year: 2.00%; 3rd year: Euribor 6m + 0.50% Donation: 0.40% (of €8 million) Amount of loan pool: up to €2,000,000 Deadline for grant of loans: 30/11/2013 Amount of loans: €30,000 – €50,000 Beneficiaries: firms located in Valle Camonica Duration: up to 24 months Interest rate: Eur 3m + 0.50% Banca di Valle Camonica has supported a project run by Caritas, called “Valle Camonica – Brotherly hand – Support for employment” ,designed to assist young jobseekers, vulnerable people and those at risk of social exclusion to find a first job or those who have lost work because of the economic and financial crisis to find new jobs.