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EBRD and DEG continue to strengthen Lithuanian financial sector
The European Bank for Reconstruction and Development (EBRD) and Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG) are extending a DM 20 million (ECU 10.1 million) subordinated loan facility to the state-owned Lietuvos Zemes Ukio Bankas (Agricultural Bank of Lithuania, or AB). The financing will strengthen the capital base of AB ahead of its privatisation.
"The project will stimulate competition in the financial sector in the Baltic states by strengthening the operations of an important player in the local market," said Kurt Geiger, EBRD Co-Director of the Financial Institutions Team. "We are looking forward to completing the privatisation process in the next few weeks in accordance with the time table set by the Government of Lithuania. The successful completion of this process will be of particular importance for the whole banking sector and will increase investors' confidence in the country."
The increase in Agricultural Bank's capital base and liquidity will allow it to continue the reorganisation of its branch network and restructuring of operations ahead of privatisation. A stronger capital base will also give the bank an opportunity to make better use of its resources, increase its credibility among senior international lenders and extend its lending to local customers.
"Since Lithuania's financial crisis in 1995, the country's financial sector has been characterised by weakness, especially among its financial intermediaries, which has had a negative impact on the growth of the private enterprise sector," said Bernd Tümmers, DEG Senior Vice President of Investment Operations. "The commitment shown by DEG and the EBRD in support of Lithuania's first bank privatisation will strengthen the financial sector and encourage confidence in the Government's privatisation programme."
Jonas Dieninis, Chairman of the Board of Agricultural Bank, said: "The EBRD has a strong track record in supporting the privatisation of central and east European banks. We are happy with the support of the EBRD, which can offer strategic advice and help us to strengthen our operations and portfolio ahead of privatisation."
Financing consists of a DM 15 million (ECU 7.6 million) loan from the EBRD and a parallel DM 5 million (ECU 2.5 million) loan from DEG, both of which will carry a tenor of seven years. The loans are structured so that both the EBRD and DEG can convert their debt into ordinary shares in AB immediately after privatisation or at a later stage, subject to approval by AB's shareholders.
Agricultural Bank is a commercial bank owned primarily by the Lithuanian Ministry of Finance, with a shareholding of 87 per cent. The Ministry is committed to privatise AB in the next six months. Agricultural Bank is the third-largest bank in Lithuania in terms of assets and the second-largest in terms of branch network. Compared with other Lithuanian banks, AB ranks first in terms of outstanding loans (LTL 975 million) and third in terms of total deposits (LTL 851 million). At the end of 1997, the bank employed nearly 2,500 staff.
DEG is Germany's finance and consultancy institution for private sector development in developing countries and in central and eastern Europe. It co-finances private investments on a long-term basis in all economic branches and supports the development of local capital market instruments in its partner countries. The EBRD and DEG have been partners in several Baltic banks as well as in institutions in other countries, participating as well in syndicated transactions.
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