Cyprus was significantly affected by a deep financial crisis in 2012, which exposed major flaws in the country’s economic structure and governance, particularly in the banking sector. The economy contracted sharply during the crisis and throughout the subsequent introduction of necessary reform measures, including the bail-in of uninsured deposits at the two largest local banks, which had collapsed as a result of serious mismanagement and poor governance. Due to the persistently distressed situation and deleveraging efforts, international banks have reduced the tenor of their loans and country limits for Cyprus, significantly affecting domestic banks’ ability to provide trade finance for the import and export of fast-moving goods, such as small machinery and equipment, vehicles, spare parts, packing materials, building materials, pharmaceuticals and clothing. Transactions involving the import and export of machinery and equipment have been particularly hard hit, as they require longer loan periods, thus hampering investment and innovation in the country.
How we work
The European Bank for Reconstruction and Development’s (EBRD) Trade Facilitation Programme (TFP) enables international trade by providing guarantees to cover political and commercial payment risk. By guaranteeing the import, export and local distribution of imported goods, the programme supports intra-regional trade and strengthens trade links between Cyprus and other economies in which the EBRD invests. Since the start of the TFP in Cyprus in 2015, the programme has facilitated more than 685 foreign trade operations for Cypriot exporters and importers worth €365 million through five domestic partner banks, thereby supporting the restoration of international trade links and correspondent banking relationships in trade finance.
Achievements and results
The TFP programme covered the commercial payment risk associated with the export of construction services by a private Cypriot company to Egypt. A double default-protected guarantee issued in Egyptian pounds covered the operation, which led to the construction of a new three-lane 90 kilometre road in Egypt. The project is a prime example of the EBRD’s catalytic role in promoting trade between the economies in which it invests and was named EBRD Trade Finance Deal of the Year in 2015.
Another example of a successful trade finance transaction was the Bank’s support for the importation of a floating dock from Ukraine to a shipyard in Limassol, southern Cyprus, to increase the competitiveness of the local marine ship and vessel repair sector. The Bank of Cyprus issued a letter of credit to ING Belgium SA/NV to the tune of US$ 7.3 million, with a tenor of one year. An EBRD TFP guarantee covered 100 per cent of the payment risk. The project was named EBRD Trade Finance Deal of the Year in 2016.
The European Union and Austria, Germany, Italy, the Netherlands, Norway, Switzerland and Taipei China support the EBRD Trade Facilitation Programme financially through risk-sharing funds.