Financial crisis response: Supporting the grass roots

By Claire Ricklefs

As part of the EBRD's response to the global financial crisis, a new €250 million facility has been approved to provide finance for existing clients who have been negatively affected by current market conditions.

Mark Webber, Senior Banker in the SEECCA team, Philippe Belot, Senior Banker in the HQ-based Russia team and Zdenka Vicarova, Principal Banker with the Central Europe, Turkey and Western Balkans team explain more about the Mid-Sized Corporate Support Facility.

What is the objective of the new Facility?

The initiative evolved out of concerns raised within the banking team that the adverse developments in the credit markets are increasingly affecting companies operating in the “real” or corporate sector. Companies are beginning to experience slower sales and payment delays leading to higher working capital financing requirements. At the same time, companies with healthy businesses have had their access to credit restricted or cut off, because their local banks have been calling in loans or not renewing credit lines.

Under this new Facility, we are able to provide up to €250 million in short and medium term loan financing to our existing clients (up to €20 million per individual client) within all countries of operations. The loan will be tailored to their specific needs, which could mean providing working capital, balance sheet consolidation, the completion of existing investment programmes or small new investments in, for example, energy efficiency or environment. The Facility also aims to encourage commercial banks to keep their engagement with clients or resume financing in parallel with EBRD financing. By demonstrating our support and confidence in our clients, we hope to catalyse co-lending.

Who is eligible to receive financing under the Facility?

The Facility is for EBRD clients only, meaning that they will either have an EBRD loan or equity investment currently outstanding, or have had a loan or equity investment repaid/exited within the last two years. Clients will be operating in the “real”/corporate sector, not in the financial sector – i.e. it excludes banks, investment funds, insurance companies.

How long will it take to get a project approved under the Facility?

A short response time is a very important feature of the Facility. We don’t take short cuts, but equally aim to avoid any unnecessary procedures. Any projects of up to €10 million will be approved by the Bank's Operations Committee and projects of over €10 million and up to €20 million will be submitted to the Board of Directors on a no objection basis. In practical terms this means that a straightforward project can be approved within 1-2 months as opposed to a more typical 4-6 months or so approval process.

Does this streamlining in the approval process imply a lowering of the Bank’s corporate banking standards?

Not at all. We are simply capitalising on the Bank’s existing knowledge of its clients and offering a product that responds best to their needs in the current environment. As they are existing clients they will have already been vetted and have completed thorough due diligence procedures including environmental, integrity and transition impact assessments. The Facility is intended to provide the type of financing that, pre-crisis, had typically been provided by local commercial banks. We know our clients very well and know that they are suffering through no fault of their own. We are helping those clients everybody would have been happy to finance before the crisis.

With so much anticipated demand, is there scope to expand the Facility?

If demand continues to be strong, the Facility is utilised to its full capacity and the economic situation has not improved, then the possibility that the Facility might be expanded could be considered.

It is also important to stress that there are no prepayment fees and that the loans will be priced according to the current appropriate market benchmarks as we want to encourage refinancing. As soon as credit markets improve and the client can get support from local commercial banks, the Bank is happy to pull out. This is not about achieving high profits but about bridging a funding gap. It’s about going back to the grass roots to support the real economy.