EBRD in $35 million loan to Russia’s Center-Invest Bank

By Richard Wallis

The European Bank for Reconstruction and Development is providing a five-year loan of up to $35 million (equivalent to €25 million) to Center-Invest Bank, the leading private bank in southern Russia. The funding will be ear-marked for on-lending to local small and medium-sized businesses, Center-Invest Bank’s core client base and a sector exposed to the full brunt of the crisis.

The loan is part of an EBRD anti-crisis support package for the Russian banking system and is being advanced under its €500 million Multi-Product Framework for Medium-Sized Russian Banks, set up in 2008. Seven Russian banks received support totalling €182 million under this EBRD facility last year. More such projects, mainly involving equity or quasi-equity, are in the 2009 EBRD pipeline.

Supporting small and medium-sized businesses is at the heart of the EBRD’s mandate, especially at a time when these firms do not have privileged access to state funding and face an exceptionally tight credit market, said Varel Freeman, the EBRD’s First Vice-President, at a loan signing ceremony in Rostov-on-the-Don.

Thanks to Center-Invest Bank, with which we have had a relationship since 2002, we can achieve this goal while at the same time demonstrating to the market our strong support as a shareholder through the provision of scarce medium-term funding. This will help our partner to increase its role as a financial intermediary in the region, Mr. Freeman added.

At the end of 2008, lending to micro and small businesses accounted for 42 percent of Center-Invest Bank’s loan portfolio and it ranks among the top 15 lenders to the sector in the whole of Russia.

The EBRD holds a 27.45 percent stake in Center-Invest Bank and this transaction brings total EBRD commitments to this regional bank to $155 million (€121 million). Center-Invest Bank’s other international shareholders include Germany’s DEG and Austria’s Erste Bank.

In a situation where strong risk aversion continues to predominate, the role of the EBRD and other International Financial Institutions in demonstrating support to the banking system is vitally important. This is why the Bank has put together an anti-crisis package for a sector whose good health is crucial for the whole Russian economy.

The roll-out of these projects, on which work began immediately after the crisis broke out in September 2008, will continue this year. The EBRD’s priority is to channel longer-term funding through the banking system to the real sector of the economy in order to ease pressure on liquidity, as well as to support the capital of existing banking clients and provide finance for mergers and acquisitions to speed up the banking sector’s consolidation, a long-standing goal of the Bank.