EBRD to boost investments in response to crisis

By Anthony Williams
@ebrdtony

The EBRD plans a substantial increase in investments in 2009 as a direct response to the impact of the global financial crisis on the economies of eastern Europe, after making a net loss in 2008 of €602 million.

The 2008 shortfall, which compares with a net profit of €1.9 billion in 2007, was largely a result of unrealized losses in the EBRD’s holding of equity stakes which have fallen in value in line with the decline of stock markets worldwide.

The loss will not affect the Bank’s investment plans as the EBRD remains very strongly capitalised. The Bank is planning to invest around €7 billion across its countries of operations this year, compared with €5.1 billion in 2008.

The EBRD’s response to the crisis, which is now impacting all the countries where it invests, has focused on the immediate needs of the financial sector, in order to help strengthen sound institutions and maintain flows of credit to small and medium-sized enterprises, whose sources of funding have dried up.

Recent investments have included financing packages for Bank of Georgia, for Ukraine’s Raiffeisen Bank Aval and for Banca Transilvania, one of Romania’s leading SME banks.

The EBRD has also provided financial support to three regional banks in Russia with the aim of strengthening their capital base and to help make sure they can continue to support the economy, particularly small and medium-sized enterprises.

These investments have included a combination of loans to provide liquidity as well as subordinated debt and equity in order to help strengthen the banks’ capital base and balance sheets.

The EBRD’s crisis response also includes support for working capital and critical investments in the corporate sector, as well as plans for a doubling to €1.5 billion of the EBRD’s guarantees and liquidity for regional trade, seen as crucial to sustaining the economies in eastern Europe.

The Bank expects to invest around €3 billion in the financial sector in 2009, around €1.5 billion in the corporate sector and around €2.5 billion in the infrastructure and energy sectors.

The severity of the economic crisis in eastern Europe is threatening to throw nearly two decades of economic reform into reverse. In seeking solutions to the region’s problems, the EBRD is working closely and successfully together with other international financial institutions and organisations.

"The region’s problems are deeply interwoven with those of the rest of Europe and the solution lies in a co-ordinated response from public authorities and international financial institutions," said EBRD President Thomas Mirow.

The EBRD’s investments of €5.1 billion in 2008 compared with €5.6 billion in 2007, with the decline mainly due to the impact of the financial crisis on the timing of project signings in the fourth quarter of 2008.

During the year, the Bank continued to place a high priority on investments in the Western Balkans and the less advanced economies of the Caucasus and Central Asia, the Early Transition Countries*. A strong emphasis on investments in sustainable energy projects also continued.

Investments in the Early Transition Countries rose 14 percent to €586 million, while business volume in the Western Balkans rose 16 percent to €534 million. Investments in sustainable energy projects reached close to €1 billion, or 20 percent of total volume.

Russia took a 36 percent share of total investments last year while the share of investments in the countries that joined the EU in 2004 remained at six percent.

Since its creation in 1991, the EBRD has invested a total €41.7 billion. Together with third parties and via co-financing, the Bank has invested €134.8 billion over the last 17 years.

Despite the impact of the financial crisis, the Bank has maintained its strong capital position, with members’ equity and callable capital totalling €26.3 billion at the end of 2008, against banking loan and equity assets of €15.1 billion.

The EBRD also continues to maintain high levels of liquidity and has effective access to international capital markets where it benefits from its Triple A status.

*The Early Transition Countries are: Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Mongolia, Tajikistan and Uzbekistan