The EBRD significantly increased profits in 2010 as emerging Europe started to pull out of the worst recession in a generation and most countries in the region started to see economic growth again.
The Bank recorded a net profit of €1.4 billion for 2010, on the back of a strong growth in investments and the value of the Bank’s equity holdings. As a result of the recovery the Bank also had lower loan loss provisions. The profit compared with a net loss of €746 million in 2009.
The net profit in 2010 will strengthen the EBRD’s capacity to bolster the recovery in its region with new investments in 2011, the first year of the Bank’s business strategy for the period until 2015. Backed with a strong pipeline of upcoming projects, investments will aim especially to address vulnerabilities such as lack of diversification of real economies, underdeveloped domestic capital markets and the need for a strong focus on energy efficiency.
“We are very pleased with the financial results that we achieved in 2010, which build on operational results with a record level of new investments providing vital support to the region in which the Bank operates”, said EBRD President Thomas Mirow. “The Bank is very well capitalised and this risk-bearing capacity allows it to sustain a high level of investment and be counter-cyclical.”
EBRD Vice President, Finance and Chief Financial Officer Manfred Schepers added: “The Bank’s financial results reflect the underlying quality of its portfolio, with non-performing loans of only 3 per cent of the total loan book. Over the last five years and during this crisis period, the Bank has been able to increase its Core Tier 1 capital by 57 per cent to €12.1 billion purely from retained earnings.”
The EBRD maintained its strong capital position during the year and as a triple-A rated institution it continued to be able to borrow at favourable rates. It also maintains high levels of liquidity and enjoys the strong support of its shareholders, who last year approved a 50 per cent increase in the Bank’s authorised capital to €30 billion, to become effective during 2011.
The return to profit was achieved in a year of record investments as the EBRD continued its vigorous response to the impact of the global financial crisis and its aftermath on its countries of operations. It made a record number of 386 individual investments, committing an unprecedented level of financing of €9.0 billion, compared with €7.9 billion in 2009.
“The Bank remains the largest investor in Central and Eastern Europe with a unique skills set that allows the EBRD to be a strong partner for the local and foreign private sector. Our region remains fundamentally attractive and in 2011 we will further strengthen our efforts to finance local companies and support foreign direct investment into the region.” Mr Schepers added.
2010 also saw significant growth in the three key strategic initiatives. Investments in the EBRD Early Transition Countries* rose by 80 per cent to €920 million with 114 projects. The Bank financed 71 projects in the Western Balkans, 39 per cent more than in 2009, with business volume there exceeding €1 billion for the first time. Investments under the Sustainable Energy Initiative rose 64 per cent to €2.2 billion and accounted for nearly a quarter of total EBRD financing in 2010.
While continuing to provide strong support for the financial sector, the EBRD in 2010 shifted its focus more to financing the real economy, with direct investment in corporates accounting for over one quarter of total new commitments.
Responding to a resurgence of food price increases, the Bank also stepped up its investments in the agribusiness sector. The Bank achieved a new record in this sector, signing 63 new projects worth €836 million, an increase of 31 per cent from 2009. The EBRD also intensified its dialogue with investors and authorities to help unlock the region’s significant untapped agricultural production potential.
Record investments were also seen in the power and energy sector, where there was strong demand for funding renewable energy projects. As commercial sources remained scarce, the EBRD stepped in to support several projects in the field as part of the Bank’s drive to support the development of sustainable energy resources. As a result, investments in renewable energy nearly tripled in 2010 with the Bank investing €363 million in nine projects, while power and energy investments in total rose by roughly one third to over €1 billion.
With the recovery in South Eastern Europe lagging behind other parts of the transition region in 2010 and financial uncertainty, the Bank responded by providing tangible support for banks in this region. Under the Joint IFI Action Plan the EBRD provided investments of €980 million to the subsidiaries of Greek banks in four South Eastern European countries for on-lending to local companies.
The Bank’s equity investments in the region at the end of 2010 were valued at €6.3 billion, covering 237 direct investments, together with diverse equity funds portfolio, consisting of 98 participations.
At the end of 2010, the overall equity portfolio is valued 17 per cent above cost, whilst €2.8 billion of realised equity gains have been achieved during the last five years. The Bank anticipates to makes further equity investments during the coming year as a key area to support the development of the private sector in the region.
Fostering and strengthening local currency and capital markets is a key priority for the EBRD. In 2010 the Bank was able to provide local currency loans to banks and corporations across the region. During 2010 the Bank extended local currency loans in nine different countries, four more than before the crisis in 2007.
As part of the Joint IFI Initiative (Vienna Initiative), launched at the height of the crisis to help maintain the engagement of western banking groups in the region, the EBRD together with the IMF and World Bank has now launched a drive to help the development of local capital markets and the reduction of foreign currency lending in the region. (PR LCY initiative)
The Bank expects the positive economic environment will further contribute to the Bank’s profitability in 2011, but the annual financial results remain vulnerable to changes in the financial markets and equity markets in particular.
In accordance with the macro economic development and needs in the region and the Bank’s medium term strategy, the EBRD expects to maintain a robust level of investments in 2011 of between €8 billion to €9 billion.
As required by the Agreement Establishing the Bank, the Board of Directors of the EBRD have submitted the audited financial statements to the Board of Governors for Governors’ approval at its Annual Meeting in May 2011.
* Armenia, Azerbaijan, Belarus, Georgia, Kyrgyz Republic, Moldova, Mongolia, Uzbekistan, Tajikistan and Turkmenistan