The European Bank for Reconstruction and Development will soon be able to issue bonds in Ukraine’s national currency, the hryvnia, marking a major milestone in the Bank’s efforts to develop capital markets in its countries of operation.
International financial institutions (IFIs) such as the EBRD will be allowed to issue the bonds after Ukraine’s parliament, the Verhovna Rada, approved amendments to its law on securities and the stock market on July 4, 2013.
The Verhovna Rada’s decision crowns years of engagement by the EBRD and other IFIs to build up domestic capital markets and domestic long-term lending and investment instruments, denominated in hryvnia.
“This is a real milestone for the EBRD in Ukraine and an important step towards the development of the local capital markets. Local currency lending in Ukraine will allow the EBRD to address critical issues of SME and municipal lending, allowing them to reduce foreign exchange-related risks. The EBRD’s Ukrainian partner-banks will also benefit from new SME lending schemes in local currency,” said Manfred Schepers, EBRD Vice President for Finance.
“The law clearly stipulates that money will be used in the national currency on the territory of Ukraine for financing the real sector,” said Anton Yatsenko, head of the subcommittee on securities and stock market of the Verhovna Rada committee on finance and banking activity, who tabled the amendments to the law. Mr. Yatsenko identified the triple-A rated EBRD as the perfect institution to issue such bonds.
The amended law approved in the Rada comes into force sixty days after publication and after it has been signed by Ukraine’s President Viktor Yanukovych.
The EBRD launched a Local Currency and Capital Markets Initiative in May 2010 although the Bank had been active in the field many years previously. The initiative was set up to help reduce excessive reliance on foreign capital and excessive use of foreign currency borrowing in parts of the EBRD region, which emerged as key vulnerabilities during the global financial crisis.
Crucially, the initiative does not look at promoting the use of local currency in isolation, but at the overall macroeconomic, regulatory and market framework to ensure long-term, sustainable and liquid local currency markets.
The EBRD’s contribution to wider efforts to expand the use of foreign currency and back local capital markets includes:
- Local currency funding operations and technical cooperation to develop domestic market infrastructure
- Local currency funding, lending and debt and equity investments, notably to strengthen the local investor base (especially by supporting pension funds and the insurance sector).
- Policy dialogue together with other International Financial Institutions (IFIs).
The EBRD first made a loan and issued bonds in a local currency (Hungarian forints) in 1994 and has since then issued local currency bonds in various other countries of central and eastern Europe, most notably in the Russian domestic market.
The EBRD is the largest financial investor in Ukraine. As of 1 July 2013 the Bank had committed over €8.66 billion (US$ 11.2 billion) through 333 projects in Ukraine.