EBRD to take local capital market development to the next level

By Axel  Reiserer

EBRD to take local capital market development to the next level

Translating policy engagement into concrete investments, the EBRD is determined to take its efforts to develop local currency and capital markets to the next level in its regions, the Bank says in its new strategy for the sector approved by the EBRD Board of Directors.

Building or strengthening local capital markets was one of the key lessons of the 2008-09 global financial crisis. The EBRD responded with a dedicated strategy to the fact that its regions had been hit particularly hard. This tailor-made approach has borne fruit: In the period 2014-17 alone the Bank registered 408 local currency transactions, with a cumulative volume in excess of €7 billion. At the same time, the EBRD was engaged in policy initiatives in many countries.

Based on this foundation the new strategy’s goal is to promote more efficient and self-sustaining financial markets through further stepping up its engagement, increasing the share of EBRD investments in local currency and identifying and supporting local currency market reforms strengthening resilience, competitiveness and good governance. As of June 2018 the local currency share in the total number of debt and equity operations by the EBRD stood at 39.7 per cent.

The strategy identifies four priority areas for the Bank:

  • Upgrading capital market policy frameworks through active involvement in the development of policy initiatives on market development;
  • Enhancing the legal and regulatory environment by improving and harmonising it to support local currency and market activity and enabling an efficient transaction environment, including the use of fintech and crowdfunding solutions;
  • Improving capital market infrastructure by creating a more efficient transaction environment through infrastructure development, supporting regional cooperation, the creation of regional markets and consolidation, transforming exchanges into financing hubs and using fintech;
  • Expanding product ranges and the investor base through the introduction of new instruments, increasing small businesses’ access to capital market financing, enlarging the liquidity pool and enhancing risk management.

André Küüsvek, EBRD Director, Local Currency and Capital Market Development, said: “Our new strategy is a major step forward as it will allow us to deepen our impact, building on what we achieved to date. The demand for local currency financing remains high in our regions and companies need access to finance and long-term funding in order to grow. With our strategy the EBRD will be able to make a substantial contribution.”

The EBRD’s activities in local currency and capital market development combines investment with policy engagement. The Bank offers, for example, local currency loans, participates in IPOs in local currency, issues local currency boards, promotes covered bonds and invests in local stock exchanges. The policy side includes analytical and advisory work, organisation and implementation of capacity-building and knowledge-sharing activities, as well as technical support for investments and capital market transactions which could play catalytic roles in the process of capital market development.