The FINANCIAL -- The EBRD considers financial resilience a key quality of well-functioning market economies, one that can be achieved by supporting long-term development while avoiding excessive volatility and market reversals.
The Bank acts as a catalyst for the growth of strong, sustainable and inclusive financial systems across its regions, according to EBRD.
It uses financial instruments, including debt, equity and trade finance transitions, combined with policy reform as well as donor-funded activities to support banks and non-banking financial institutions.
Such large-scale effort calls for international cooperation and the support from EBRD donors is vital.
Out of 125 projects signed with financial institutions in 2016, more than half were backed by donor-funded grants. In total in 2016, the EBRD secured €139.4 million in grants for this work, with the European Union continuing to be the largest contributor.
The financial crisis has exposed disproportionate reliance on foreign capital and excessive use of foreign exchange borrowing in the EBRD region.
The EBRD’s Local Currency and Local Capital Markets Initiative aims to enhance the macroeconomic, regulatory and market framework to ensure long-term, sustainable and liquid local currency markets.
For example, 2016 saw an extension of the SME Local Currency Programme in Georgia in order to mitigate exposure of small and medium-sized enterprises (SMEs) to exchange rate movements.
Donor funding was provided by the EBRD Early Transition Countries Fund, the Swiss State Secretariat for Economic Affairs and the US Department of the Treasury.
Non-performing loans (NPLs) are also a problem undermining stability and the capacity to undertake new lending by the largest banks in the EBRD’s regions. Donor-funded policy reform seeks to put in place the right incentives and climate which can lead to the reduction of this burden.
In Serbia, the Ministry of Finance adopted a strategy aiming at the resolution of NPLs. In 2016 the EBRD supported it through advice and technical cooperation, funded by the UK Government’s Good Governance Fund.
The EBRD also extends credit lines to banks and non-bank financial institutions to increase the type and volume of financing available to micro, small and medium-sized enterprises (MSMEs).
This segment of the economy creates jobs and wealth. However, MSMEs often have limited by access to the finance they need to operate or expand.
Leasing is another attractive financial instrument for small businesses because it provides them with the possibility to finance up to 100 per cent of the purchase price of an asset, without having to offer any supplementary guarantees.
In Tunisia, the EBRD provided a €10 million loan to Tunisie Leasing, with €3 million of the total supplied by the International Cooperation and Development Fund (TaiwanICDF).
The funds finance leases to acquire acquisition office equipment, commercial vehicles and real estate. Technical assistance, funded by the EBRD’s SEMED Cooperation Funds Account, was used for advice and training needed to align Tunisie Leasing’s asset-liability with best practices.
EBRD President Sir Suma Chakrabarti said: “Tunisie Leasing’s strong market position will make sure that we can reach out more remote regions of the country,where access to finance is even more difficult.”
Facilitating trade is another important way of strengthening economies across the EBRD’s region, especially where foreign banking groups hesitate to engage because of risks associated with companies without long financial track records.
To tackle this issue in Moldova, in 2016 the Bank’s Trade Facilitation Programme (TFP) completed a project focused on studying the potential of factoring as an alternative method of financing for SMEs, with advisory services funded by Luxembourg.
Another way of securing confidence in the financial sector is by supporting deposit insurance agencies. Their role is to protect citizens, small entrepreneurs and non-profit organisations from losing their deposits in the event of bankruptcy of a credit institution.
In Croatia, through the Shareholder Special Fund, the EBRD funded an initial assessment of the Croatian State Agency for Deposit Insurance and Bank Rehabilitation helping to draw recommendations for improvements of their operations in accordance with EU regulations.
“Donor funding is absolutely key to enable the EBRD to pursue its transition agenda, in particular ensuring that financial markets are developed on a sustainable and resilient basis," said Frédérique Dahan, Head of Financial Operations, Policy Dialogue and Grants Management.
"This may mean strengthening financial infrastructure and financial regulation, regulators’ capacity, or the processes and procedures in place in financial institutions across EBRD countries of operations. Whether the contribution is very large, or small but targeted, the EBRD makes sure that all money delivers tangible results."