Best Developmental Financial Institution: EBRD

Runner-up: Asian Development Bank
Commended: IDB
2007 Winner: EBRD

The European Bank for Reconstruction and Development (EBRD) is arguably one of the most predictable winners of a TFR Award. Quite simply, few other developmental institutions do so much, nor can point to such a solid record of success in its area of operations, as the EBRD.

Credit for that success must be its sharp focus on helping to turn most of the struggling post-Soviet economies of Eastern Europe and the CIS into regular market economies. To that end, it provided copious support – even 100% guarantees – and other encouragement to local and foreign banks as those countries made the difficult transition. Such has been its success that the EBRD model has been followed by similar institutions worldwide.

Its flagship initiative is its Trade Facilitation Programme (TFP). Its purpose is to help beef up the banking sectors of transitional economies by establishing, restoring or deepening the capacity of local banks to obtain credit-confirmation by Western corresponding banks. This helps plug them into the international system of trade payments and facilitates the import and export of commodites and capital equipment.

Since it was established in 1999, more than 7,400 transactions (worth over €4.4bn) have been concluded, involving 109 issuing banks in 21 countries – as well as 250 confirming banks and their foreign subsidiaries in 53 countries. More than 30 banks in Bulgaria, Croatia, Estonia, Latvia, Lithunaian, Romania and Russia have graduated from the programme, while approximately 70 remain active participants.

Today, the main issuing banks using the facility are in Russia, Kazakhstan and Ukraine, but the EBRD programme remains especially significant in the early transition countries where many foreign banks remain cautious. These include Azerbaijan, Bosnia, Georgia, Macedonia and Tajikistan. In Belarus, Kazakhstan, Ukraine and Russia, confirming banks take a greater share of the risks and are more comfortable with longer tenors. In recent years, the TFP has helped finance the export of agricultural equipment from Ukraine to Uzbekistan, homecare products from Russia to the Kyrgyz Republic and the export of welding equipment from Poland to Bosnia and Herzegovina.

Furthermore, the TFP has helped smooth over the peaks and troughs of some more fragile economies, enabling banks to continue issuing letters of credit when conventional banks were reluctant to provide support. During 2007, new facilities were signed with 15 banks in ten countries. In 2008, it will establish TFP facilities with another 15 issuing banks covering about €100m. In addition, it extended its scope to cover the development of financing in local currency, and domestic and international factoring.

“The EBRD established factoring facilities for Compania de Factoring in Romania and Promsvyazbank in Russia and expects to sign such facilities over the next few months with other factoring companies and banks in South-Eastern Europe, Russia and Ukraine,” says Rudolf Putz, head of the Trade Facilitation Programme at the EBRD.

Training and development with local banks also enabled the Bank of Georgia to conduct the first factoring transactions ever undertaken in the Caucasian state.

Having blazed the trail, the model has been widely copied. “It’s good to see that other development banks have followed EBRD’s example and established similar programmes,” says Putz.

The EBRD’s, however, remains the original, the biggest and still the most successful. As a result of the ‘credit crunch’, its intervention is more necessary than ever, believes Putz. “Due to a lack of liquidity, most foreign commercial banks have decided not to increase their exposure to financial institutions in EBRD countries of operation. If at all, they prefer now to finance only guarantee transactions, smaller amounts, shorter tenors and transactions that are related to their own clients,” says Putz. “In this situation, the EBRD’s TFP facilities are particularly important for smaller and regional banks in Russia, Kazakhstan and Ukraine.”

“It’s good to see that other development banks have followed EBRD’s example and established similar programmes.”

Rudolf Putz, EBRD