Joint support for Central, Eastern and Southern Europe
- Feb 27, 2009
THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
THE EUROPEAN INVESTMENT BANK GROUP
European Investment Bank
European Investment Fund
THE WORLD BANK GROUP
International Bank for Reconstruction and Development
International Finance Corporation
Multilateral Insurance Guarantee Agency
As the largest international financial institutions (IFIs) investing and lending in central and eastern Europe (“the region”)(1), the EBRD, the EIB Group (EIB and EIF), and the World Bank Group (IBRD, IFC, and MIGA) are launching a Joint IFI Action Plan to support the region’s banking sectors and lending to the real economy. The objectives are threefold, to:
- Deploy rapid and sizeable financial assistance to strengthen banks and support lending to the real economy, particularly to small and medium enterprises (SMEs), in a coordinated manner and building on each IFI’s capabilities;
- Engage other stakeholders and mobilise financial resources for the region, using IFI financing as a catalyst;
- Facilitate coordination of national bank support packages and policy dialogue between key private and public sector stakeholders in countries most affected by the crisis.
The Joint IFI Action Plan is a key part of our institutions’ effort to address the effects of the global economic crisis. An effective crisis response in Europe’s integrated financial markets requires fast and coordinated action by all stakeholders: parent banks, which own a large part of the region’s financial sectors important local banks; home and host country authorities of cross-border banking groups, European institutions and the IFIs. Policy responses that have been initiated at the national level are necessary but may not be sufficient to contain the crisis and maintain lending to the real economy. A coordinated, regional approach is required because national policy packages can have effects beyond national boundaries, and because support and stimulus packages compete for a limited pool of resources.
While all countries of the region face the challenge of global financial retrenchment, our approach recognizes that countries differ very significantly in terms of their financial vulnerability, their need for support and their status with regards to EU membership.
As part of this Action Plan, we expect to commit up to EUR 24.5 billion in financial resources in 2009-10:
- EBRD will finance up to EUR 6 billion over the next two years as part of its sharply increased business plan for the financial sector across its region of operations. EBRD's financing will take the form of equity investment and capital supporting instruments to ensure that its clients are adequately capitalised to meet the challenges ahead, targeted medium and long term debt finance to support lending to the real economy, particularly to the SME sector, and the doubling of limits available under its Trade Facilitation Program (TFP) to support trade flows in the region.
- EIB group has EUR 5.7 billion in SME lending facilities available for drawing by Central, Eastern, and Southern European banks, and further tranches totalling a similar amount are expected during the 2009-2010 period (EUR 11 billion in all) as part of the EIB volume increase under the European Economic Recovery Plan adopted by the December 2008 European Council. A first further tranche of EUR 2.8 billion should be approved by end-April 2009. The distribution of these SME facilities, currently totalling EUR 8.5 billion, is as follows: EUR 4.4 billion for New EU member states; EUR 1.9 billion for pre-Accession Western Balkan states; and EUR 2.2 billion for pre-Accession Turkey(2). The EIF, the EIB Group’s venture capital and SME guarantee arm, is also aiming to increase its activity in this region over the next two years.
- World Bank Group intends to propose to its respective Boards lending and guarantee support to the banking and real sectors in the region of up to EUR 7.5 billion equivalent as follows:
- a) IFC, intervening mainly through its crisis response initiatives, is expected to contribute up to EUR 2 billion, in particular equity/quasi equity investments in banks by the IFC Recapitalization Fund, and trade finance under the Global Trade Finance Program, in order to complement IFC’s traditional investment and advisory services in the region;
- b) IBRD intends to increase lending in Europe and Central Asia up to EUR 16 billion in 2009-10 out of which up to EUR 3.5 billion is envisaged for addressing banking sector issues and SME/export financing in the region;
- c) MIGA will provide a political risk insurance facility of up to EUR 2 billion for bank lending to the financial sector in the region.
Each institution would approve its funding package based on its internal approval processes and eligibility criteria.
Our resources will contribute to meeting the financial sector’s need for capital and liquidity. They will complement financing from parent banks of bank groups, which have strongly committed to supporting their subsidiaries in the region, with assistance from their home countries, and by governments that host the subsidiaries of bank groups and possibly additional sources.
The Joint IFI Action Plan will support the governments’ macroeconomic and structural reform programs, and, where applicable, coordinate with macroeconomic support provided in the context of IMF and EU-led programs. We are working particularly closely with the IMF and complement the Fund’s macroeconomic financial assistance with support to banks and lending for the real economy.
The Joint IFI Action Plan is based on a set of shared principles that reflect our respective institutions´ philosophies and operating practices, as well as our own internal exposure limits:
- Equal country access within each institution’s geographical remit;
- Equal bank group access irrespective of nationality (foreign/local), cross-border network, and ownership status (private/public);
- Voluntary participation of countries and banks/bank groups.
The Joint IFI Action Plan operates at three different, mutually reinforcing levels or “platforms.”
- Banking groups: We jointly invite all major banking groups to discuss with us their business plans for the subsidiaries and their associated financing needs to support lending to the real economy. Under the Joint IFI Action Plan, we will provide assistance to bank groups to underpin their continued engagement, especially to support lending to SMEs. Beyond joint needs assessments, we will step up our shared operational work such as joint due diligence.
- Home-host authorities: Facilitation of coordination among home and host supervisors with regards to transnational banking groups, in close coordination with the IMF.
- Public-private sector coordination platform: Facilitation of a public-private sector policy dialogue involving key public and private sector stakeholders in financial sectors in the region, in coordination with other bilateral and multilateral institutions.
We will monitor progress under the Joint IFI Action Plan on a regular basis.
We believe firmly that with the significant and coordinated support by IFIs, bank groups, governments across Europe and European institutions, financial sectors in Central, Eastern and Southeastern Europe will pass the test of the global financial crisis and emerge from it healthier and stronger.
Thomas Mirow, for the European Bank for Reconstruction and Development,
Philippe Maystadt, for the European Investment Bank Group,
Robert B. Zoellick, for the World Bank Group.
(1) Defined for each institution according to its own geographical remit.
(2) The EIB’s mandate does not allow for SME lending in Russia and Eastern Neighbour countries.