The European Bank for Reconstruction and Development (EBRD) has announced its plans to mitigate the consequences of the liquidity crisis and its impact on trade finance, during a conference held at the EBRD’s headquarters in London on January 29.
One of its key plans is to increase the limits on its trade facilitation programme (TFP) from €800mn to €1.5bn. The increase is pending approval from EBRD's board and committee. This follows similar actions taken by other multilaterals, such as the World Bank's IFC, in an effort to increase access to trade finance in the emerging markets. The Asia Development Bank is also set to announce an increase to its limits for trade finance.
The EBRD also plans to increase the availability of TFP facilities for foreign subsidiary banks in the EBRD region, and provide liquidity in the form of cash facilities to issuing banks, a move aimed at supporting intra-regional trade between EBRD countries.
The TFP aims to promote foreign trade to, from and within the EBRD countries of operation. Through this programme, the EBRD provides guarantees to international confirming banks, taking the political and commercial payment risk of international trade transactions undertaken by banks in the countries of operation.
During the conference, the development bank called for more commercial co-financing partners to work with the bank on trade finance transactions, in order to increase liquidity and share associated risks. Speaking at the conference, Lorenz Jorgensen, director, loan syndications, at the EBRD, said: “We need co-financing partners now more than ever. More than in ’91 or ’93. More than in ’98 ”, adding that the current economic downturn is far deeper and more serious than previous crises.
Rudolf Putz, head of trade facilitation programme, at EBRD, also added that efforts must be made to increase the lack of risk-sharing capacity in the market.
Banks active under the facilitation scheme took part in various discussion panels during the one-day conference talking about the impact of the crisis on the trade finance world. Presentations were made from banks covering the Central and Eastern Europe and Central Asian regions, including Credit Bank of Moscow, MDM Bank, Promsvyazbank, Vneshtorgbank, Raiffeisenbank Aval, Ukreximbank and Priorbank in Belarus.
Many of the banks in this region have suffered from an acute lack of liquidity as global foreign banks have either cut or refused to increase their country limits for these countries. The syndications market for the Russian, Eastern Europe and Central Asian markets has pretty much come to a halt in the last quarter of 2008, and this trend seems to be continuing into 2009.
Most issuing banks in the EBRD countries of operation told the audience that there was trade business to be done, if they can access the required liquidity. Given the increased risk awareness in the current market, all concurred that they would only take on the best corporate risks in their respective markets, providing facilities for the most creditworthy companies with proven track records.
During 2008, the EBRD closed 1,115 trade finance transactions under its TFP scheme, with the highest number of transactions closed in Russia with 353 individual deals. However, the second most active region was Tajikistan with 142 transactions followed by Georgia with 135 deals.
The global banking players involved in the TFP scheme also had a chance to provide their perspective. Patrick Brockie, managing director, export and agency finance, EMEA, at Citi said that despite the negative press surrounding Citi, the bank was still very much involved in the emerging markets. However, he adds that in this crisis, “multilateral support is very important”.
Talking about ways the EBRD can assist in improving the level of confidence in the market, Brockie raised the suggestion that it could increase its capacity to lengthen tenors up to five years. He also called for the range of issuing banks to be expanded, despite the current level being fairly expansive.
He also commented that the EBRD is generally very flexible with traditional straightforward trade transactions, but he asked for the development bank to be more flexible in its support for deals that were more complex and bespoke in nature.
Others also presented various suggestions on how the EBRD can further support trade, asking for more state-owned banks to be covered by the TFP scheme, and for more countries such as Bulgaria and Romania to be included. Turkey’s status has already changed to an EBRD country of operations.
There was also talk of how to improve co-financing on transactions, perhaps allowing banks to guarantee transactions directly financed by the EBRD. The possibility of the EBRD guaranteeing existing portfolios was also discussed as a means of freeing up liquidity.
Overall, the general feeling was that there was a clear shift back to traditional trade finance products, and that the New Year would see higher demand for risk mitigation tools such as letters of credit. Up until the acceleration of the crisis, the focus of the trade finance world had been on increasing efficiency and improving processing techniques, now it is clear the focus has shifted back to risk, and how best banks and multilaterals can help share out this risk.
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