The European Bank for Reconstruction and Development (EBRD) is extending a US$10mn credit line to Ukraine’s Aval Bank for financing local agribusiness companies.

The deal is part of a pilot project to help speed up development of a warehouse receipts system in Ukraine. The key such a system will be the ability to use agricultural commodities stored in warehouses as collateral.

Ukraine is preparing legislation which will allow farmers, processors and traders in the agribusiness sector to borrow working capital from local banks using the warehouse receipts system. Hans Christian Jacobsen, the EBRD’s director for agribusiness, says the legislation will be vital to Ukraine’s agribusiness sector because it will allow more efficient, and therefore cheaper, financing. The joint EBRD-Aval Bank initiative will provide both parties with useful working experience crucial for introduction of the system.

Since 1998, the EBRD has helped set up warehouse receipt financing in 10 countries. The choice of Aval Bank for piloting the system in Ukraine is not surprising because it has the highest exposure in the agribusiness sector among Ukrainian banks, Jacobsen says.

Serhiy Vovchenko, deputy chairman of the management board of Aval Bank, claims the scheme would aid further development of the Ukrainian agribusiness sector. He expressed hope that the EBRD’s support would help to establish a legal and institutional framework enabling further expansion of lending against agricultural commodities.

Aval Bank has been working with the EBRD under SME lines of credit and the Trade Facilitation Programme since 1995. It intends to increase lending to producers and traders in the agricultural sector with the assistance of EBRD loan resources. Aval Bank’s strong presence in the Ukrainian market has been developed through prudent lending procedures and sound business judgement. Aval Bank has assets of around Uh6.7 bn.

The EBRD has signed over 174 projects worth €3bn to assist the agribusiness sector throughout central and eastern Europe and the Commonwealth of Independent States. In Ukraine, the EBRD’s cumulative investments stand at €1.4bn through 57 projects.