Rudolf Putz, who joined the European Bank for Reconstruction and Development (EBRD) over two decades ago to lead its trade facilitation programme, is set to retire in the coming weeks.

In an interview with GTR, he reflects on how the market has evolved over the course of his career, the EBRD’s response to the Ukraine war, and the bank’s approach to the energy transition.

Under Putz’s leadership, the EBRD’s trade programme has weathered various crises, including the global financial crash, the Covid-19 pandemic and the Ukraine crisis, and has expanded to include over 100 issuing banks in more than 30 countries. In 2023, it had a record year, backing €4.2bn-worth of trade.

 

GTR: During your tenure at the EBRD, how has the trade finance market evolved?

Putz: When we started our EBRD trade facilitation programme (TFP) 25 years ago, many foreign commercial banks had become very cautious in doing new business in Eastern Europe and Commonwealth of Independent States (CIS) regions. They had lost a lot of money during the Russian banking crisis in 1998, so we created this programme to cover risk and to encourage them to restart their business.

Two decades ago, every bank with corporate clients had a trade finance department. However today, many smaller banks and regional lenders have silently stopped doing trade finance; in fact, they have stopped cross-border lending altogether due to the perceived high risk. There are also more KYC processes and increased costs for lenders, amid increased regulatory requirements.

Trade finance has become very concentrated, and it’s probably only 20 to 50 banks worldwide that are still processing sizable trade finance volumes.

 

GTR: Looking at the regions the EBRD is active in, across Europe and Central Asia, in which markets is the bank currently seeing the highest levels of demand? And for which types of products?

Putz: Our major business under the TFP is guarantees, and we cover up to 100% of bank payment risk. In some instances, if our partner banks in emerging markets cannot source the liquidity they need, whether for financing imports or exports, the EBRD can use its own resources.

Usually, we try to avoid this in the hope the private sector will step in. But in some countries, local banks have lost correspondent banking relationships and there are no foreign commercial banks available to provide smaller, high-risk countries with liquidity.

We also provide technical assistance in the form of training and advisory services. For instance, we employ consultants to train bankers in emerging markets on trade finance, documentary credits and supply chain finance.

When the EBRD’s trade programme started 25 years ago, 100% of our business was in Eastern Europe and the CIS regions and included more advanced economies that are now part of the EU, like Croatia, Romania and Bulgaria.

Over the years, we have expanded to new markets including Mongolia, Turkey, Morocco, Tunisia, Egypt, Jordan, Greece and Lebanon. About half of our business is now in the Mediterranean region.

Five years ago, we had hardly any business in Tunisia as the EBRD was not needed; foreign commercial banks took all the risk themselves. Now the situation has changed, and trade finance lenders require risk cover from the EBRD.

More recently, Ukraine has become one of our biggest exposures.

 

GTR: Since Russia’s full-scale invasion of Ukraine in 2022, how has the EBRD worked to facilitate Ukraine’s imports and exports? Which types of trade finance products have you largely provided in the Ukraine market?

Putz: All of a sudden, the demand for letters of credit and bank guarantees has become much higher, due to war risks. We are mostly seeing financing requests for imports of crop protection chemicals, as well as seeds and equipment for agriculture and food processing.

Agriculture is crucial for Ukraine, as grain and other agricultural products are the only goods Ukraine can currently produce for export. It is exports that will help generate foreign exchange, which Kyiv needs to rebuild the economy and import essential goods, such as fuel for agriculture.

Currently, there is very little demand in Ukraine for the import of consumer goods like consumer electronics or cars, so the vast majority of support under the EBRD’s TFP goes into the productive sectors like agriculture and food production.

The EBRD has established trade finance facilities with a total amount of over €200mn for partner banks in Ukraine, which are well utilised. However, our risk-taking capacity is not sufficient, so we have invited other developmental financial institutions (DFIs) such as Miga to co-finance with us. We expect to sign co-financing agreements with other DFIs in the near future, and the plan is to increase our total exposure beyond €300mn.

 

GTR: Clearly, Russia’s full-scale invasion did not just impact the Ukrainian market. How has the war affected trade flows in the EBRD’s regions of operation over the past couple of years?

Putz: The Ukraine war has had a significant impact on other countries in Eastern Europe and the CIS. Many large foreign commercial banks that had previously been active in Russia, Ukraine and Belarus – all major markets for trade finance lenders prior to the crisis – have exited not only these countries, but the whole region.

This has had a dramatic effect on trade finance providers in Eastern Europe and CIS, which have lost correspondent banks and trade finance facilities because foreign commercial banks are now much more concerned about political risk and commercial payment risk in the whole region. They are now looking at other markets in Asia or in Africa, having lost interest in the region.

Smaller countries in Central Asia and the Caucasus – Tajikistan, Kyrgyz Republic, Kazakhstan, Azerbaijan, Moldova and Armenia – are indirect victims of this war and are suffering the consequences.

 

GTR: A little over a decade ago, Russia was the EBRD’s single largest country of activity. How has Moscow’s invasion of Ukraine impacted the bank’s trade programme?  Did the bank have to wind down business in Russia and Belarus?

Putz: When Russia occupied Crimea in 2014, we stopped doing business in Russia, which at the time represented our biggest exposure. The exit from Russia has not had a big impact on our total portfolio under the TFP because we shifted to other countries. At the time, there was increased demand in other parts of the world, particularly Mediterranean countries such as Greece. The business we lost in Belarus in 2022 was more than compensated for by the growth of our business in Ukraine.

 

GTR: To what extent is the EBRD looking to grow its trade finance exposures in the renewable energy or energy transition sectors? Is this an area the bank is placing emphasis on?  

Putz: It’s one of the primary objectives for the EBRD as well as the TFP. About 10 years ago we started to establish green trade facilities for our partner banks, helping them finance imports of green technologies. Initially, we started on a very small scale. As you can imagine, many emerging markets prioritise the basic needs of their people – food commodities, for instance – and the energy transition is often not top of their agenda.

We are trying to change that by speaking with governments and highlighting the importance of the need to develop a green economy. In turn, green trade finance volumes have grown. Last year, 27% of our business under the TFP supported green trade flows, and we are planning to increase this percentage over the next few years. Ideally, we would like to achieve higher than 30%; but the EBRD is already one of the one of the biggest providers of green trade finance. By comparison, green transactions typically account for only about 5 to 10% of commercial banks’ trade finance portfolios.

Green trade finance can encompass everything from solar power plants to wind turbines or equipment for hydroelectric power plants, but also machinery and equipment replacing old equipment that consumes more energy or exhausts more carbon dioxide.

We stopped financing imports of fossil fuels a few years ago and have zero business in financing trade flows with fossil fuels. The only exception is Ukraine, where we still support the import of fuel because the country is highly dependent on imports of petrol and gasoline. Afterall, Ukraine needs fuel for tractors and harvesters to produce agricultural goods.

 

GTR: And finally, what are your plans following your retirement at the EBRD? Are you preparing for another role in the trade finance industry?

Putz: Since I still enjoy working and feel much too young to retire, I am planning to continue supporting banks, insurance underwriters and their clients in the development of their international trade and trade finance business.

Unfortunately, over the last 15 to 20 years, many international banking groups have reduced their trade finance business in smaller and high-risk countries. As a result, there is now a huge trade finance gap in less advanced countries. I would like to help banks and insurance underwriters close this gap by demonstrating that the risk of trade finance – if properly done – is still manageable.

In addition, I would like to continue supporting trade finance associations in raising awareness of the importance of trade finance and driving more support from policymakers, regulators and developmental financial institutions.

There are still a lot of interesting things to do, and I hope that I will still be able to contribute to the further development of trade finance.