Saturday, February 28, 2009

East Europe Bank Support

From the Financial Times today:

East Europe banks set for €24.5bn loan
By Stefan Wagstyl in Zurich and Alan Beattie in Washington

Published: February 27 2009 03:06 | Last updated: February 27 2009 13:53

A group of multilateral lenders on Friday unveiled a lending package of up to €24.5bn ($31bn) to help central and eastern Europe’s battered banking systems weather the financial crisis.

The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank, which announced the package in London, hope the move will encourage the international banking groups that control most of the region’s banks to support their subsidiaries.

They also want to convince west European states, where most of these parent banks are based, not to discriminate against foreign operations when providing public aid for banking.

The move comes amid rising concern about the effects of the global credit crisis in eastern Europe, particularly in vulnerable states with big external financing needs, including Ukraine, the Baltic states and Hungary.

Thomas Mirow, EBRD president, said: ”We are acting because we have a special responsibility for the region and because it makes economic sense. For many years the growing integration of Europe has been a source of prosperity and mutual benefit and we must not allow this process to be reversed.”

Under the two-year plan, the EBRD will provide up to €6bn in equity investments and loans to banks, the EIB, the European Union’s investment bank, will offer some €11bn in lending to small and medium-sized businesses, and the World Bank will lend €5.5bn for banking, infrastructure and trade finance and up to €2bn in political risk insurance.

The programme has been co-ordinated with the International Monetary Fund, which has already provided emergency loans to Hungary, Latvia and Ukraine and may soon be asked to support other vulnerable states.

While much of the money comes from existing resources, the three institutions hope that by accelerating their activities and focusing on banking they will provide support where it is most needed and encourage others – including parent banks and European Union governments – to co-operate.

Mr Mirow told the FT: “Of course, this is not the whole answer to the whole question. But we do think that in terms of finance it can be constructive enough convince others, particularly parent banks to take their share [of responsibility] in terms of recapitalisations and providing new lending.

Philippe Maystadt, EIB president, said: “This joint action plan will help speed up the delivery of vital finance through the banks to support the real economy of hard-hit countries in central, eastern and southern Europe, and particularly to help small businesses survive in these turbulent times.”

Robert Zoellick, World Bank president, said: “This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis.”

The funds are earmarked for a wide region that includes eastern Europe, most of the former Soviet Union and Turkey, but excludes Russia, where the oil-rich state is judged to have sufficient funds of its own to support banks.

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