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EUROPEAN BANK READY TO PROVIDE SYNTHETIC LOANS TO ARMENIAN BANKS
By Lilit Aslanyan
ArmInfo
2010-02-24 11:01:00
European Bank for Reconstruction and Development (EBRD) is expected
to provide up to 100 million EUR to Armenia in 2010 versus last
year's 83 million EUR. The 1/3 of total financing will be provided
through local banks. Besides traditional financing the European
Bank is expected to offer new products to the Armenian financial
market. Mr. Valeriu Tazlog, Head of the EBRD Office in Yerevan,
tells about further details in an interview with ArmInfo.
Mr. Razlog, the EBRD is expected to sign the first loan agreement with
a local bank in February 2010 as part of the power saving program. At
what stage is currently the program and have you already selected
the companies to implement it with?
We have resolved to wait a little and launch the program in late Q1 or
in early April 2010. At present we are studying specific directions
to provide funds to. We are not in a hurry since many international
organizations have already started providing credit resources to the
sphere of energy and we would not like to duplicate them.
Given the big potential in the power saving industry and production
of pure green energy, the EBRD is expected to get actively involved
in the crediting of this sphere. Alongside with establishment of a
specialized fund, the European Bank is expected to direct $25 million
to the energy sector through Armenian commercial banks. Till the end
of 2010 the bank is expected to make a $15 million contract with the
local banks. In addition, EBRD is studying the possibility of direct
financing of power generating enterprises. Nearly $10 million direct
financing may be provided to the sphere. Relatively not large loans
will be provided through the local banks as part of the given program,
whereas directly and via the fund loans will be provided to the HPPs
with over 5 MW capacity.
Does the European Bank plan to support SME?
We are currently studying a project of financing to local banks in
the current year for issuing letters of credits to vendors. We want
to help commercial banks get involved in growing trade and supplies
on a letter of credit basis.
As regards lending to SME, we have resolved to finance also small and
medium-sized business in Armenia after we had several meetings with
our partner-banks. Within 2010 we are going to provide Armenian small
and medium-sized companies with 25-27 million EUR. The money will be
placed with commercial banks and non-bank organizations. The loans
will be provided in AMD as well. Last year we did not participate in
lending to SME since local banks had surplus liquidity and needed no
additional borrowings. But local banks now need liquidity in terms
of the national dram and the EBRD is able and willing to provide
such loans. However, local banks consider loans in terms of national
currency expensive. The first such loan agreement will be signed in
Mar 2010. The currency risk will be undertaken by a foreign hedge
fund wherein EBRD has a stake.
Such loans are called synthetic, i.e. the loan itself is provided in
USD or EUR, but their exchange rate depends on the AMD exchange rate.
He added that EBRD is implementing such a project in Armenia for the
first time. Each loan provided as part of the given project will be
considered individually with due regard for the needs of the local
banks and their clients. EBRD convinces banks of the fact that loans
in AMD are more profitable for them since risks are minimized.
May EBRD loans to SME affect financing of big business?
We are lending to big business on the program of co-financing with
HSBC Bank Armenia, Anelik Bank, Armeconombank, Araratbank, Byblos Bank
Armenia. In early Mar 2010 EBRD and Ameriabank are expected to sign a
$10mln agreement for co-financing big business. Nevertheless, I'd call
this program co-financing of medium-sized rather than big business.
International organizations are involved in development of mortgage
market in Armenia. Even the authorities are concerned about the
situation in this market. What are the plans of the European Bank
regarding this segment?
We are attentively following the processes in the mortgage market. In
the period of crisis we believe it is important that the government
has focused on the social mortgage. I'd like to highlight that the
European Bank and the IFC are rendering technical assistance to the
Central Bank in introducing and amending legislation on mortgage
lending. We are studying the local legislation to reveal differences
between local and international standards of mortgage lending. We want
to help Central Bank of Armenia fully use international experience. We
hope that the package of relevant legislative initiatives will be
ready by the summer and will be discussed by Central Bank and other
participants in the market, including by construction companies and
commercial banks. Afterwards, it will be submitted to the parliament
of Armenia. Mortgage lending is a complicate sector, indeed. It
requires long-term resources that, we hope, will be in terms of the
national currency, since it was the currency factor that led to crisis,
especially in the Central Europe. As regards mortgage lending by the
European Bank, we are going to provide loans to that sector in the
current year.
Refinancing rate in Armenia is gradually rising. What are your
forecasts? Will refinancing rate affect market rates?
The European Bank for Reconstruction and Development forecasts upward
trends of refinancing rates in Armenia in 2010. This tendency is
already being observed in Central Europe, where countries are gradually
transiting from economy support to enhanced stability efforts. Today,
many central banks are showing a more balanced approach to economy
support as this policy creates an environment fostering inflation. It
is difficult to foretell how the interest rates will be formed in the
commercial banks of Armenia. EBRD expects some restraint or reduction
in market rates due to fiercer competition between the banks with due
regard for high-level liquidity. At the same time, having resources to
invest in the real sector of economy, the Armenian commercial banks
are currently trying to attract the best clients, and this rules out
raising of interest rates despite risks.
Will EBRD increase its share in local commercial banks in 2010?
We do not rule out such possibility, though we have not received any
requests yet because, as we think, the level of capitalization of
local banks is high enough.
Thank you for the interview.
By Lilit Aslanyan
ArmInfo
2010-02-24 11:01:00
European Bank for Reconstruction and Development (EBRD) is expected
to provide up to 100 million EUR to Armenia in 2010 versus last
year's 83 million EUR. The 1/3 of total financing will be provided
through local banks. Besides traditional financing the European
Bank is expected to offer new products to the Armenian financial
market. Mr. Valeriu Tazlog, Head of the EBRD Office in Yerevan,
tells about further details in an interview with ArmInfo.
Mr. Razlog, the EBRD is expected to sign the first loan agreement with
a local bank in February 2010 as part of the power saving program. At
what stage is currently the program and have you already selected
the companies to implement it with?
We have resolved to wait a little and launch the program in late Q1 or
in early April 2010. At present we are studying specific directions
to provide funds to. We are not in a hurry since many international
organizations have already started providing credit resources to the
sphere of energy and we would not like to duplicate them.
Given the big potential in the power saving industry and production
of pure green energy, the EBRD is expected to get actively involved
in the crediting of this sphere. Alongside with establishment of a
specialized fund, the European Bank is expected to direct $25 million
to the energy sector through Armenian commercial banks. Till the end
of 2010 the bank is expected to make a $15 million contract with the
local banks. In addition, EBRD is studying the possibility of direct
financing of power generating enterprises. Nearly $10 million direct
financing may be provided to the sphere. Relatively not large loans
will be provided through the local banks as part of the given program,
whereas directly and via the fund loans will be provided to the HPPs
with over 5 MW capacity.
Does the European Bank plan to support SME?
We are currently studying a project of financing to local banks in
the current year for issuing letters of credits to vendors. We want
to help commercial banks get involved in growing trade and supplies
on a letter of credit basis.
As regards lending to SME, we have resolved to finance also small and
medium-sized business in Armenia after we had several meetings with
our partner-banks. Within 2010 we are going to provide Armenian small
and medium-sized companies with 25-27 million EUR. The money will be
placed with commercial banks and non-bank organizations. The loans
will be provided in AMD as well. Last year we did not participate in
lending to SME since local banks had surplus liquidity and needed no
additional borrowings. But local banks now need liquidity in terms
of the national dram and the EBRD is able and willing to provide
such loans. However, local banks consider loans in terms of national
currency expensive. The first such loan agreement will be signed in
Mar 2010. The currency risk will be undertaken by a foreign hedge
fund wherein EBRD has a stake.
Such loans are called synthetic, i.e. the loan itself is provided in
USD or EUR, but their exchange rate depends on the AMD exchange rate.
He added that EBRD is implementing such a project in Armenia for the
first time. Each loan provided as part of the given project will be
considered individually with due regard for the needs of the local
banks and their clients. EBRD convinces banks of the fact that loans
in AMD are more profitable for them since risks are minimized.
May EBRD loans to SME affect financing of big business?
We are lending to big business on the program of co-financing with
HSBC Bank Armenia, Anelik Bank, Armeconombank, Araratbank, Byblos Bank
Armenia. In early Mar 2010 EBRD and Ameriabank are expected to sign a
$10mln agreement for co-financing big business. Nevertheless, I'd call
this program co-financing of medium-sized rather than big business.
International organizations are involved in development of mortgage
market in Armenia. Even the authorities are concerned about the
situation in this market. What are the plans of the European Bank
regarding this segment?
We are attentively following the processes in the mortgage market. In
the period of crisis we believe it is important that the government
has focused on the social mortgage. I'd like to highlight that the
European Bank and the IFC are rendering technical assistance to the
Central Bank in introducing and amending legislation on mortgage
lending. We are studying the local legislation to reveal differences
between local and international standards of mortgage lending. We want
to help Central Bank of Armenia fully use international experience. We
hope that the package of relevant legislative initiatives will be
ready by the summer and will be discussed by Central Bank and other
participants in the market, including by construction companies and
commercial banks. Afterwards, it will be submitted to the parliament
of Armenia. Mortgage lending is a complicate sector, indeed. It
requires long-term resources that, we hope, will be in terms of the
national currency, since it was the currency factor that led to crisis,
especially in the Central Europe. As regards mortgage lending by the
European Bank, we are going to provide loans to that sector in the
current year.
Refinancing rate in Armenia is gradually rising. What are your
forecasts? Will refinancing rate affect market rates?
The European Bank for Reconstruction and Development forecasts upward
trends of refinancing rates in Armenia in 2010. This tendency is
already being observed in Central Europe, where countries are gradually
transiting from economy support to enhanced stability efforts. Today,
many central banks are showing a more balanced approach to economy
support as this policy creates an environment fostering inflation. It
is difficult to foretell how the interest rates will be formed in the
commercial banks of Armenia. EBRD expects some restraint or reduction
in market rates due to fiercer competition between the banks with due
regard for high-level liquidity. At the same time, having resources to
invest in the real sector of economy, the Armenian commercial banks
are currently trying to attract the best clients, and this rules out
raising of interest rates despite risks.
Will EBRD increase its share in local commercial banks in 2010?
We do not rule out such possibility, though we have not received any
requests yet because, as we think, the level of capitalization of
local banks is high enough.
Thank you for the interview.