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INVESTMENTS IN ENERGY EFFICIENCY HELP CUT COSTS AND SAVE RESOURCES - INTERVIEW
news.am
August 09, 2012 | 01:35
In his interview to Armenian News - NEWS.am, IFC Regional Manager
on South Caucasus Thomas Lubeck talks about current and completed
projects focused on SMEs, energy efficiency and advisory services to
banks implemented by IFC in Armenia in the financial year that ended
on June 30, 2012.
In January you signed an on-lending agreement with ACBA Credit
Agricole Bank, targeted at SMEs. Do you think access to credit for
SMEs in Armenia is adequate?
If you look at the structure of the Armenian economy, you will see that
the vast majority of employment comes from the SME and microfinance
sector. It is an important sector for IFC to be engaged in through
banks. There is definitely a competitive situation in the Armenian
banking system, but the credit penetration rate is still very low -
it remains a bit above 30% of GDP, which is very low compared to
other European countries, where it is on average about twice as high.
Do you think banks are inclined to develop standalone lending projects
to SMEs, without assistance of IFIs?
In fact, it is quite an attractive sector for Armenian banks. With
technical assistance and advisory services provided by IFC, ACBA
Credit Agricole, Ameriabank, and Inecobank are actively working to
engage in microfinance. On the one hand, the size of the loan is
smaller in this case, but the advantage is that banks are setting
up competitive interest rates and searching SME clients for deposits
and additional banking services.
What is the main ideology behind your energy efficiency and renewable
energy projects in Armenia?
There are a couple of things we have been doing differently. We have
recently done two transactions which were new for us and the market
as well. IFC provided $15 million financing to HSBC Bank Armenia to
help the bank support sustainable energy projects and provide loans
to small and medium enterprises interested in investing in energy
efficient technologies, promoting the efficient use of resources.
IFC's funding helps Byblos Bank Armenia increase access to housing
finance and supports Armenia's first residential energy-efficiency
lending packages offered by a local bank helping save power and reduce
greenhouse gas emissions. As a result, an individual can take a loan to
replace old windows with new ones with better insulation or renovate
the entire house, making it more energy efficient, reducing gas and
electricity costs.
Energy saving is extremely important for Armenia and Georgia as well.
A large portion of energy sources are imported in the country. So
if investments are made to increase energy efficiency and decrease
reliance on imports, this is going to be good for the country. Georgia
is paying full international prices for gas, which is expensive. So
anything they can invest in energy efficiency and efficiency of gas
in particular, is going to save them a lot of money. At the end of
the day, it is really a commercial question: do you want to pay
more or less? Of course, there is also the broader consideration
of the environment. Fewer emissions of greenhouse gas are better
for everybody.
As for renewable energy, EBRD has been active in Armenia, as well as
IFC. In 2009 we issued a $15 million loan to Ameriabank for on-lending
to small HPP construction, with the same ultimate goal: doing something
that is ecologically clean and improving energy security for Armenia.
There are a couple of areas where the IFIs can help the local banks:
on-lending is one instrument. The tenure of the loan is one of the
most important factors in determining whether the loan is affordable.
Many people think that it's mainly the interest rate, but this is
not true. It is actually the length of the loan that answers the
question of affordability. The second area where the IFIs can help is
very specific technical assistance to design products. Sometimes it
is not only the banks that cannot decide on the type of the product,
but even the clients, who don't always know how to recalculate energy
spending in order to save costs.
What were the main fields of your advisory services to banks?
Firstly, we focused on risk management practices to make sure that the
currency exchange rates, as well as credit risks, will be properly
managed. The second area of IFC's involvement is advisory services
for designing energy efficiency and renewable energy projects.
Do you think a risk of currency mismatch is present in the banking
system?
Today a large amount of deposits in the country are currency
denominated. If you look back, Armenia was actually quite advanced
on the level of the penetration of the dram, and I think the peak
was around 50% of total country deposits in late 2008, before the
depreciation of the dram. Now it stands at around 30%.
The banks cannot do much in this regard as incoming deposits can be
saved in any currency and the banks have the liability to lend it in
the same currencies. The advisory services IFC provides to the banks
focus on careful underwriting of loans to make sure that the borrower
has an income cushion in hard currency to repay the loan comfortably,
even with some fluctuations in the currency. But, truly, this is not
a standing risk.
Do you plan to increase engagement with larger businesses?
IFC is open for business across all the sectors in Armenia. We work
with the banks and SMEs because these are the areas where we see
significant growth prospects. Besides, we also work in the real estate
market, with Elite Group, in order to help complete the construction
of a business center in Yerevan. We are also partnering with Lydian
International because we believe mining is a great export opportunity
for Armenia. IFC will continue working with the banks as banks are
an ideal platform for finding the right candidates and distributing
the lending.
One of your recent projects is Food Safety. Have you chosen this
because of challenges Armenian food exporters face? Has Armenia done
less in improving food safety related regulation than other Eastern
European countries?
We thought very carefully about this project before starting. We
found that there is a very good fresh food production in Armenia,
specifically in food processing and fish farming. Therefore we decided
to increase the capacity of the local producers to export to the EU,
in addition to large exports going to Russia. Improvement of food
safety standards is as important for international export as it is
for local consumers.
In regards to food safety, countries in the region are at different
stages of development. In Armenia IFC launched the project last
year, in Georgia the project was launched a year before and the same
project was implemented by IFC in Ukraine before that. Harmonization
of standards is just an approach which we believe will help local
food companies and producers meet international standards.
Thank you By Aram Gareginyan
news.am
August 09, 2012 | 01:35
In his interview to Armenian News - NEWS.am, IFC Regional Manager
on South Caucasus Thomas Lubeck talks about current and completed
projects focused on SMEs, energy efficiency and advisory services to
banks implemented by IFC in Armenia in the financial year that ended
on June 30, 2012.
In January you signed an on-lending agreement with ACBA Credit
Agricole Bank, targeted at SMEs. Do you think access to credit for
SMEs in Armenia is adequate?
If you look at the structure of the Armenian economy, you will see that
the vast majority of employment comes from the SME and microfinance
sector. It is an important sector for IFC to be engaged in through
banks. There is definitely a competitive situation in the Armenian
banking system, but the credit penetration rate is still very low -
it remains a bit above 30% of GDP, which is very low compared to
other European countries, where it is on average about twice as high.
Do you think banks are inclined to develop standalone lending projects
to SMEs, without assistance of IFIs?
In fact, it is quite an attractive sector for Armenian banks. With
technical assistance and advisory services provided by IFC, ACBA
Credit Agricole, Ameriabank, and Inecobank are actively working to
engage in microfinance. On the one hand, the size of the loan is
smaller in this case, but the advantage is that banks are setting
up competitive interest rates and searching SME clients for deposits
and additional banking services.
What is the main ideology behind your energy efficiency and renewable
energy projects in Armenia?
There are a couple of things we have been doing differently. We have
recently done two transactions which were new for us and the market
as well. IFC provided $15 million financing to HSBC Bank Armenia to
help the bank support sustainable energy projects and provide loans
to small and medium enterprises interested in investing in energy
efficient technologies, promoting the efficient use of resources.
IFC's funding helps Byblos Bank Armenia increase access to housing
finance and supports Armenia's first residential energy-efficiency
lending packages offered by a local bank helping save power and reduce
greenhouse gas emissions. As a result, an individual can take a loan to
replace old windows with new ones with better insulation or renovate
the entire house, making it more energy efficient, reducing gas and
electricity costs.
Energy saving is extremely important for Armenia and Georgia as well.
A large portion of energy sources are imported in the country. So
if investments are made to increase energy efficiency and decrease
reliance on imports, this is going to be good for the country. Georgia
is paying full international prices for gas, which is expensive. So
anything they can invest in energy efficiency and efficiency of gas
in particular, is going to save them a lot of money. At the end of
the day, it is really a commercial question: do you want to pay
more or less? Of course, there is also the broader consideration
of the environment. Fewer emissions of greenhouse gas are better
for everybody.
As for renewable energy, EBRD has been active in Armenia, as well as
IFC. In 2009 we issued a $15 million loan to Ameriabank for on-lending
to small HPP construction, with the same ultimate goal: doing something
that is ecologically clean and improving energy security for Armenia.
There are a couple of areas where the IFIs can help the local banks:
on-lending is one instrument. The tenure of the loan is one of the
most important factors in determining whether the loan is affordable.
Many people think that it's mainly the interest rate, but this is
not true. It is actually the length of the loan that answers the
question of affordability. The second area where the IFIs can help is
very specific technical assistance to design products. Sometimes it
is not only the banks that cannot decide on the type of the product,
but even the clients, who don't always know how to recalculate energy
spending in order to save costs.
What were the main fields of your advisory services to banks?
Firstly, we focused on risk management practices to make sure that the
currency exchange rates, as well as credit risks, will be properly
managed. The second area of IFC's involvement is advisory services
for designing energy efficiency and renewable energy projects.
Do you think a risk of currency mismatch is present in the banking
system?
Today a large amount of deposits in the country are currency
denominated. If you look back, Armenia was actually quite advanced
on the level of the penetration of the dram, and I think the peak
was around 50% of total country deposits in late 2008, before the
depreciation of the dram. Now it stands at around 30%.
The banks cannot do much in this regard as incoming deposits can be
saved in any currency and the banks have the liability to lend it in
the same currencies. The advisory services IFC provides to the banks
focus on careful underwriting of loans to make sure that the borrower
has an income cushion in hard currency to repay the loan comfortably,
even with some fluctuations in the currency. But, truly, this is not
a standing risk.
Do you plan to increase engagement with larger businesses?
IFC is open for business across all the sectors in Armenia. We work
with the banks and SMEs because these are the areas where we see
significant growth prospects. Besides, we also work in the real estate
market, with Elite Group, in order to help complete the construction
of a business center in Yerevan. We are also partnering with Lydian
International because we believe mining is a great export opportunity
for Armenia. IFC will continue working with the banks as banks are
an ideal platform for finding the right candidates and distributing
the lending.
One of your recent projects is Food Safety. Have you chosen this
because of challenges Armenian food exporters face? Has Armenia done
less in improving food safety related regulation than other Eastern
European countries?
We thought very carefully about this project before starting. We
found that there is a very good fresh food production in Armenia,
specifically in food processing and fish farming. Therefore we decided
to increase the capacity of the local producers to export to the EU,
in addition to large exports going to Russia. Improvement of food
safety standards is as important for international export as it is
for local consumers.
In regards to food safety, countries in the region are at different
stages of development. In Armenia IFC launched the project last
year, in Georgia the project was launched a year before and the same
project was implemented by IFC in Ukraine before that. Harmonization
of standards is just an approach which we believe will help local
food companies and producers meet international standards.
Thank you By Aram Gareginyan