Page 2 - EBRD_newspaper_May2017

2 bne IntelliNews Daily
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May 9, 2017
EBRD offers to help reduce state dominance of Ukraine's banking sector [Cont.]
As a first step, the EBRD will bring Os- chadbank into its Trade Facilitation Pro- gramme (TFP), providing guarantees of up to €50mn in support for Ukrainian exporters and importers. The TFP promotes foreign trade to, from and within the EBRD’s coun- tries of operation, including Ukraine.
In a parallel effort, the EBRD will support Oschadbank with a broad technical cooper- ation package focused on strengthening its capacity for micro- and small business lend- ing and increasing the operational efficiency of its branch network.
The EBRD's Usov says that the multi- national lender could have an interest in eventually becoming a shareholder of Os- chadbank; however, its possible share is "a subject for future negotiations".
According to the central bank, some shares of PrivatBank could also be offered to potential investors, but only in three to four years. "This may seem ambitious but it could be possible," McNamee says. "Of course the problem will be in finding investors interested in a bank that currently has such severe prob- lems. Still, four years is a long time and the government is incentivised to get this done."
In December, Francis Malige, the EBRD'S Managing Director for Eastern Europe and Caucasus, joined the supervisory board of the nationalised PrivatBank. However, com- menting on possible investments to the bat- tered lender in the future, the EBRD's Usov said that while the Ukrainian authorities continue their assessment of the lender's financial shape, "it would be too early to dis- cuss any participation".
Meanwhile, the IMF noted in its report published on April 4 that it is now crucial that the nationalisation of PrivatBank is followed by "firm and transparent" efforts to collect related-party loans, to minimise the cost to the state and taxpayers. "Over the medium term, PrivatBank should be privatised," the document reads.
EBRD prepares to welcome Lebanon into the fold
Nicholas Watson in Prague
The EBRD is set to welcome its 66th member country and the fifth from the southern and eastern Mediterranean (SEMED) region once the Lebanese government finalises the last steps of the joining process, paving the way for the bank to set up a permanent office in Beirut.
“Following a decision by the Lebanese parliament [in March], the country’s au- thorities are finalising steps for Lebanon to become an EBRD shareholder,” an EBRD spokesperson told bne IntelliNews. “Once all the formalities are done in Lebanon, the country will become a member and a share- holder of the EBRD.”
The next step will be for the EBRD’s board of governors to vote on Lebanon becoming a country of operations, or recipient country. Assuming a positive outcome, the bank can start its activities in Lebanon and open up a permanent office, the spokesperson said.
Janet Heckman, the new EBRD managing director for the SEMED region, told Reuters in March that the bank expected to start local op- erations in the second quarter of 2017, though the spokesperson admitted that such a timing now looks optimistic. “No, it’s [the board of gov- ernors’ vote] not scheduled for the annual meet- ing,” the spokesperson said, referring to the bank’s annual meeting in Cyprus on May 9-11.
The EBRD says it will focus on provid- ing support in Lebanon for private sector competitiveness, promoting a sustainable supply of energy, enhancing the quality and efficiency of public service delivery, and rais- ing private sector participation in public infrastructure.
Given the EBRD has already made signif- icant contributions to international efforts to tackle the refugee crisis in the SEMED region caused by the civil war in Syria, it is expected to also do so in Lebanon, to where more than a million Syrians have fled. In March, Leba- nese Prime Minister Saad al-Hariri warned that his country is close to “breaking point” because of the strains from hosting Syrian refugees, who now make up around a quar- ter of the country’s population.
The war and refugee crisis are also hav- ing huge detrimental effects on the Lebanese economy. The government calculates that the cumulative cost of the Syrian conflict to Lebanon was $18.15bn to the end of 2015.
term strategy is supposed to be carried out through reforms and sales of state-run banks, and should provide an opportunity to strengthen competition on the market and reduce corruption.
International financial institutions, such as the EBRD, are offering to help with this process, given the likely shortfall in potential foreign investor interest in the near future.
"The state cannot be an efficient owner. That is why the EBRD, other international in- stitutions and the Ukrainian government will work together to reduce the state's share in the banking sector," Anton Usov, the EBRD’s spokesman in Kyiv, tells bne IntelliNews.
The International Monetary Fund (IMF) said in its report published on April 4 that Ukraine intends to accelerate the re- form of state banks, introduce new cor- porate governance and risk management standards, and develop an efficient business model. In February 2016, the Ukrainian au- thorities published an IMF-compliant five- year roadmap for reforming state-run banks.
According to the document, two state- owned lenders that were considered as core – Oschadbank and Ukreximbank – could sell up to 20% of shares to a qualified investor or international financial institution via a trans- parent tender by mid-2018.
However, due to the recent hike of the state's share in the banking sector, Kyiv is forced to amend the roadmap. On April 19, the Ukrainian government approved a ten- der to select an internationally recognised consulting company as an advisor to draw up the adjustments to the document.
"Ukraine has too consistently demon- strated an insufficient capacity for reform when left to its own devices and without be- ing dragged or even threatened by Western institutions, and in particular the IMF," Mark McNamee, a London-based analyst at Fron- tier Strategy Group, tells bne IntelliNews. "To my knowledge, the EBRD is eager to par- ticipate in such an important process that would potentially lay the groundwork for a transparent and effective banking sector for years."
Indeed, the EBRD and the Ukrain- ian government have already agreed on steps to support reforms at Oschadbank. As per a memorandum of understanding signed by the EBRD, the Ukrainian Finance Ministry and Oschadbank in November 2016, the multinational lender will help Os- chadbank prepare the implementation of a comprehensive programme for its commer- cialisation and partial privatisation, sched- uled for 2018.
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