Financing under the European Bank for Reconstruction and Development’s (EBRD’s) Trade Facilitation Programme (TFP) in April topped €500mn for the first time in a single month in its history. This marks the development bank’s second consecutive month of record support for trade as it steps in to protect emerging economies across its regions, which stretch from central and south-eastern Europe, to Central Asia and the Middle East and North Africa, from the economic impact of the coronavirus pandemic.
In April, the bank delivered €503.5mn in trade finance via 179 trade transactions, surpassing its previous record, set in March, of €385.6mn for 144 transactions.
“This is really unprecedented – none of the previous crises resulted in such a demand,” Maria Mogilnaya, EBRD principal banker and coordinator of its crisis response work, tells GTR.
She attributes this growth to the fact that the bank covers more regions now than it did in the 2008/09 crisis, but also because many foreign commercial banks are reassessing risks and reducing their trade finance limits in emerging markets, including the EBRD regions.
“Where transactions had previously been covered by pre-payments, now, with all the uncertainty, companies are not so sure that they will get the goods, and so they don’t want to pay in advance. They are turning to letters of credit or guarantees, which means an increased demand for EBRD support,” she says.
She also reports a greater need for extended payment terms in instances where the delivery of goods has been delayed or projects put on hold. “For example, when goods have been delivered and installed, but the training of the local workforce by the exporter or producer cannot take place because of international travel bans – in these cases we are being asked to extend our guarantees to support extended payment terms,” she says.
Trade finance is one of the five pillars of the EBRD’s coronavirus ‘solidarity package’ first unveiled in March.
The bank recently revealed that it intends to provide support worth €21bn over the 2020-21 period. Announcing the new measures, EBRD president Suma Chakrabarti said: “The crisis is now so all‐encompassing that, in practice, it is expected that all of the bank’s business over the next one to two years will contribute to the EBRD’s crisis response.”
As part of its solidarity package, it is also providing finance to meet the liquidity and working capital requirements of existing clients, reaching out to SMEs, offering fast-track restructuring for distressed clients, and providing emergency support for essential infrastructure providers.
The emergency channels target all sectors of the economy, but especially those badly hit by the crisis, including financial institutions, SMEs and corporate sectors such as tourism and hospitality, automotive and transport providers, agribusiness, and medical supplies.
“Supporting trade in medical products is very high on the EBRD’s agenda, and the TFP is playing its role in this as well,” says Mogilnaya. “While many countries limit the export of certain goods to make sure that they have enough, many economies across the EBRD regions have no manufacturing capacity for medical products at all, and unless we help them to import medical goods, they will really struggle.”
Swift support is key
The focus with all of the EBRD’s new initiatives and instruments is on the speed of its response.
“The EBRD has streamlined internal approvals so that we can respond faster,” says Mogilnaya. “We now have faster processing times internally for setting up and increasing limits. For existing clients it’s now a matter of a few weeks.”
Within the TFP, however, she says there’s nothing more that can be done to speed up an already efficient operation. “We issue guarantees within 24 hours. That’s our standard practice.”
“The fact that we, in the TFP, are all together in one location and time zone really helps with speed. We are both a front and middle office – we’re the ones who negotiate the guarantees, and who prepare them. This makes it much easier and faster to respond.”
The EBRD’s TFP has been running since 1999 with the aim of promoting foreign trade to, from and among the countries in which the EBRD invests, and offers a range of products to facilitate this trade. New disbursements under the programme are announced on a regular basis.
Under the TFP, the EBRD announced this week that it is increasing an existing uncommitted trade finance limit for Egyptian bank QNB Alahli by US$100mn to US$250mn to help meet the increased demand for import and export transactions. This forms part of the bank’s wider response to the economic impact of the pandemic in Egypt, which also includes a US$100mn senior loan to QNB Alahli for on-lending to SMEs under the EBRD’s solidarity package.
The bank last week announced a new US$175mn loan to Turkish lender DenizBank for use in scaling up its trade finance activities and lending to smaller municipalities and agricultural firms amid the pandemic.
Earlier this month, also as part of its TFP, the EBRD upped its trade limit for the National Bank for Foreign Economic Activity of the Republic of Uzbekistan by US$70mn, having struck a US$150mn trade finance facility with three other banks in Uzbekistan a few weeks previously.
May 13, 2020