EBRD initial $7 million loan for Russia’s UralTransBank (UTB)
December 23, 2008
10-year funding part of EBRD support package for Russian banking system
The European Bank for Reconstruction and Development is advancing $7 million as the first tranche of a larger 10-year subordinated loan to strengthen the balance sheet of UralTransBank (UTB), a key partner of the EBRD’s small business lending programme in the Urals, Russia’s industrial heartland.
The project is part of a broader EBRD anti-crisis support package for Russia’s banking system.
The unsecured loan, whose full approved amount is $12 million, will count towards UTB’s Tier II capital under Russian Central Bank regulations. The loan provides for bullet repayment on maturity. The transaction brings the EBRD’s total commitment to UTB to over $30 million.
The EBRD has since 2004 been a major shareholder in UTB with a stake of 25 percent plus one voting share.
By providing equity-type support, the EBRD makes it possible for recipient banks to use their broadened capital base to increase the amount of debt they can raise from other lenders. The resulting leverage will thus multiply the effect of the EBRD’s anti-crisis funding.
Loans to micro, small and medium-sized businesses accounts for 65 percent of UTB’s portfolio. This is a top priority for the EBRD and a source of strength for UTB in times of market stress because of this business sector’s traditional resilience.
The EBRD’s long-term financing provides UTB with greater liquidity that can be used to support this vital sector of the economy and also publicly demonstrates the Bank’s support for a long-standing client.
This is the first transaction aimed at strengthening the capital base of our banking clients since the crisis hit Russia, said Nick Tesseyman, the EBRD’s Business Group Director for Financial Institutions. These clients have shown their ability to weather the first phase of the crisis and this funding aims to help them retain clients and market share, he added.
In a situation where strong risk aversion continues to predominate, the role of the EBRD and other International Financial Institutions in demonstrating support to the banking system is vitally important. This is why the Bank, in addition to its normal lending programme, has put together an anti-crisis package for a sector whose good health is crucial for the whole Russian economy.
The roll-out of these projects will continue over the next few months. The package provides various funding solutions, ranging from equity or quasi equity participations to increasing the amount of Russian trade finance the EBRD is willing to guarantee in order to maintain a rapid and smooth flow of imports and exports.
The EBRD’s priority is to support the capital of existing banking clients, as well as provide finance for mergers and acquisitions to speed up the sector’s consolidation, a long-standing goal of the Bank.
Company — Uraltransbank