Ben Aris in Tbilisi -
Every cloud has a silver lining. Since the European Bank for Reconstruction and Development (EBRD) decided to freeze its Russian operations last year, customers have been increasingly turning to the Black Sea Trade and Development Bank (BSTDB) for help.
The BSTDB was already doing well. As the international financial crisis goes into its eighth year, the smaller International Financial Institutions (IFIs) are flourishing as development banks’ services are in high demand, especially in the support of financial sectors and infrastructure development. And on top of this, as investors seem to think that the traditional emerging markets investment destinations in emerging Europe have passed their peak, the frontier markets have become increasingly fashionable with countries such as Romania laying claim to titles like "the new Poland”.
"We are growing the portfolio aggressively. The plan is to increase it by 7.5% a year. That is challenging if you look at the political and economic situation in our member countries, but if you look at their infrastructure needs then it is not big at all," says Ihsan Delikanli, chief executive and chairman, speaking to bne IntelliNews at the EBRD annual general meeting in Tbilisi.
BSTDB has 11 members -- Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine - and, as of end 2014, BSTDB had 304 approved projects in the key sectors of infrastructure, energy, transport, manufacturing, telecommunications and the financial sector in its member countries worth a total value of €3.5bn. The portfolio has been growing in recent years and there are $990mn worth of active projects as of the start of this year, which should top $1.05bn by the end of this year, says Delikanli.
Most of the lending has been funded by bond issues, with the latest being a $100mn international bond issue earlier this year, but the bank plans to start raising money by issuing local currency bonds in the countries of operation soon.
The members are united by geography, but the countries on the shores of the Black Sea are very different beasts, which has led the bank to take a country-by-country approach to helping its members.
"We support small- and medium-sized enterprises by lending to commercial banks, but in Turkey, for example, we can't really compete with the commercial banks so there we concentrate more on things like energy and [public-private partnership] projects," says Delikanli, who will be back in Tbilisi in June for his own bank's AGM.
Russia has obviously proven to be a headache for the bank in the last year, but as the BSTDB has no western shareholders it has not felt any pressure to suspend its operations. In fact the opposite has happened after the EBRD's shareholders (which include many western European countries and the US) decided to suspend operations because of the conflict in Ukraine.
"Interest in the BSTDB has been increased, especially in Russia, after the EBRD suspended its operations there. If we have a project that is bankable and not affected by the sanctions regime then we will fund it," says Delikanli.
Delikanli says the bank's portfolio in Russia will reach about $300mn this year, although the growth is limited by the bank's own cap on investments: no country can account for more than 30% of the total loan portfolio.
Ukraine is another important country of operations but Delikanli says that the situation is incredibly difficult at the moment, because of the economic collapse and military action in the east of the country.
"We are reviewing the applications for loans from banks which now will depend on the political situation and the development policy of the government," says Delikanli.
The economic situation in Greece is not that much better than in Ukraine, but Delikanli says there are still plenty of projects going on in which the BSTDB can invest.
"It’s a good time to do development projects [in Greece]. On the face of it, given the macro-economic talks with the EU, it doesn’t look so good, but there is investment happening on the ground because production and exports are still going on," says Delikanli.
Currently the BSTDB is focused on supporting the financial sector, but in the new strategy that will be released at the bank's annual general meeting, Delikanli says the bank plans to diversify and invest more in real sectors of the economy such as agriculture. In Turkey's case it is already looking at energy and has made two investments into private public partnership (PPP) projects that have become increasingly attractive to the bank. But traditional sectors are likely to continue to drive the bank's business in the meantime.
"Energy remains a big issue in the Black Sea," says Delikanli. "We have the resources of Russia and Azerbaijan, while the geopolitical location of our members means we can transmit this energy to the rest of Europe, through countries like Bulgaria and Romania."
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