bne IntelliNews -
The European Bank for Reconstruction and Development (EBRD) looks set to report its first loss since the 2008-2009 global credit crunch becaue of the twin crises in Russia and Ukraine, EBRD Vice President Andras Simor told media on January 15. The loss would be the EBRD's sixth ever loss since being founded in 1991.
The Russia-Ukraine twin crises of 2014 have hit markets comprising €8.5bn of EBRD investments - €5.8bn in Russia, its largest market, and €3bn in Ukraine, its third largest market after Turkey. One quarter of overall EBRD exposure is to Russia, and 10% to Ukraine.
"We will probably end up with a loss at the end of the year (2014)," Simor said in an interview with the Moscow Times. "But that is exclusively down to valuation [of the Russian equity portfolio] and provisioning," he added. The bank said it had otherwise made a "large realised profit in 2014".
"The devaluation of the ruble has hit the value of our equity portfolio and we have to accept that," said Simor. "Our role is not only to be there when the sun shines, but also in the storms." Simor said that the 35% drop in the ruble against the euro since the start of 2014 would be "a good guide" for the losses its Russian equity portfolio was likely to have suffered, as quoted by Moscow Times.
Both the ruble and Ukraine's hryvnia have experienced massive devaluation, with the Ukrainian hyrvnia devaluing by 85% in 2014, according to the World Bank. Ukraine has been hit by revolution, civil war in the east and the Russian annexation of Crimea, while Russia has been hit by a plunge in the price of oil, and Western sanctions.
The EBRD cut its lending in Russia by two-thirds in 2014, to slightly over €600mn from €1.8bn in 2013, and it is not considering any new projects, because of EU countries' opposition to Russia's policies in Ukraine.
Simor said the EBRD would return to Russia if its shareholders lifted restrictions. "We are working very hard to keep our relations with Russia alive," he said. "We haven't moved any of our staff out. We need to be ready if the situation changes."
Despite the decline in investments in Russia in 2014, in a press release on January 14 the EBRD said it had increased its overall investments in 2014 to €8.9 billion from €8.5 billion in 2013 and that demand was expected to remain high in 2015, with investments roughly in line with 2014 levels.
"The EBRD’s investments increased in 2014 as emerging economies continued to suffer due to events surrounding Russia and Ukraine, a stubborn lack of recovery in the eurozone and the global market turbulence that erupted towards the end of the year," the bank said.
Turkey became the largest individual recipient of EBRD financing. Investments rose to €1.4 billion from €920 million in the previous year. There was also a strong increase in activity for Central Asia, particularly in Kazakhstan.
The EBRD said it had "re-engaged energetically" with Ukraine after the new administration embarked on a programme of economic reform. New lending – as well as renewed commitments – to Ukraine exceeded €1.2 billion, including support for road transport and upgrading Ukraine’s gas transmission system.
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