Is the EBRD calling time on its Belarus bank investments?

By bne IntelliNews June 21, 2013

Sergei Kuznetsov in Minsk -

The European Bank for Reconstruction and Development (EBRD) took stakes in two small-sized banks in Belarus six years ago, but bne can reveal that the multinational lender is seriously considering pulling out due to new capital requirements being imposed by the Belarusian central bank.

The EBRD controls a 21.67% stake in the Belarusian Bank for Small Business (BBSB). The World Bank's International Finance Corporation (IFC) has an equivalent stake in BBSB. Stephen Orlesky, chairman of BBSB's board, tells bne that BBSB's shareholders are negotiating a possible sale, with four potential investors apparently interested. Poland's Getin Holding, which already operates in Belarus through Idea Bank (formerly Sombelbank), is among the contenders. "But, according to some sources, Getin is facing some difficulties in getting approval for the deal from the Belarusian regulator," says Orlesky.

Getin's move comes after it failed last year in its efforts to acquire Paritetbank, the smallest of the four state-owned Belarusian banks, due to disagreement over the asset's value. Getin, controlled by Polish businessman Leszek Czarniecki, owns financial firms across Central and Eastern Europe - in Poland, Romania, Russia, Belarus and Ukraine.

Orlesky adds that three other potential investors have expressed their interest in BBSB. "The first one is a Belarusian bank, completely controlled by foreign capital. The second one is a Russian bank, which has not been represented in the country before now. And the last one is a holding from Central and Eastern Europe, which owns two banks and one credit institution," he says, without providing names.

Orlesky adds that all the potential investors have expressed a will to buy at least a controlling stake in BBSB.

The EBRD also holds a 25% stake in another Belarusian bank, RRB-Bank. Francis Delaey, head of the Belarusian office of the EBRD, explains in a statement that the EBRD is actively working with the shareholders of both banks to ensure what it calls "a long-term sustainable solution for the banks", taking into account the Belarusian regulatory requirements and operating environment. "In this respect," he says, "the shareholders of both banks are considering a number of options."

Delaey adds that the multinational lender is a financial investor, and as such takes minority equity stakes in companies with a limited investment horizon of typically five to seven years. "At the end of our investment horizon, we normally seek to exit our equity investments (both in the financial sector and in the corporate sector) by attracting a strategic investor which will be able to develop the investee company further," he says.

Oleg Andreyev, managing director of investment banking at Minsk-based EnterInvest, tells bne that the EBRD has a strong intention to sell the stakes in both Belarusian banks because they will have to boost their capital under new regulatory requirements of the Belarusian central bank. "But the EBRD has no desire to participate in this process [to increase the regulatory capital], the lender has a very tough policy as to the Belarusian banking sector now," Andreyev says.

Indeed, RRB-Bank currently does not fulfill the regulator's requirements regarding the minimum level of regulatory capital a bank operating on the local market needs - the lender lacks another €8m or so to meet this level. Meanwhile, BBSB has to boost its regulatory capital by about €18m by the beginning of 2015. "And, of course, the EBRD's investments into banking capital have a life limit. The EBRD became a shareholder of BBSB and RRB-Bank six years ago. That is an absolutely normal period, after which an exit is possible," Andreyev says.

New strategy

All these manoeuvres are taking place against the background of the EBRD's new strategy for Belarus, adopted in March. According to the document, the lender will continue to calibrate its engagement with the Belarusian state and public sector based on its evaluation of the country's progress in making political and economic reforms.

"In the current circumstances, the Bank will ensure that no support, either financial or technical, will be extended to the Belarusian central authorities or central state. This entails exclusion from consideration of any large-scale public infrastructure lending, including in the areas of transport and power infrastructure, as well as direct or indirect participation in privatisation of state assets through purchase of shares owned by the state or state entities," the EBRD's strategy says.

At the same time, the lender will provide credit lines to Belarusian partner banks for lending on to small and medium-sized enterprises.

"The EBRD remains committed to the long-term development of the Belarusian banking sector. We currently work with eight partner banks and provide access to our trade facilitation programme as well as MSME [micro, small and medium enterprises] and energy efficiency credit lines for on-lending to small and medium-sized companies. Based on our current pipeline, we expect to invest between €80m in the Belarusian financial sector," Delaey tells bne.

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