The European Bank for Reconstruction and Development (EBRD) made a record profit of €2.5bn in 2021 but warned that this year’s results would take a significant hit from the impact of Russia’s invasion of Ukraine.
“The results demonstrate an all-round strengthening of the balance sheet and put the EBRD on a very firm financial footing,” said Soha El-Turky, EBRD chief financial officer.
However, the EBRD said that its 2021 financial performance would be “significantly affected” by its loan and equity exposures to the Ukraine conflict.
“Increased costs for energy and food as a result of the war, and the potential for higher interest rates, are all likely to have an impact on the economies where the bank operates,” it said.
The bank reported that at the end of 2021 it had loans of €2.1bn and equities of €300mn in Ukraine, loans of €200mn and equities of €1.2bn in Russia, and loans of €500mn and equities of €100mn in Belarus.
The EBRD has not carried out any new business in Russia since 2014 or in Belarus since 2021. It announced last month that it was in the process of closing its resident offices in Moscow and Minsk.
The EBRD said that despite the hit to these exposures in Ukraine and neighbouring countries, it would maintain strong equity and liquidity positions. At the end of 2021, the EBRD had a capital base of €20.3bn.
In March the EBRD announced an initial €2bn economic resilience package for Ukraine and its neighbouring countries affected by the war. The priorities include trade finance, emergency liquidity, energy security and municipal services.
It said funding will be made rapidly available to support Ukrainian companies, for example, with deferred loans, liquidity support and trade finance, or to allow them to relocate so their work can continue. In addition, the bank will help municipal authorities in countries directly affected by inflows of Ukrainian refugees.
Ukraine is already one of the bank’s biggest countries of operations, with cumulative lending of more than €16bn in 511 projects since the EBRD started work, including more than €1bn in 2021.
The multinational development bank’s 2021 results were boosted by what the EBRD called the “excellent performance of equity investments across its regions of operations”.
Its equity investments recorded a gain of around 30% (€1.7bn) – growing at roughly triple the rate compared with the 2021 benchmark of equity growth in EBRD economies. The bank highlighted the substantial gains in its technology-related investments.
The second factor behind the record results was a reduction in expected credit losses, with the ratio of non-performing loans (NPLs) dropping relative to the 2020 year-end, as economies bounced back from the coronavirus (COVID-19) pandemic.
At the start of this year the EBRD announced that in 2021 it had reached its second-highest-ever business volume – €10.4bn, only slightly below the record figure achieved in 2020, when EBRD investments were buoyed by emergency lending at the start of the COVID-19 pandemic.
In 2021, private sector investment rose to 76% of annual business volume and green financing reached 51% (up from 29% in 2020). Last July the EBRD committed to making a majority of its annual investments green by 2025, a target that it met four years ahead of schedule.