SME Finance Opportunities in Western Balkans

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SME FinanceOpportunities in Western Balkans

• Charlotte Ruhe, Senior Banker
• Bucharest 26 May 2004

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Presentation outline

• Overview and Approach
• SME Finance Facility
• Partner Financial Institutions
• Benefits for Western Balkans

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Overview What does EBRD do in the Financial
Sector?
Current Exposure (Dec 2003)
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Overview Financial Intermediation
Low level of intermediation reflects

• Lack of confidence in banks and banking systems
• Low risk capacity of banks
• Insufficient capital to fund growth
• Inadequately developed banking skills
• Poor institutional environment

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Opportunities under-banked economies

• Domestic credit to private sector is very low at
  circa 10 of GDP, except Croatia
• SMEs constitute a large potential client base but
  perceived as high risk with high cost of business
  
• Intermediaries poorly equipped to serve SMEs ?
  Technical Assistance
• Develop leasing for SMEs

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Overview Financial Sector Approach

• Need wide-scale involvement of commercial
  financial intermediaries
• Competition, competition, competition
• Better products
• Better service
• Better terms and conditions

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Approach why intervene?

• Commercial institutions need to justify strategy,
  policies to risk averse shareholders
• SME risk perception based on inappropriate credit
  analysis and loan structures
• Excessive bureaucracy and red tape (form over
  substance) in credit process
• Loan officers dont want to face the customer

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EU/EBRD SME Finance Facility in CEE

• Launched in 10 EU Accession countries in 1999
• 27 banks and 16 leasing companies
• 850 million approved by EBRD Board with 129
  million EU support
• 661 million signed with banks, leasing
  companies gt 784 million disbursed to SMEs
  34,000 transactions
• Average deal size approx. 25,000 with 1.24
  p.a.r.
• Loans / leases to new customers, primarily in
  regions

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SME Facility Three key elements

• EBRD Loans to banks and leasing companies with
  strategic commitment to finance SMEs
• Technical cooperation for 18-24 month period
• Training of loan and credit officers
• Funding of bonuses, stipends for trainees
• Improve loan terms, conditions and response time
  for SMEs
• Performance fee paid to intermediaries to
  contribute to start-up costs of developing their
  SME business

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SME Facility Tailor-made Institution Building

• Banks/LCs are full partners in TC
• Work with them to design training and marketing
  programmes
• They are responsible for success, including
  development of SME finance, post-TC
• Flexible approach to meet both EBRD and clients
  priorities, to ensure they will sustain the
  business

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SME Facility Graduation from TC

• Most TC programmes finish after 2 years
• Ownership of the financing programme remains with
  the partner FI
• Encouraged by commitment of majority of
  institutions to stay in, and further develop SME
  finance
• 15 of 27 FIs finished TC, 5 more ending soon

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Partners FIs in Bulgaria

• 32 mil EBRD loans funded 4,000 loans to SMEs for
  95 mil
• Partner banks
• Hebros Bank
• Raiffeisen Bulgaria
• United Bulgarian Bank
• Union Commercial Bank

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Partner FIs Hebros Bank

• Former state-owned Bulgarian bank owned by Regent
  Pacific
• Large network in Bulgaria but needed direction
  and know how
• EUR 12 mil with EUR 1 mil TC programme has funded
  EUR 38 mil portfolio of 1,200 plus loans
• Developed range of new products including loans
  for farmers (seasonal working capital)
• SMEs top priority for management and shareholders

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SME client Boriana Ltd, Bulgaria

• Wood-processing company in Rhodopa
• EUR 10,225 - 24-month working capital loan from
  Raiffeisen Bulgaria
• More orders, 24 increase in sales, started
  exports to Greece
• EUR 4,700 investment loan
• Growing company, with increased value added

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Partner FIs in Romania

• 85 mil EBRD loans funded 3,200 loans leases to
  SMEs for 116 mil
• Partners
• Alpha Bank
• Banca Transilvania, BT Leasing
• Banca Comerciala Romana
• Banc Post
• BRD Sogelease
• Raiffeisen Romania and Raiffeisen Leasing
• Volksbank Romania

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Partner FIs Raiffeisen Romania SA

• EBRD loan EUR 15 million with EU grant of EUR 1.5
  million TC
• Staffing SME Manager in Retail Dept with 3 HQ
  SME credit advisors, 41 SME client managers
• Specific credit guidelines and documentation, new
  products and marketing campaign
• gt800 loans for 19 mil financed w/EBRD funds
  while the bank has increased own-funded portfolio
  3 times

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Partner FIs Learning from peers

• EBRD holds annual workshop with partner banks to
  share experience
• Bankers from large and small, foreign and locally
  owned banks come together to discuss best
  practices
• Better to learn from your peers and competitors
  than from EBRD
• Relationships across borders throughout the region

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Benefits for Western Balkans Sustainability and
Future

• Intermediaries maintain and continue to develop
  a profitable SME finance business
• More efficient, lower-cost lending procedures
• Sound lending practices focused on cash-flows
• High quality portfolio (1 overdue for 30 days)
• Better customer service skills to be competitive
• Rural Finance Facility to focus on farmers and
  rural enterprises

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Benefits for Western Balkans

• Regional approach follows market demand
• Sharing experience across borders
• Increase competition in the markets
• Timely for development of leasing business
• Open to work with all Donors
• However, signal from EU has political importance

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Contacts
Aurora Ferrari Associate Banker, Financial
Institutions EBRD One Exchange Square London EC2A
2EH Tel [phone] Fax 44 20
7338-6105 Email ferraria_at_ebrd.com

• Charlotte Ruhe
• Senior Banker, Financial Institutions
• EBRD
• One Exchange Square
• London
• EC2A 2EH
• Tel [phone]
• Fax [phone]
• Email ruhec_at_ebrd.com