It’s rare today to find a bank that plans to increase its lending. But the European Bank for Reconstruction and Development (EBRD) is no ordinary bank. Set up in 1991 to support the private sectors of countries in central and eastern Europe, it later expanded its investments into the former Soviet Union, including central Asia, areas that were not developed enough to attract high levels of private investment. In recent years, foreign direct investment has increased in these markets, leading some observers to wonder whether the EBRD still has much of a role to play in economic development. For Manfred Schepers, a Dutchman and former veteran of UBS who joined the bank as vice-president of finance in 2006, the credit crunch has ended that debate. This year, the bank — which is owned by 61 countries and two inter-governmental institutions — expects to invest about €7 billion in its target regions, up some 20% from its previous estimate.
The EBRD has said that its role will change according to financial and political situations. How has the role altered in recent years?
Some countries in which we have invested are starting to depend less on the type of support we provide, such as the Czech Republic. But as we leave some countries, we enter others — for example, we’ve started to work in Mongolia and Turkey. And although the intention has been to stop investing in the first-round European Union accession countries by the end of 2010, we realise we will need to increase investment in those countries this year.
In addition, given the current global economic situation, many of the projects we are now addressing are inextricably linked to the financial crisis.
Has the crisis re-emphasised the need for the bank after years in which private investment was more readily accessible?
Yes. A conventional private-sector investor would basically wait for the next 12 to 24 months to see how things evolve. Our mandate is to be more assertive in supporting a region and addressing the needs of a market. Over the past few years, the financial commitments we made were decreasing as a percentage of the overall projects we were involved with because of the availability of private finance. Now we’ll make greater commitments to these projects because the private sector is more cautious.
Which sectors will get the EBRD’s attention?
The area that needs most attention now is obviously banking. But the problems that local banks have in emerging regions are very different from those faced by western banks. In emerging regions, the local banks don’t have investments in structured credit and there are no leveraged loans. The main problem for them is liquidity. Their financing came from external sources and so they have a refinancing risk.
Clearly there’s an expectation that the real economy in the regions will also suffer. But as yet we haven’t seen much tangible evidence of that from companies in eastern Europe. If you look at all the defaults happening in western businesses, they’re leverage-related. On the whole, corporate development in eastern Europe has involved privatisations in which leverage is a lot lower.