A new EBRD-led initiative to boost local currency lending
runs the risk of triggering a drop in foreign currency loans
that could imperil economic growth by choking off credit supply
to the regions, leading bankers have warned.
They said that the programme the Local Currency and
Capital Market Initiative - could lead to tighter financial
But they broadly welcomed the initiative, which is backed by
a group of multilateral banks, and which will be officially
launched in Zagreb tomorrow with the aim of phasing out
short-term unsecured consumer lending in foreign currency.
The programme informally dubbed the
Vienna Plus initiative will be modelled on
the European Banking Co-ordination Framework, set up in Vienna
in January 2009. This brokered an agreement between the EU,
IMF, World Bank, EIB and EBRD and banking regulators, among
others, that parent banks would maintain their exposures in
Herbert Stepic, chief executive of Austrian bank Raiffeisen
International, which is one of the most active banks in the
region, welcomed the initiative as a mechanism to discuss
these issues with regulators.
But he said he was worried that policymakers might fail to
balance the need to regulate foreign currency
exposures while ensuring that the cost of capital was
competitive. The policy might result in pro-cyclical
regulations that would hike the cost of euro-denominated
credit he added.
Charles Dallara, director of the Institute for International
Finance warned the biggest threat to local credit provision in
the region lay with new and pro-cyclical
Regulations proposed under the Basel III regime could rule
that banks with minority shareholdings in central and eastern
Europe cannot count this equity as part of their capital base,
he said. This is the big, big threat to local and euro
credit supply to the CEE region as liquidity costs will be
higher and banks will have to raise capital.
In his opening speech yesterday, EBRD president Thomas Mirow
said the bank would push for commercial banks to
differentiate lending standards according to the currency
denomination of lending. This would incentivize the
take-up of local currency loans and reduce costly foreign
currency mis-matches, he said.
Erik Berglof, EBRD chief economist, told Emerging
Markets: This local currency initiative, principally
a policy dialogue framework, will connect lenders and borrowers
to address the creation of long-term funding in local
Manfred Schepers, EBRD vice-president, said the initiative
could also see the EBRD step up bond issuance in local markets.
Serbia has called on the bank to issue a dinar-denominated bond
to finance its operations in the country.
Radovan Jelasic, Serbias outgoing central bank
governor, told Emerging Markets such issues would
create a yield curve, strengthen the quality of their
[the EBRDs] loan portfolio, and it can also help the
government to set its yield curve.
Schepers said it was the EBRDs objective
to create long-term domestic funding sources. But he warned
that if you do a bond issue in a country and no-one [bond
issuers] follows this up and if it does not support our
operations then we need to think again.