Feb. 24 (Bloomberg) -- The International Finance Corporation, the World Bank’s investment unit, is in talks with some six banks to provide funding under the so-called Vienna II initiative on keeping stability in eastern Europe’s economies through continued lending, said Tomasz Telma, an IFC director.
The Washington-based lender is negotiating different types of financing arrangements with the banks, including equity participation, which will help them cope with Europe’s new capital rules while avoiding a credit shortage, Telma, who oversees Europe and central Asia, said in an interview in Bucharest yesterday.
“We remain open to increase our activity and we have looked on how much we can do in the countries that are potentially covered by the initiative,” Telma said. “It will be ultimately bilateral arrangements with individual banks that may need us for one instrument or another in a particular market and we are seeing quite a bit of interest in that.”
The Vienna Initiative group of regulators and policy makers plan to hold talks in March with the banks over a new accord as they try to shield economic growth in eastern Europe against contagion from the euro area’s deepening debt crisis. A first Vienna accord helped in 2009 stabilize the region as the banks didn’t pull out their money.
Romanian central bank Deputy Governor Cristian Popa said on Feb. 7 that the new accord should be a binding agreement focused on banking groups and not individual countries.
The IFC has about 2 billion euros ($2.7 billion) to support the financial industry this year and may provide long-term credits, subordinated loans, equity participation or trade- financing lines, according to Telma.
Not All About Equity
“It’s not all about equity because in some cases” it’s not required, Telma said. “There might be a case of a bank that because of capital requirements may have a difficult time providing additional capital to its operations” in a country and the IFC can “help with that in order to create the basis for continued growth.”
The European Banking Authority told banks, such as UniCredit SpA, Erste Group Bank AG and Societe Generale SA, which control three-quarters of eastern Europe’s banking system, to have core capital reserves of 9 percent by the end of June after writing down their holdings of sovereign debt. That may require an additional 115 billion euros of capital, according to the EBA.
In the “short-term the capital adequacy ratios of these banks are quite generous and in many cases it is a question of some banks taking the opportunity to capture additional market share,” Telma said. “The condition of many daughter banks is quite good, so it’s not a matter of helping them survive some kind of particular worries, concerns or crisis, but it’s a way to help them continue growing and funding the companies.”
The risk of “excessive and disorderly deleveraging as well as a credit crunch” looms over the region, the Vienna Initiative group of regulators and policy makers said in a statement on Jan. 18. The International Monetary Fund, the European Bank for Reconstruction and Development, the World Bank and the European Investment Bank, which spent about $42 billion after the collapse of Lehman Brothers Holding Inc., should “stand ready to provide external assistance and financial support to banks,” the group said.
--Editors: Elizabeth Konstantinova, James M. Gomez
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