The European Bank for Reconstruction and Development (EBRD) is considering ways to help small businesses in emerging Europe, including through direct lending, as the region suffers lacklustre growth, its president said on Saturday. The European Central Bank and the International Monetary Fund have also expressed concern about the reluctance of banks to lend, so delaying a longed-for recovery in Europe.
EBRD president Suma Chakrabarti told a news conference following the bank's annual meeting that it was a question of: "How to do more (for small and medium-sized enterprises) in a way that maximises job impact and growth. What's the right balance ... do we go through the banks more or do we do a more direct approach?" The bank slashed its 2013 growth forecast on Friday for its emerging Europe and North Africa region by almost a percentage point, to 2.2 percent.
The European Investment Bank, whose president took part in panel discussions at the EBRD meeting, has also said it plans to lend more to small business. Banks across Europe have plenty of cash but are reluctant to lend it on because of caution following the global financial crisis, along with increased regulation. "Liquidity of the banking sector is in good shape in principle but the credit channels do not work in full capacity because of the lack of demand with good quality from credible borrowers," Russian deputy finance minister Sergei Storchak told reporters at the meeting. "There is a huge structural problem."
Direct lending has risen to fill the bank lending gap, but this can also carry greater risks, Chakrabarti said, as lenders need to be very familiar with their countries and sectors. Non-performing loans (NPL) are also a growing concern, the Bank's chief economist Erik Berglof said. "We are watching some countries in south-eastern Europe, Slovenia is also a part of this story and Ukraine and Moldova - there is not much reason for optimism."
A study published by Austrian bank Raiffeisen on Saturday showed a rise in the NPL rate in south-eastern Europe to 17.3 percent in 2012, from 14.5 percent in 2011. The EBRD was set up to help former communist countries in eastern Europe develop market economies and invests mainly in the private sector. It lent nearly 9 billion euros last year. Its countries of operation now include Turkey, host of this year's meeting, and more recently four countries affected by the 2011 Arab Spring - Egypt, Jordan, Morocco and Tunisia.
Loans to these four countries totalled 260 million euros so far, Chakrabarti said. Libya, which is not a member of the EBRD, was interested in receiving technical assistance from the bank, Chakrabarti added.
Unlike other countries that went through Arab Spring uprisings, Libya is rich because of its oil reserves and accumulated oil earnings, which has helped its economy rebound. But nearly two years after dictator Muammar Qadhafi was overthrown, the cabinet and Libya's official armed forces are so weak that swathes of the oil-producing desert country remain outside central government control.