OREANDA-NEWS. February 10, 2010. Since last year's two landmark local currency transactions in the Kyrgyz Republic and Azerbaijan via EBRD investment in The Currency Exchange (TCX) Fund, the Bank has closed a further seven local currency loans in the early transition countries (ETCs), bringing the total value of the programme’s transactions to over US 50 million, reported the press-centre of EBRD.

Henry Russell, EBRD Director of Small Business Finance and Energy Efficiency; Alfonso Vega, Associate Banker, and Ben Leikis, Client Risk Manager explain why demand for local currency borrowing was up and how to benefit from the facility.

What have been the main factors in this success?
Alfonso Vega: Some of the countries where the EBRD operates have seen currency devaluations of up to 25 per cent. This puts a lot of strain on the borrowers of foreign currency and makes loans difficult to service. The combination of strong foreign currency-risk client education and local currency financing marketing (via TCX), as well as low interest rates in some parts of the region, has encouraged clients to borrow in local currency. So far, small financial institutions have taken up most of the demand but the facility is also intended for corporate clients.

What role has client education played?
Ben Leikis: With support from the multi-donor Early Transition Countries Fund, the EBRD organised and presented two workshops in Tbilisi, Georgia and Bishkek, Kyrgyz Republic to financial institutions and corporate clients. These aimed to create awareness among clients of the dangers of open foreign exchange risk that were inherent in their operations. The workshops also highlighted the possibility of providing local currency financing through TCX for mitigating these risks.

What are the opportunities in 2010 for clients?
Henry Russell: A significant fall in a number of local interest rates over the last year from double digits to single digits continues to make borrowing in local currency relatively more appealing for both corporate and financial institutions clients. The facility is available for use in all sectors where revenues are in local currency and the borrower is looking to eliminate foreign exchange risk.

Ben Leikis: What we have learned in the last two years is that foreign exchange risk must be mitigated where possible. The risk of further sharp currency devaluations still exists.

Which industry sectors could benefit most from looking at local currency financing via TCX?
Ben Leikis: We have made a strong start with our institutional clients and we think a number of corporate clients who have local currency revenue in general industry and in export and import-reliant sectors could definitely benefit. The countries where this is available are Albania, Armenia, Azerbaijan, Bosnia-Herzegovina, Georgia, Croatia, Kyrgyz Republic, Moldova, Macedonia and Mongolia.

How can the Bank’s clients learn more about what we can offer?
Alfonso Vega: We expect to run further client training courses this year and we have marketing materials which we can supply to all bankers visiting clients. More information is available upon request from the EBRD's Treasury.

Local currency financing using TCX in brief
The Bank has signed a total of nine local currency financing deals using TCX for US 50.5 million. This inludes four loans in the Kyrgyz Republic, two in Azerbaijan, two in Moldova and one in Georgia.

All nine deals have been with partner financial institutions mostly involved in small business finance.