2.1.

The EI B Group

The European Investment Bank (EIB) is the European Unions long-term
lending institution. It was set up in 1958 under the Treaty of Rome that
established the European Union (then known as the European Community).
Following the conclusions of the Lisbon European Council in March 2000,
which called for increased support for operations to assist small and medium
enterprises (SMEs), the Board of Governors decided to set up the EIB
Group, consisting of the European Investment Bank and the European
Investment Fund. The owners of the EIB are the 15 European Unions
member states; these subscribe jointly to the EIBs capital, their respective
contributions reflecting their economic weight within the Union. The EIB
became the majority shareholder in the European Investment Fund (EIF),
which nevertheless retains a tripartite share-ownership structure consisting
of the EIB (60% of the capital since June 2000), the European Commission
(30%) and the European banks and the financial institutions (10%).

Decisions bodies of EIB
The Board of Governors consists of Ministers nominated by each of the
Member States, usually Ministers of Finance, Economic Affairs or
Treasury. They represent the Banks shareholder Member States. The Board
of Governors lays down general directives on credit policy, authorizes Bank
activity outside the Union. Receives the report of the Audit Committee and
approves the financial statements (including the balance sheet and profit and
loss account), the annual report, decides on capital increases, appoints the
members of the Board of Directors, the Management Committee and the
Audit Committee.

The Board of Directors consists of 25 Directors and 13 Alternates
appointed by the Board of Governors. The Member States nominate 24
Directors and 12 Alternates, while the European Commission is represented
by one Director and one Alternate. The Board meets once a month, and its
members ensure that the Bank is managed in keeping with the European
Treaties, the EIBs Statute and the directives laid down by the Governors;
Financial institutions:
from international
to regional
they approve the granting of loans, authorize the conclusion of guarantees
and borrowings, recommend changes in the Banks credit policy to the
Board of Governors. The Board of Directors is chaired by the President of
the Bank, or in his absence, by one of the Vice-Presidents, fellow members
of the Management Committee.

The Management Committee is the Banks full time executive body.
Under the authority of the President and the supervision of the Board of
Directors, it collectively oversees day-to day business at the EIB. It
recommends decisions to Directors, notably borrowings and lending
decisions, and ensures that these are implemented. Its members are
responsible solely to the Bank, and are appointed by the Governors, on a
proposal from the Board of Directors, for a period of six years.
The EIBs management and control structures reflect its independence and
allow it to take lending and borrowing decisions solely on the basis of
projects merits and the best opportunities available on the financial market.

The mission and lending operations
The EIB contributes to the European integration and social cohesion, by
supporting capital investments furthering EU economic objectives, in
particular by financing projects located in the EUs weaker regions. As the
EUs policy driven bank, EIB has grown into a major international
financing institution, active in all the main economic sectors, within the
European Union and some 150 non- member countries. The Bank is a source
of loans, not grant aid.

EIB does not manage private customers accounts or take deposits. EIB
operates like a development bank, raising its resources on the financial and
capital markets, mainly through bond issues or other specialized capital
market operations. EIB makes long-term loans for investment projects.
EIBs clients are public and private sector bodies and enterprises. As a rule,
the Bank normally only lends up to half of the capital required for a project.
The Bank usually finances larger scale projects directly. It supports small
investments, e.g. between EUR 40 000 to EUR 25 million, and the activities
of small and medium-size enterprises indirectly through its global loans. A
global Loan is a structure under which a domestic partner bank receives a
credit line together with a mandate to apply the credits to EIB eligible
projects.

Broadly, a project must further a European Union policy objective, assist the
preparation of candidate countries for EU membership or contribute to the
EUs external partnership and development assistance policies.

Within the EU, projects must contribute to: development in the assisted
regions, transport and telecommunications improvements; help secure
energy supplies, protect and improve the natural and urban environment;
health and education schemes, the international competitiveness and
integration of European industry; the development of the information
society, research and development and innovation; and further the activities
of small and medium sized enterprises. The EIB Group also promotes
European venture capital finance through the European Investment Fund.

Currently, about 85% of the EIB lending goes to projects located within the
European Union. Outside the EU, the main focus of the Bank lending is the
accession countries and the partner countries in the Mediterranean region
and the Balkan, in the context of the post-war reconstruction and
development. It also operates in Africa and South Africa, the Caribbean and
the Pacific regions and the Latin America and Asia.

In 2000, EIB lending for projects to encourage the attainment of European
Union objectives totaled EUR 36 million (a 13% increase compared with
1999). The bank provided 30.6 Eur million for projects located in the
member States of the Union and 2.9 Eur million in the Central European
Accession Countries, while its loans in the partner countries (countries of
the Euro-Mediterranean partnership, African, Caribbean and Pacific States,
Asia and Latin America, and the Balkans) amounted to 2.4 Eur million
9
.

Through the usual limit of 50% of the total gross qualifying cost of an EIB
facility, EIB financing has a catalytic effect, mobilizing the participation of
other banking and financial partners in the project.

EIB provides long-term loans, running from about 4 up to 20 years (possibly
more), depending on the economic life of the assets being financed. An EIB
loan facility, once approved by the Board of Directors, can be drawn down
in a number of installments according to the borrowers requirements.
Typically, an EIB facility is available for use over a two to three year
period.


9
EIB Group, Annual Report 2000
Generally, EIB supports:
- investment by thousands of small and medium sized enterprises each year-
important for job creation;
- construction and upgrading of transport infrastructure (rail, air, road
connections and bridges);
- energy-production, transfer and distribution (power gas heat etc), as well
as schemes for more efficient energy use and alternative energy supplies
(wind power, etc);
- telecommunications infrastructure;
- natural and urban environment schemes (water, waste, urban transport);
- investment in human capital (schools, universities, laboratories, research
centers, hospitals etc);
- industrial projects in manufacturing (motor vehicles, pharmaceuticals,
aviation equipment, chemicals etc.).

The new kind of relationship between the EIB and the EIF encourages a
productive sharing of expertise between the Bank and the Fund in support of
finance for SME;

EIB is financially independent. It operates on a broadly self- financial basis,
raising resources through bond- issues and other debt instruments, mostly
publicly quoted on exchanges around the world. As EIB works on a not-
profit basis, the benefits of its top capital market rating (AAA) are passed on
to its clients. The EIB is one of the largest non-sovereign borrowers on the
EUs bond market.

2.2. European Bank for Reconstruction and Development (EBRD)

Inaugurated in 1991, less than two years after the fall of Berlin Wall, the
EBRD was created to support the development of market economies in the
region following the widespread collapse of communism regimes. Based in
London, EBRD is an international institution with 62 shareholders,
comprising 60 nation states, the EU and the EIB. The mandate of the bank is
to foster transition towards open market economies and to promote private
and entrepreneurial initiative in all the 27 countries of operation. From an
initial EUR 10 billion, EBRDs capital base was doubled in 1997 to Eur 20
billion, allowing it to continue to meet the growing demand for its services
in Central and Eastern Europe.

The decision bodies
All the powers of the EBRD are vested in the Board of Governors,
representing the banks 62 shareholders. With the exception of certain
reserved powers, the Board of Governors delegated the exercise of its
powers to the Board of Directors, while retaining overall authority.

Subject to the Board of Governors overall authority, the Board of Directors
is responsible for the direction of the EBRDs general operations and
policies. It exercises the powers expressly assigned to it by the Agreement
and those powers delegated to it by the Board of Governors.

The Board of Directors established three Board Committees to assist the
work of the Board of Directors: the Audit Committee, the Budget and
Administrative Affaires Committee and the Financial and Operations
Policies Committee. The president is elected by the Board of Governors and
is the legal representative of the Board. Under the guidance of the Board of
Directors, the president conducts the current business of the Bank
10


The mechanism of financing
EBRD finances projects in both the private and public sectors. The Bank
provides funding for financial institutions, infrastructure projects, industrial
companies and other key sectors. EBRD offers a wide range of instruments
ranging from debt financing (variable or fixed rate) to equity participation,
including quasi-equity products such as convertible debt and preference
shares. Financing is usually on a medium to long-term basis depending on
each projects individual requirements.

In fact, there are basically three principles that govern EBRDs activity.
Their importance has been demonstrated by its own experience through ten
years of transition. The first is sound-banking. Sound market-oriented
development cannot be promoted by investments that are commercially
unsound. Working in collaboration with donor governments, the Bank also
uses technical assistance to promote the development of sound business
practice and skills.

Additionality is the second major principle. That means that EBRDs
participation might encourage the private sector to operate in areas, or in
ways in which it would not otherwise be ready to. Indeed its portfolio of
projects demonstrates that for each Euro that the Bank has directly invested

10
EBRD, Annual Report 2000
in the region from its own sources EBRD has successfully attracted an
additional two from external sources. Co-financing with official partners in
2001 amounted to Eur 844 million for 36 projects. International financial
institutions provided the largest share, totaling Euro 489 million (57.9%) for
18 projects. The European Commission provided Eur 193 million (22.9%)
for seven projects.

The EBRD expanded its range of co-financing partners in 2001, working
with 62 commercial banks from 21 countries. Co- financing from these
banks totaled Euro 1,993 million in support of 33 projects. This is
significantly higher than the total for 2000 when commercial co- financing
totaled Euro 486 million.

Nevertheless, for EBRD transition impact is more than an operating
principle. The Banks main role is to promote the transition process in itself,
with investment projects meant to urge the economic environment towards
an open market system.

In 2001, the Bank produces its greatest volume of new business ever-Euro
3.6 billion-as well as achieving its highest net income and doubling the level
of annual disbursements. Once again, the Bank was the biggest single
investor in the region, not only using the traditional tools of loan and equity
investments but also introducing products adapted to local needs, such as
trade facilitation products, leasing and local currency lending. The EBRD
also initiated new programs to funnel money to small business.

Direct Investment Facility (DIF)-enables the EBRD to make relatively
small investments in high-risk private sector enterprises. In 2001 the
DIF approved 8 investments in 5 countries. It has also developed a
pipeline of projects in central Asia, the Caucasus, Southeastern Europe
and the Russian Far East. At the end of the year, the EBRD doubled the
funding available through this facility.
Local currency funding-Demand for local currency financing continued
to increase in 2001, particularly from the more advanced transition
economies. During the year the EBRD increased its local currency
lending capabilities, adding Hungarian forints and Russian rubles to the
list of currencies that already included Czech korunas and Polish zlotys.
Term Lending Enhancement Facility (TLEF)- under the TLEF, banks are
able to utilize their own short-term liquidity to expand their term-
lending activities while the EBRD provides a funding commitment if
there is a significant reduction in liquidity levels. The International

Moscow Bank was the firstly bank to benefit from a TLEF. In 2001, the
EBRD explored the possibility of applying this structure to other banks
in the region.





































Study-case: Romania and EBRD

Romania is a founding member of the European Bank for
Reconstruction and Development (EBRD). The Bucharest-based office
was set-up in June 1992. Since then, the EBRD has committed over
EUR. 1.8 billion in its own funding to over 60 projects operating
within the Romanian economy. This ranks the country as the second
largest recipient country after the Russian Federation and represents
approximately 11% of the Banks total net commitments. The
Romanian portfolio is made up of the following sector: transport,
telecommunications, banking, tourism, private corporations, municipal
utilities and energy. The EBRDs investment program has been
marked by a clear focus on large-scale private transactions and on
public private partnership in infrastructure. In telecommunication
sector, the EBRD provided finance to support the privatization of the
national operator, ROMTELECOM and of Romanias largest steel mill
SIDEX . EBRD also financed Mobifon, a significant GSM operator.
The bank is also committed to building and strengthening Romanias
financial sector, supporting the first two banking sector privatizations:
The Romanian Development Bank and the Banc Post. The EBRD
provided equity to local banks and participated in the establishment of
Banca Tiriac and Alpha Bank Romania. In a move to support the
financing of small and medium-sized enterprises in Romania, the
EBRD have extended credit lines worth more than 45 million USD to
local banks over the years (Banca Transilvanis, Banc Post,
Commercial Bank Ion Tiriac). EBRD own 22.5 % of a new bank,
called Microfinance Bank (MIRO), a micro-credit bank aimed at
supporting many of the countrys smallest private enterprises.

2.3. The regional development banks

2.3.1. Black Sea Trade and Development Bank

The Black Sea Trade and Development bank (BSTDB) was established by
the eleven member states
11
of the Black Sea Economic Cooperation
12
in
1998 as a regional multilateral development financial institution. The Bank
is headquartered in Thessaloniki, Greece and commences operations on June
1
st
, 1999.

The shareholders of BSTDB have contributed to the subscribed capital of
the Bank as follows: Greece, the Russian Federation and Turkey with
16.5%, Bulgaria, Romania and Ukraine with 13.5% and Albania, Armenia,
Azerbaijan, Georgia and Moldova with 2.0% each.

The bank is managed by the Board of Governors, the Board of Directors, the
President, two Vice-Presidents and the Secretary General. Each Member
State is represented on the Board of Governors.

The Bank supports sustainable development of its member states by
providing financial and technical assistance to viable projects and trade
activities. Its financing is extended to projects originating from both the
public and the private sectors of its member states.

Projects considered eligible for financing will:
-facilitate trade and investment activities among member countries;
-promote economic prosperity in member states and have a strong
development impact;
-achieve economic development in the region;
-stir up domestic and foreign capital.

The Banks financing can be extended to public or private promoters in
support of projects in a broad variety of sectors, with priority assigned to
telecommunications, manufacturing, financial services, transportation,
energy and natural resources and agribusiness. Eligible projects may include

11
These are Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania,
Russian Federation, Turkey, and Ukraine.
12
Black Sea Economic Cooperation was founded in June 1992 with the status of an
international regional economic organization.
construction of new productive capacities or upgrading and modernization
of existing facilities. An eligible project may also involve the restructuring
of an enterprise or privatization.

Financial instruments
Loans-the Bank provides a variety of loan types and tailors each loan to
meet an individual operations requirements. Acting as a financial
intermediary on the basis of sound banking principles, its contribution is
normally up to 35% of the total project cost. Loan maturity and the
possibility of a grace period depend on the type of project involved and its
useful life. The overall loan maturity generally ranges between 5 and 10
years depending on the individual operations requirements. The availability
term normally does not exceed two years, although it may be extended to
three years for large capital intensive projects.

Equity-the Bank may also make equity investments in a variety of forms.
The terms and conditions of the Banks investment depend on the risks and
prospective returns of the project. The Banks equity participation in a
single company does not normally exceed 33% of the total equity capital of
an enterprise.

Guarantees- the Bank may assist borrowers in gaining access to financing
through the provision of guarantees.

Trade finance- the Banks Trade Facilitation Program is divided into two
categories: Short-Term Products (such as Guarantee Program and Pre-
Export Financing Program) and Medium- Long Term Products (such as
Single Buyer Credits, Multiple Buyer Credits, Single/Multiple Supplier
Refinancing).

Co-financing- the Bank seeks to attract additional sources of financing. It
performs a catalytic role in financing development projects in the region,
potential partners including both official and commercial sources.

Technical Assistance-the Bank may provide clients with access to grants or
financing to assist in project preparation, or development of necessary
regulatory or institutional infrastructure. The Bank focuses its use of
available technical assistance resources only on programs that have direct
impact on, or are linked with, projects under preparation.



2.3.2. Other regional banks

The are other three major regional development banks in the world: the
African Development Bank, the Asian Development Bank, and the Inter-
American Development Bank. Their function is to lend money in less
developed countries to built infrastructure, support agriculture and industry
and create jobs. The sources of their funds are several. All get contributions
from their member-countries, all get money from developed countries that
are permitted to be members even though they are not located in the
geographical areas. They are also raising money in the international capital
markets.

Summary

The setting up
I. EIB Group=EIB (1958)+ EIF (2000)
Shareholders=from 6 to 15 EU members

II. EBRD: 1991
62 shareholders=60 countries+EIB+ECB

III. BSTDB: 1998
11 shareholders member countries of BSEC (1992)
(Greece, Russia, Turkey-16,5%, Bulgaria, Romania, Ukraine-13.5%,
Albania, Azerbaijan, Armenia, Georgia, Moldova-2.0%)

Objectives
I. EIB - to support EU cohesion policy (15 EU member states)
- to support EU enlargement policy (12 accession countries)
- to support EU external policy: development assistance policy
(partner countries from Africa, Asia, Latin America, etc.)

II. EBRD - to back up development of market economies after the
communism regime (27 operating countries)
- to support structural reform, financial institutions, legal
system, competition, privatization, private initiative

III. BSTDB - to facilitate trade and investment among member countries
(11 countries)
- to promote economic development
- to stir up domestic and foreign capital


Operations
I. EIB - telecommunications, transport, energy, SME
- small investments up to 25 mil Euro
- usually larger scale projects in public and private sector
- facilities- maturity 4-20 years, 50% of the cost

II. EBRD - infrastructure, industry, financial institutions, key sectors
- medium and long term financing for public and private sector
- wide range of instruments (loans, guarantees, equity
participation)
- flexibility for each country, each sector
E.g. Direct Investment Facility: small investment in high risk
private sector

III. BSTDB - infrastructure, energy, manufacturing, financial services,
agribusiness
- instruments: loans (up to 35%, 5-10 years), equity (33%),
guarantees, trade finance, co-financing, technical assistance
- focus on both public and private sector


Check out questions

1. What is the EIB Group?

2. Where does the EIB differ from a commercial or a domestic bank?

3. Who can benefit from an EIB loan?

4. What would be the rationale of an EIB loan?

5. In which countries is the EIB active?

6. What are the benefits of the EIB loan?

7. How can be defined the catalyst effect?

8. The mission of EIB is to

9. What is the main purpose of the EBRD financing?

10. What are the principles of the EBRD financing?

11. Who are the members of the Board of Governors of the EBRD?

12. What kind of customers can the BSTDB have?

13. Which are the shareholders of the BSTDB?

14. What types of facilities are offered to its customers by the BSTDB?

15. What are the objectives pursued by an eligible project?

Choose the correct answer(s).

16. The activities financed by EIB are:
a. job creation and investments in SME
b. improvement of distribution utilities
c. energy supply
d. other activities that are according to its principles.

17. The EIB:
a. normally lends up to the half of the capital required for a
project
b. offers facilities only for the EU member countries
c. usually finances larger scale projects
d. supports the activity of the SME indirectly through global
loans
e. its financing doesnt have a catalytic effect.

18. The objectives of EBRD are:
a. to support only the private sector
b. to promote co- financing and foreign direct investments
c. to help move a country to a full market economy
d. to include 62 shareholders and 60 countries of operations.


19. The BSTDB objectives are:
a. to promote economic development especially in Central
Europe
b. to attract domestic and foreign capital
c. to facilitate trade among all the member countries and all the
countries in the world
d. to be not only a regional organization as it has extended the
activities over the last decade.

References

1. Ioan Bari, Economie Mondiala, Ed. Didactica si Pedagogica, Bucuresti
1997

2. Simona Gaftoniuc, Finante Internationale, Ed. Economica, Bucuresti
1995

3. Beth &Robert Yearbrough, The word economy: trade and finance,
Dryden Press, 1996

4. Stefhen Valdez, An introduction to global financial markets, MacMillian
Business, 2000

5. www.eib.org, www.europa.eu.int, www.ebrd.org, www.bsec.org

6. Piata Financiara, magazine, 2000-2002