104th Council Meeting in Vietnam, completing the transition programme of the past two years to remake itself into a modern international financial institution (IFI) – with a trade finance twist.
Set up in Soviet times to foster cooperation and trans-border investment amongst the Comecon countries and headquartered in Moscow, it is easy to think of IIB as a Russian bank. But the Russian government owns only a minority stake and the bank is viewed by the international rating agencies and foreign governments as a true IFI – although one that focuses on its diverse set of member countries and has a ‘Baa1’ rating from Moody’s Investors Service and‘BBB-’ from Fitch Ratings. The bank was excluded from the EU and US financial sanctions imposed in 2014 thanks to its supranational status. IIB has, like other development banks, been kept busy by the problems of the last two years.
“The meeting [in Vietnam] marked the formal completion of IIB’s institutional reform, which started in 2012… All member states of the Bank have now adopted the new statutory documents, which will come into force after their ratification by all members, already finalized by Hungary,” says IIB's chairman, Nikolay Kosov.
IIB had a good year in 2015. Assets increased by about €100mn to top €800mn by the end of the year. And in the past three years the bank has signed loan and guarantee agreements for well over €400mn, of which a third (€120mn) were committed in 2015 alone.
IIB has been able to continue attracting long-term funding, from both large global financial institutions such as Credit Suisse and Rosbank (part of the Societe Generale Group), and issuing bonds on the local debt capital markets of its member states, a relatively new source of funding for the bank.
IIB also completed a RUB14bn (€161mn) bond issuance programme on the Moscow Exchange in 2015 – the largest series of bonds the bank has ever issued, in allotments of RUB5bn (€57.8mn) each. It also made a debut issue in Romania worth RON111mn (€24.7mn), which was the largest bond issue in Romania by any IFI in the past six years.
Going forward, the bank intends to borrow in the same markets where it is investing. In this way, it will promote the development of the local capital markets in parallel with its main investments in areas like infrastructure and the local financial system.
IIB largely follows the strategy of a traditional development bank, but in 2015 it introduced a new product at the behest of its clients: trade finance. With the international financial system under pressure, corporates still want to trade and need reliable and affordable financing to do so. The trade finance instrument has enjoyed a warm reception, as the bank is helping to strengthen the ties between its member states and third countries by facilitating trade relations. In 2015 the bank signed 14 trade finance deals, says Kozlov.
IIB has been expanding its geographical presence; in November 2014 Hungary returned to the bank's membership and participated in the 103rd meeting in the Mongolian capital of Ulaanbaatar in 2014 as a full member after fulfilling all membership obligations, including its capital contribution.
Mongolia is also one of the bank’s nine shareholders, contributing on December 28 €435,000 to its authorised capital in a fitting conclusion to the “Year of Asia”. Mongolia already accounts for 20% of the bank's loan portfolio, or €50mn worth of credits. The narrower focus of the development bank means it can go deeper into the nitty-gritty of investing into its member countries like Mongolia or Vietnam, IIB's other Asian member.
In December, IIB signed a loan agreement with Capital Bank (Mongolia) worth €5mn with a four-year maturity, which will be directed toward the development of small and medium-sized enterprises (SME) in Mongolia. The bank signed its first loan agreement in Mongolia in 2013, which was also for SME support.
And the bank is continuing to expand its base of operations, partly by reactivating old ties. On January 13, IIB signed its first credit deal with a Czech entity in over 20 years, with a €35mn credit facility to Pilsen Toll, a Czech toll company supporting the operations of the large metallurgical-engineering plantPilsen Steel.
IIB’s trade finance product has been especially popular in the Czech Republic, allowing it to support Czech exports worth €5mn. “In a sense, this project represents a breakthrough. Not only is it the largest credit line since IIB’s relaunch, but also the first loan of the renewed bank to a Czech borrower. Together with the demand for our trade finance product, it confirms the relevance of our development institution even on the developed market of the Czech Republic,” says IIB chairman Kosov.
The bank continues to build up its European presence via the IIB European Regional Office, which opened a branch in the Slovakian capital of Bratislava in April 2015.
The world is globalising, but it is not doing it in a uniform way. The emerging markets are increasingly cooperating with each other and cross investing, and IIB is an integral part of fostering this “South-South cooperation”.
The bank brings together a somewhat eclectic mix of countries at first glance – five EU members (Bulgaria, Czech Republic, Hungary, Romania and Slovakia), Russia, Cuba, Vietnam and Mongolia. What unites these countries is their transition market mentalities, as well shared cultural and political legacy ties. It is the dynamism of their markets, which are facing broadly similar transition related problems, that makes this a rational trading bloc.
IIB’s decision to hold its 104th Council meeting in Vietnam was appropriate in this light and was followed by an inaugural international business forum “Vietnam – Global Opportunities for Sustainable Local Development”, organized by IIB and the State Bank of Vietnam. The event brought together more than 170 representatives from the leading international financial institutions, government and businesses to identify opportunities, especially in Vietnam’s vibrant SME sector. Putting its money where its mouth is, IIB also signed off on a €20mn credit facility for the JSC Bank for Investment and Development of Vietnam (BIDV) with a five-year maturity to finance SMEs in Vietnam.
At the same time IIB signed off on a memoranda of understanding to promote Vietnam’s development of the regions with the People’s Committees of Thanh Hoa Province and the city of Danang. “The IIB chose these regions as destinations for its investments, as they are important ‘growing-points’ of the Vietnamese economy, having demonstrated rapid development over the recent years and having attracted a significant amount of foreign direct investment,” says Kosov.