The global financial crisis of 2008-2009 and subsequently the sovereign debt crisis in Europe in 2011 has put the cross-border banking model, prevalent in many Central, Eastern and South Eastern European countries, to test. Credit growth remains slow as a result of supply and demand factors. This has had a particularly negative effect on SMEs which constitute the majority of business in the region and which are particularly vulnerable to the weaknesses in the credit environment. By improving risk management practices and successful work outs of nonperforming loans (NPLs) the project helps to preserve capital in banks and supports new lending to SMEs.
The overall goal of the regional program is twofold
- Support for Recovery: Support the financial sector in emerging from the ongoing financial crisis, by improving the risk management capacity of the financial sector, thereby creating a stable foundation;
- Support for Growth: Support banks in resuming lending to the SME sector in a secure and sustainable manner to underpin growth of the economy.
- Increase awareness of best practice SME, risk and NPL management
- Improve capacity of financial institutions to implement best practices in risk and NPL management
- Improve the capacity of banks to develop their SME banking operations
- Market awareness and trainings are conducted
- Indepth advisory services are provided to financial institutions on risk management and NPL
- Indepth advisory services are provided on SME banking
Previous phases results
The program helped to improve risk management and nonperforming units in three client Banks in Azerbaijan and in six client banks in Ukraine.
The project supported the development of the first internationally recognized risk certification in partnership with the Global Association of Risk Management (GARP) and trained 770 bankers in Ukraine.
The project supported developing specific tools to manage risk in financial institutions in Azerbaijan and Ukraine.
All the three Azeri bank clients reported improvements in governance and organizational structure, credit, market and operational risk management.
The project supported the development of alternative disposition vehicles and thereby increased the market from USD 4.1 million in 2008 to USD 60 million in 2011 removing a substantial amount of bad assets from balance sheets.
Improved risk and NPL management freed up potential capital in the amount of USD 282 million.