The Black Sea Trade and Development Bank (BSTDB) has announced plans to more than double its balance sheet in a bid to boost its presence in central and eastern Europe (CEE).
Set up in 1997, the bank is an offshoot of a Turkish-led project to promote economic cooperation between countries around the Black Sea.
Since starting operations in 1999, it has distributed around €5 billion in funding but has struggled to define its role in a region well-covered by the European Bank for Reconstruction and Development (EBRD) and other western development organizations.
The task has been complicated by BSTDB’s disparate and often discordant membership. Russia, Turkey and Greece are the three largest shareholders with 16.5% apiece. Romania, Bulgaria and Ukraine also own more than 10% each, while five other members – Albania, Azerbaijan, Armenia, Georgia and Moldova – hold smaller stakes.
Dmitry Pankin, BSTDB
Dmitry Pankin, BSTDB’s new president, is well aware of the challenges facing the bank. As deputy finance minister of Russia he served on BSTDB’s board for two years before moving to head up the Russian-backed Eurasian Development Bank in 2015. He joined BSTDB last July.
He says the first task for the bank is to increase its relevance for shareholders.
“This is a healthy organization with good financials, strong asset quality and professional staff,” he says. “The question is why should ministers spend time attending board meetings of an institution that so far has not added a lot of value for their economies?”
For Pankin, the most effective way to answer these questions is to step up lending. “The priority is to grow,” he says. “With our existing capital, our balance sheet should be twice the size it is.”
On February 9, BSTDB’s board approved a new three-year strategy that envisages increasing outstanding lending – currently around €1 billion – to €2.1 billion by the end of 2022. This will mean boosting lending growth to 12% a year, from an average of 8.7% over the past decade.
Pankin is also keen to expand the range of the bank’s activities. “We need to find a niche,” he says. “We need to work out which projects are interesting for our countries but are not being financed by commercial banks or other international financial institutions (IFIs).”
BSTDB’s new strategy identifies several potential growth areas. Top of the list is public sector infrastructure finance, a segment the bank has traditionally eschewed in favour of financing private sector projects.
“We are interested in areas such as municipal infrastructure, where the funding required is longer-term than commercial banks are willing to provide and the project sizes are sometimes not large enough for the major IFIs,” says Pankin.
He also sees opportunities for BSTDB to play a larger role in financing regional trade. To date, the bank has provided trade finance products through third parties. The new strategy will increase its capacity to offer such products directly, unlike other development banks in the region.
Pankin says BSTDB’s ownership structure makes this a natural move. “Trade flows are often linked to governments, for example in the case of natural gas imports from Russia,” he says. “We can facilitate that because we have good access to state companies and state officials.”
He rejects suggestions that this could be politically sensitive. “If we’re talking about pure trade activity, for example a Greek company buying from Gazprom, that’s not a political issue,” he says. “It’s just a question of how to settle the transaction. We can provide guarantees that will benefit Greek importers.”
Geopolitics has, however, worked to BSTDB’s advantage in one respect. As Pankin notes, the decision by EBRD shareholders in 2014 to freeze operations in Russia has created opportunities in the country for smaller development banks.
BSTDB is also willing to consider projects that would fall short of western IFIs’ increasingly rigorous environmental criteria. “For the EBRD and other development banks, coal is taboo – but many countries can’t avoid coal,” says Pankin. “This means there’s an urgent need for funding for projects that will make coal energy cleaner and more efficient.”
The bank has just signed a $69 million loan for the construction of a coal terminal in Murmansk by Russia’s State Transport Leasing Company (STLC).
Pankin is keen to stress, however, that BSTDB also supports renewable energy producers. The bank is currently funding three projects in the sector in Ukraine, including a €38 million solar power plant in the southern Mykolaiv region.
The latter is one of a number of projects where BSTDB is cooperating with the EBRD. Pankin is eager to encourage this type of collaboration. “Our objectives are very similar so it makes sense for us to work together,” he says.
He also notes that the EBRD and other western IFIs can add value thanks to their physical presence across the region. BSTDB currently runs all operations from its headquarters in Thessaloniki – although Pankin says this might change in future.
“With our existing lending volumes, we don’t have enough capacity to establish country offices,” he says. “If we grow as planned, however, this will likely be something we need to discuss with our shareholders.”