Bailout plan for CEE banks

An aid plan for CEE financial institutions is good news for the regional currencies, but it may not fix the problem

Several major financial institutions have announced a joint plan to save banks in Central and Eastern Europe. A combined loan of as much as E24.5 (zł.115.2) billion was proposed by the World Bank, the EBRD and the European Investment Bank.

The banks involved in the plan underscored that national policy responses were necessary, but might not be enough to contain the crisis and maintain lending. World Bank president Robert Zoellick said in a statement that the region’s economic crisis was rapidly turning into a "human crisis."

"The institutions are working together to find practical, efficient and timely solutions," EBRD President Thomas Mirow said.

The aid will be in the form of equity and debt finance, credit lines and political risk insurance. Under the plan, the EBRD will provide up to E6 (zł.28.2) billion within the next two years to the region’s financial sector and will include trade finance through banks. The EIB will lend E11 (zł.51.7) billion to businesses in CEE and the World Bank will propose lending and political risk insurance of up to E7.5 (zł.35.25) billion for banks, infrastructure projects and trade financing.

After the announcement, the złoty and other regional currencies gained at least one percent against the euro.
"The market has been waiting for a deal like this and it is supporting the currencies, but the economies are still in a difficult position and I think they will need a wider deal from the EU," Beat Siegenthaler, senior strategist at TD Securities, told Reuters.

The need for a much bigger aid package was also underscored by Nigel Rendell, emerging markets strategist at the Royal Bank of Canada.
"E25 billion sounds like a lot of money, but when the banks have lent Eastern Europe about $1.7 trillion, E25 billion is peanuts," he told Reuters.

Marcin Poznań