VIENNA, May 7 -- The International Finance Corporation (IFC) and Raiffeisen Zentralbank Österreich AG (RZB), a leading Austrian commercial bank, signed an agreement in Vienna today jointly establishing the Intra-Regional Trade Enhancement Facility (IRTEF), a US$60 million guarantee facility to promote the use of documentary credits in trade within Central and Eastern Europe and the CIS. Under the facility, IFC and RZB will jointly guarantee documentary credits issued by local banks on behalf of local counterparties to trade transactions. The facility will support letters of credit for imports and letters of guarantee for exports.
"Locally issued documentary credits are generally not accepted by exporters and importers operating in the region unless they are backed by an internationally recognized institution, due to the perceived weakness of many local banks," said Mr. Jannik Lindbaek, Executive Vice President of IFC. "Yet support for trade finance from international banks remains limited, and a substantial amount of intra-regional trade is still conducted inefficiently on either a cash or barter basis. The aim of IRTEF is to expand the capacity of local banks to offer proper credit and settlement mechanisms for trade transactions and to provide reassurance for local traders, thereby expanding trade within the region."
Day-to-day management of the facility will be handled by RZB. Herbert Stepic, Deputy Chairman of RZB, stressed RZB's profound market experience in Central and Eastern Europe and Russia, citing RZB's establishment of commercial banks or representative offices in nine countries in the region. "Through its know-how, RZB is an ideal partner for IFC in order to maximize the benefit for local enterprises and banks involved in this facility," added Mr. Stepic.
Initially 20-30 banks within the region are expected to have access to the facility. IFC and RZB will jointly choose the banks based on soundness and acceptability as issuers of documentary credits. The first groups of banks selected for participation in the facility are expected to be signed up within the next month.
Banks from the following countries will be considered for participation in the facility: Albania, Armenia, Azerbaijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Moldova, Poland, Romania, Russia, the Slovak Republic, Slovenia, and Ukraine.
This facility represents the third in a series of trade enhancement facilities pioneered by IFC. The first is the Russian Trade Enhancement Facility and the second the Kazak Guarantee Facility which both guarantee letters of credit in support of western imports into Russia and Kazakstan, respectively.
IFC, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries.
