BSTDB: a bank that brings together the Black Sea region

Certain things make the bank special, as outgoing BSTDB President Hayrettin Kaplan shared with Sunday’s Zaman. “The BSTDB is the youngest of the regional development banks, as we started operations in June 1999. In terms of its mandate and product range, the BSTDB is very similar to other international financial institutions [such as EBRD, etc.] with the only difference being that we do not have a category of ‘donor’ members. All BSTDB member countries are both donors and recipients of the bank’s financing. From this perspective, the BSTDB is quite a unique example of regional cooperation,” he said.

The BSTDB is an international financial institution established by Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine. Headquartered in Thessaloniki, Greece, the BSTDB supports economic development and regional cooperation through equity participation and providing loans, credit lines and guarantees for trade finance and public and private sector projects in its member countries. The authorized capital of the bank is SDR 3 billion (approximately $4.85 billion). The BSTDB is rated long term Baa1 with positive outlook and short term P2 by Moody’s.

The BSTDB follows a flexible strategy of rapid response to the economic and market changes in countries of operation. “The global economic crisis presented a number of challenges for the bank,” admits Kaplan, “mainly with respect to raising funds in the capital market at affordable terms. Still, the freezing up of credit markets increased demand for the bank’s financing from regional banks and companies, though the BSTDB had to be careful to protect its portfolio quality and safeguard its good credit rating. This inevitably led to a slowdown in our lending activities, but we’ve managed to maintain the portfolio quality, preserve our good credit rating with a positive outlook and remained profitable.”

No doubt it’s been a demanding process: The BSTDB’s outstanding portfolio stood at 91 operations for $885 million at the end of April 2010. Its stable financial position was ensured recently by a team of professionals guided by Kaplan. Considering the volatile regional environment and the dire state of affairs in certain Black Sea countries, it’s a tough job to do. “There are concerns that the impact of the crisis has not yet ‘bottomed out’ and that a further decline in the economic performance in countries individually -- and the region as a whole -- may be expected. In some member countries recovery started in the last quarter of 2009, while in the others we expect [a recovery] in the second half of 2011,” he said. All this creates “a climate of volatility and uncertainty” demanding from the BSTDB a “strategy to preserve its gained success and attained achievements and the ability to quickly and flexibly react to the market conditions for the benefit of its interests and the fulfillment of its mandate. The bank’s IFI status is another asset, together with its high quality operational portfolio, due to its conservative construction.”

Looking back at quite a demanding term, Kaplan seems to be happy. He said: “It was an interesting and challenging time, and I am satisfied with the results achieved. The bank’s credit rating was upgraded from Baa2 to Baa1 by Moody’s in 2006, with its outlook increased from stable to positive in 2007, which is higher than that of the BSTDB shareholding countries. The BSTDB managed to double its portfolio over the period, showing significant operational growth -- 60 percent in 2007 and 30 percent in 2008 -- to $950 million, while developing and maintaining excellent portfolio quality. The bank achieved profitability in 2005 and has remained profitable for the sixth consecutive year.

“Apart from this, the bank succeeded in promoting the Black Sea region as an investment destination, having attracted leading international finance institutions, such as the European Investment Bank, Nordic Investment Bank, etc., and bilateral European donors [DEG of Germany, Development Bank of Austria and PROPARCO of France, etc,] to join the BSTDB as observers.

“But most importantly, the bank’s performance received strong support from its shareholding countries, which decided to double the BSTDB subscribed capital to SDR 2 billion [about $3 billion] in 2008, with new capital payments starting this year. These capital payments will not only permit the bank to expand its operational activities but also to increase the total development impact by attracting additional financing from official, international and private entities wishing to become more active in the Black Sea region.”

As a successful financial institution, the BSTDB is more focused on tomorrow, with its coming potential, than on today’s somewhat murky realities. “I believe that the bank has developed a solid base to look into the future with confidence,” states its outgoing president, adding that “in June 2009, the BSTDB adopted a long-term strategy for 2010-2020 being an ambitious agenda for its development. The bank envisaged goal is to become a recognized high-class Black Sea region financial institution to render well-focused development assistance and multiple solutions that would propel the BSTDB to a position of a preferred regional partner for multilateral and bilateral donors. Among the BSTDB’s key strategic objectives are obtaining a higher credit rating (AA- equivalent), increasing portfolio operations to about $4.5 billion by 2020 and expanding the share of public and quasi-public sector operations and public-private partnerships [PPP] to about a quarter of the portfolio from the current 11 percent.”

In pursuit of this demanding task, Kaplan believes that “the bank will focus on financing operations in sectors with high development impact, such as transport and social infrastructure, renewable energy, power generation, municipal services, environmental protection, etc.”