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WB to help expand rural credit
The World Bank is to loan Ukraine $150 million to finance a program intended to expand access to credit for the country's rural areas.
The loan agreement, which still must be ratified by Ukraine's parliament, was signed in Kiev on June 23 by Deputy Finance Minister Volodymyr Matvijchuk and World Bank Director for Ukraine, Belarus and Moldova, Paul Birmingham.
"The purpose of this investment project is to provide borrowers from rural localities, municipalities and communal services providers with long-term credit resources," said Dmytro Derkach, the head of external affairs at the World Bank's office in Ukraine.
The Finance Ministry held a tender in which 12 Ukrainian banks competed for the right to disperse the loans. Three Ukrainian banks were selected: Privatbank (based in Dnepropetrovsk), Nadra (in Kiev) and CreditPromBank (Kiev) - all among the country's top 15 banks in terms of assets and liabilities.
"A stable financial situation, a good reputation, experience in small and mid-sized business financing and international audit standards criteria were the main points in the selection," said Yuri Kusherenko, finance deputy for the project's coordination group at the Finance Ministry.
The ministry will receive the World Bank loan at an interest rate set at Libor (London Interbank Offered Rates), which was 5.5 percent last year, with the government adding 1.5 percent to the subsequent interest rate to cover its risks.
Nadra, Privatbank and CreditPromBank will then a present rural borrower with an interest rate covers their costs for servicing the loans.
"I suppose that the interest rates on these credits will be lower than average," said Dmytro Sagalovsky, director for work with financial institutions at Nadra Bank.
Interest rates on small and mid-sized business loans offered by Nadra currently range from 14 to 18 percent in hryvnias and 13 to 15 percent in U.S. dollars.
"Our rate will be calculated on the basis of the terms of the bank's credit policy and current market situation, it could be around 15 percent in hryvnias and from 12 to 13 percent in dollars," said Sagalovsky.
The lending program is geared toward towns with populations of no more than 400,000.
The main advantage of the World Bank's credit is that it's long-term.
The Finance Ministry will give loans to Ukrainian banks for up to 10 years, meaning that the banks will be able to provide business loans for up to five years, said Sagalovsky.
"We have to give out a certain number of loans in rural localities as part of the project requirement," said Kucherenko.
Kucherenko said two more banks that just fell short of the tender requirements could also be selected to allocate the loans.
The lion's share of the World Bank loan, around $125 million, will be used for loans, while the rest will go toward technical assistance for state financial institutions, such as the State Financial Services Markets Regulation Commission and the State Mortgage Bureau.
"The rest of the money will be equally split up between three banks," Nadra's Sagalovsky said.
Negotiations between the World Bank and Ukraine for the 20-year loan went on for five years, and now the parliament has 90 days to ratify the agreement.
"I don't think the Rada will fail to ratify this agreement," said Kucherenko. "This project could be very useful for Ukraine and it has support."
"Ukraine will get 95 percent of all the money within two-and-a-half years. The funds will be kept at a special Finance Ministry account," he added.
The grade period will be five years, during which Ukraine will be responsible for paying only the interest on the $150 million loan. Ukraine may also receive an additional $150 million under the World Bank project somewhere down the road.
By Olga Gnativ
Kiev Post
June 29th, 2006
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