Financing covered by guarantees will strengthen Hungarian exports to countries like Indonesia, Vietnam, Sri Lanka, and Lao PDR
WASHINGTON DC, June 20 2017— MIGA, a member of the World Bank Group, announced today guarantees covering non-shareholder loans amounting to €332.5m for an expansion of Hungarian Export Import Bank's lending operations. EXIM's lending to Hungarian exporters, particularly small and medium-sized entrepreneurs, will increase as a result of this funding.
The lenders are ING Bank of Germany, and KBC Bank N.V. of Belgium. The guarantees provide protection for up to six years against potential losses arising from a failure by EXIM, which is owned completely by the Government of Hungary, to make a payment when due. Importantly, payout by MIGA to the lenders does not require that they obtain an arbitral award.
The Government of Hungary separately provides a general guarantee on EXIM's obligations for an aggregate amount determined by statute.
Since 2008, lending to Hungarian SMEs – which are a key engine of exports and employment generation - has declined by about 30 percent. This in spite of SMEs accounting for virtually all non-financial enterprises, being a source of employment for 70 percent of the workforce, and providing value-add of 54 percent.
However, between 2013 and the second quarter of 2016, EXIM's lending to SMEs grew approximately three times, reached twice the number of SMEs, and supported twice the total number of employees. EXIM has been particularly critical for providing counter-cyclical financing to SMEs following the 2008 financial crisis.
EXIM's lending has increasingly supported exports to enterprises located outside Hungary, particularly in emerging markets. From 2012-2016, total exposure to emerging market borrowers doubled, with the largest share in Indonesia, Russia, Sri Lanka, Vietnam, and Lao PDR.
The guarantees, which provide coverage for up to 20 years, protect the investors against transfer restriction, expropriation, war and civil disturbance, and breach of contract.
"Our support for Hungary EXIM's expansion showcases how we help draw in private sector backing for SMEs," MIGA Executive Vice President and CEO Keiko Honda said. "The benefits will be felt within the country, and also in other emerging markets."
Although Hungary graduated from the World Bank (IBRD) in 2007, it reengaged with the World Bank Group after the global financial crisis of 2008. Since 2012, Hungary has signed an MoU with the World Bank for advisory services on partnership and support to implement its Structural Reform Program.
These guarantees are MIGA's second operation in support of EXIM. The first was coverage for a bond issue in June 2013 to fund the expansion of medium and long-term lending.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders. For more information, visit www.miga.org
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