Eurobank AD Beograd – Central Bank Mandatory Reserves Coverage
This summary covers an investment by Eurobank Ergasias S.A. (Eurobank) of Greece in its Serbian subsidiary, Eurobank AD Beograd. The investor has applied for a MIGA guarantee of €190.0 million (approximately $250.1 million) for a period of up to three years against the risk of expropriation of funds for mandatory reserves held by the subsidiary in the central bank of its jurisdiction.
Eurobank is a universal banking group with a significant network of retail banks across Eastern and Southeastern Europe. The group's subsidiary banks are required to maintain mandatory reserves at the central banks of their respective jurisdictions, generally based on the volume of customer deposits that these subsidiaries hold. The banks are thereby exposed to the risk of expropriation of funds by the respective central bank. This exposure leads to higher risk weights on assets at the consolidated level, resulting in increased capital allocation for country risk exposure. At the parent bank level, the risk weighting determines the amount of equity required to maintain a specified capital adequacy ratio (CAR) in accordance with the applicable banking law of the parent bank.
MIGA's guarantee will help Eurobank obtain capital relief from the CAR requirements. By obtaining MIGA's insurance against the risk of expropriation of funds, the risk weighting for mandatory reserves held at the central bank can be reduced. This will free up equity previously tied up for country risk purposes, and release funds for business purposes.
The project is a category FI under MIGA's Policy on Social and Environmental Sustainability.
MIGA's proposed coverage to Eurobank is consistent with the goals of the crisis response initiative for Europe and Central Asia launched by the World Bank Group in January 2012. As part of the initiative, MIGA has sought to provide capital optimization solutions to capital-constrained banks active in the region.
The proposed project will lead to capital relief of approximately €15 million at the Eurobank parent level. As a result, the bank could extend new loans to borrowers in Serbia, many of which are expected to be small and medium enterprises in line with Eurobank's portfolio. Supporting productive businesses through credit extension will stimulate growth, employment generation, and poverty reduction in Serbia.
The proposed project is also aligned with the World Bank Group's strategy for Serbia as it seeks to address spillover from the European debt crisis.