The European Bank for Reconstruction and Development (EBRD) is making a significant move to support Ukraine's economic recovery by extending a new guarantee to ProCredit Bank Ukraine (PCBU). This move is set to unlock a substantial EUR 200 million in new lending, offering a much-needed boost to the country's private businesses. But here's where it gets controversial: while the EBRD's guarantee is designed to enhance PCBU's capacity to provide funding, it also raises questions about the long-term sustainability of such financial support.
The EBRD's unfunded portfolio risk-sharing facility will partially cover PCBU's credit risk on new lending, enabling up to EUR 200 million in loans to private businesses, including veteran-led enterprises. These loans will not only support new lending but also drive business resilience, with EU support for competitiveness upgrades. The facility is the largest of its kind that the EBRD has provided to PCBU since the start of Russia's full-scale invasion of Ukraine, building on the successful utilization of six previous instruments.
Since the start of Russia's full-scale invasion, the EBRD has enabled close to EUR 3.29 billion of finance for Ukrainian borrowers through 40 similar facilities with 12 partner financial institutions. The new facility will enhance the competitiveness of micro, small, and medium-sized enterprises (MSMEs) in Ukraine, with 20% of subloans covered by the EBRD guarantee going to MSMEs for long-term investments in EU-compliant and green technologies.
Eligible sub-borrowers will also receive EU-funded technical assistance and investment incentives such as grants on completion of their investment projects under the bloc's EU4Business initiative. Higher levels of incentive will be provided for businesses and households most affected by the war, as well as for sub-borrowers, facilitating the reintegration into the workforce of war veterans, people living with disabilities, internally displaced persons, and those located in territories most acutely affected by the war.
The EBRD has already allocated EUR 75.4 million of EU grant support to Ukrainian MSMEs under the EU4Business-EBRD Credit Line, of which EUR 5.8 million has been issued to projects through PCBU. PCBU has also committed to supporting war veterans (both as employees and as clients), implementing key recommendations set out in the Guidance Note to Support Ukrainian Financial Institutions in Becoming More Inclusive, Safer, and More Accessible Employers, developed by the EBRD and the National Bank of Ukraine.
The EBRD facilities will be backed by partial first-loss risk cover from the EU under its Ukraine Investment Framework. PCBU is a wholly owned subsidiary of ProCredit Holding AG and one of Ukraine's 20 largest banks in terms of assets. It is a longstanding partner of the EBRD and a market leader in SME finance in Ukraine. The EBRD is Ukraine's largest institutional lender and has significantly increased its lending to the country in recent years, making more than EUR 8.5 billion available since the start of Russia's full-scale invasion. The Bank has also secured agreement from its shareholders for a capital increase of EUR 4 billion to continue lending at this level during wartime, and will increase its lending further when the time comes for reconstruction.
