Identifier
Created
Classification
Origin
09ASHGABAT991
2009-08-05 12:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:
TURKMENISTAN: EBRD MOVING AHEAD ON SME GREEN FIELD
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UNCLAS SECTION 01 OF 02 ASHGABAT 000991
SENSITIVE
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: N/A
TAGS: ECON EAID EBRD PGOV EFIN SOCI TX
SUBJECT: TURKMENISTAN: EBRD MOVING AHEAD ON SME GREEN FIELD
BANK CONCEPT
REF: A. ASHGABAT 111
B. ASHGABAT 139
UNCLAS SECTION 01 OF 02 ASHGABAT 000991
SENSITIVE
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: N/A
TAGS: ECON EAID EBRD PGOV EFIN SOCI TX
SUBJECT: TURKMENISTAN: EBRD MOVING AHEAD ON SME GREEN FIELD
BANK CONCEPT
REF: A. ASHGABAT 111
B. ASHGABAT 139
1. (SBU) On August 4, Poloff met with a visiting EBRD Small
Business Development Mission, Senior Banker Oksana Pak and
Senior Investment Officer Marie-Paule Claes, and local Head
of Office Neil McKain to discuss EBRD's proposed start-up
bank project. The concept to establish a privately held
bank, operating on a strictly commercial basis and focused on
lending to small and medium enterprises (SME),has been
approved by the EBRD. The purpose of the Mission was to lay
the groundwork for a U.S. Treasury-funded feasibility study.
2. (SBU) The new bank would be set up under auspices of
Turkmenistan Union of Entrepreneurs. The Union has already
been working on such a concept for a year. Ownership of the
bank would be held by a mix of international financial
institutions (EBRD, International Finance Corporation, FMO
Dutch Development Bank) and interested members of the Union
(44 total),some of whom are EBRD clients. The project for a
private SME bank lending on commercial terms apparently has
the support of President Berdimuhamedov, at least the
concept. The Union's chairman is actively pursuing the
effort. EBRD could put the project together without Union
involvement, but considers the involvement of local
entrepreneurs would play an important role in capacity
building. The final level of local interest and involvement
remains to be seen. Although the Central Bank is nominally
EBRD's government partner, in practice EBRD goes directly to
Deputy Chairman for Economy and Finance Tuwakmammet Japarov
to get government approval for its proposals, including this
bank.
3. (SBU) Key threshold issues for the feasibility study are
the legal regulatory framework, the ownership structure and
market demand for such loans. All three pose challenges.
The new bank would need to operate on commercial terms,
without government interference. Part of any final agreement
to set up the bank will include a list of "Ten Commandments,"
agreed to by the government, to insure that the bank has
freedom to charge commercially feasible interest rates and
make loans according to its own standards. Currently there
is no lending carried out by Turkmen banks on commercial
terms. For example, a government-funded SME loan program
offers loans at five percent interest, but because that rate
is heavily subsidized and provides no profit for the lending
bank, in practice such loans are not promoted. EBRD
estimates that the start-up bank's loan rates would be in the
25-30 percent range, taking into account the cost of capital
(which is high because the bank likely would not have a
substantial deposit base),inflation and the bank's built-in
margin, which would itself be 11-12 percent due to the high
cost of processing such loans. That level of interest rate
poses two challenges: making sure the government does not
interfere to cap the rate at an unprofitable level, and
overcoming marketplace resistance from potential borrowers
who are accustomed to government-subsidized loan rates, even
if in reality such loans are not available to them. The
Union's chairman told EBRD that he wanted the bank to be open
by October 28, 2009. EBRD officials felt a more likely
target date would be October 2010.
4. (SBU) COMMENT: The concept of lending on a truly
commercial basis is a novel one for the Turkmen. While the
project is a reasonable step in the direction of establishing
a commercial banking sector in Turkmenistan, implementation
will require buy-in from Turkmen authorities, including the
almost 100 percent state-owned banking sector. While in
theory, dealing directly with the presidential apparat could
push the necessary approvals (read "presidential directives")
through the system, in practice, the opposition of the entire
banking sector would be a tough burden. This bank project
ASHGABAT 00000991 002 OF 002
will serve as a litmus test of the government's willingness
to back-up its free market, private sector reform rhetoric
with the requisite policies. END COMMENT.
MILES
SENSITIVE
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: N/A
TAGS: ECON EAID EBRD PGOV EFIN SOCI TX
SUBJECT: TURKMENISTAN: EBRD MOVING AHEAD ON SME GREEN FIELD
BANK CONCEPT
REF: A. ASHGABAT 111
B. ASHGABAT 139
1. (SBU) On August 4, Poloff met with a visiting EBRD Small
Business Development Mission, Senior Banker Oksana Pak and
Senior Investment Officer Marie-Paule Claes, and local Head
of Office Neil McKain to discuss EBRD's proposed start-up
bank project. The concept to establish a privately held
bank, operating on a strictly commercial basis and focused on
lending to small and medium enterprises (SME),has been
approved by the EBRD. The purpose of the Mission was to lay
the groundwork for a U.S. Treasury-funded feasibility study.
2. (SBU) The new bank would be set up under auspices of
Turkmenistan Union of Entrepreneurs. The Union has already
been working on such a concept for a year. Ownership of the
bank would be held by a mix of international financial
institutions (EBRD, International Finance Corporation, FMO
Dutch Development Bank) and interested members of the Union
(44 total),some of whom are EBRD clients. The project for a
private SME bank lending on commercial terms apparently has
the support of President Berdimuhamedov, at least the
concept. The Union's chairman is actively pursuing the
effort. EBRD could put the project together without Union
involvement, but considers the involvement of local
entrepreneurs would play an important role in capacity
building. The final level of local interest and involvement
remains to be seen. Although the Central Bank is nominally
EBRD's government partner, in practice EBRD goes directly to
Deputy Chairman for Economy and Finance Tuwakmammet Japarov
to get government approval for its proposals, including this
bank.
3. (SBU) Key threshold issues for the feasibility study are
the legal regulatory framework, the ownership structure and
market demand for such loans. All three pose challenges.
The new bank would need to operate on commercial terms,
without government interference. Part of any final agreement
to set up the bank will include a list of "Ten Commandments,"
agreed to by the government, to insure that the bank has
freedom to charge commercially feasible interest rates and
make loans according to its own standards. Currently there
is no lending carried out by Turkmen banks on commercial
terms. For example, a government-funded SME loan program
offers loans at five percent interest, but because that rate
is heavily subsidized and provides no profit for the lending
bank, in practice such loans are not promoted. EBRD
estimates that the start-up bank's loan rates would be in the
25-30 percent range, taking into account the cost of capital
(which is high because the bank likely would not have a
substantial deposit base),inflation and the bank's built-in
margin, which would itself be 11-12 percent due to the high
cost of processing such loans. That level of interest rate
poses two challenges: making sure the government does not
interfere to cap the rate at an unprofitable level, and
overcoming marketplace resistance from potential borrowers
who are accustomed to government-subsidized loan rates, even
if in reality such loans are not available to them. The
Union's chairman told EBRD that he wanted the bank to be open
by October 28, 2009. EBRD officials felt a more likely
target date would be October 2010.
4. (SBU) COMMENT: The concept of lending on a truly
commercial basis is a novel one for the Turkmen. While the
project is a reasonable step in the direction of establishing
a commercial banking sector in Turkmenistan, implementation
will require buy-in from Turkmen authorities, including the
almost 100 percent state-owned banking sector. While in
theory, dealing directly with the presidential apparat could
push the necessary approvals (read "presidential directives")
through the system, in practice, the opposition of the entire
banking sector would be a tough burden. This bank project
ASHGABAT 00000991 002 OF 002
will serve as a litmus test of the government's willingness
to back-up its free market, private sector reform rhetoric
with the requisite policies. END COMMENT.
MILES