State IFI’s to the rescue as private banks wilt

International Financial Institutions are increasing their portfolios as commercial lenders scale down. IFI executives met in Greece at a regional economic forum to discuss new challenges.

For some a crisis, but for others a sea of opportunities. Gathered for the forum, International Financial Institutions say, the liquidity squeeze has reduced competition from private banks who were wiped out by risk taking.

The state owned IFIs are becoming the only source of funds for many promising projects which commercial banks can no longer support, according to Hayrettin Kaplan, President of BSTDB.

“When there was ample liquidity commercial banks also financed long-term projects, now with this deleveraging process IFIs should play bigger role, and we will see it during the crisis and after.”

However, Roland Siller, First Vice President of Germany’s KFW promotional bank, says its biggest challenge is not rival banks, and that IFIs should step in now to restore confidence in the banking system.

“The banking sector is not the chocolate industry. If I’m a chocolate producer and another chocolate producer goes bankrupt, I’m happy. However, if I’m a banker and the bank next to me is going bankrupt I have a real problem – it’s something we keep in mind when thinking of rescue packages.”

Backed by $200 million in loan guarantees from Russia’s Vnesheconombank, KFW is, in turn, financing the country’s 16 local banks working with small and medium size businesses. The crisis shows the public sector has become the main source of money, but not its only recipient.