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Located in the heart of Europe and connecting the Eastern and Western regions of the continent, Austria has been and continues to be a vibrant trading hub along the Danube River.
Vienna, its capital, has long been a facilitator of constructive dialogue among the international community addressing a diverse range of global topics. Recently, Vienna hosted the European Bank for Reconstruction and Development (EBRD)’s Trade Facilitation Program (TFP) Conference focusing on the latest trends and advancements in trade finance within the EBRD’s operational regions and beyond.
At the EBRD TFP Trade Finance Forum, TFG’s Deepesh Patel spoke with Aurel Bernat, Executive Director, Financial Institutions and Investor Relations at Banca Transilvania, Oleksandr Shchur, Member of the Management Board at JSC Ukreximbank Ukraine and Ženja Radanović, Head of Documentary, Business Department at Eurobank Direktna a.d. Beograd, Serbia.
Together they discussed the current dynamics of trade finance in Eastern Europe, the impact of the geopolitical tensions, and the pivotal role of the EBRD TFP in supporting the region’s trade activities.
Eastern European trade ecosystem: Romania, Ukraine, and Serbia’s unique advantages in trade finance
Situated at the crossroads of the Balkans, Central Asia, and the Middle East, Eastern Europe boasts strategic trade corridors linking Europe and Central Asia to the Black, Caspian, and Aegean Seas.
This geographical positioning has long piqued the interest of businesses, policymakers, and financial institutions, recognising the region’s potential for trade growth. Each country within the region capitalises on its unique strengths, thereby crafting tailored trade finance strategies and initiatives.
Romania, the largest of the Balkan countries, holds a pivotal position in Eastern Europe, with its Black Sea coast serving as a gateway for trade with the world. Bernat added, “The final course of the Danube River is in Romania, and afterwards it goes directly into the Black Sea. Starting from this point one can be extremely optimistic about trade finance in Eastern Europe.”
Furthermore, he reinforced Romania’s exceptional position in terms of trade finance, particularly in light of emerging opportunities stating, “Romania grew its GDP over the last 2 decades along with a daily increase in trading. We now have around €300 billion GDP and more than €200 billion in trading.”
On the other hand, Shchur provided a comprehensive comparison of Ukraine’s trade position before and after the Russia-Ukraine war. Traditionally, Ukraine held a prominent position as a major trading nation, focusing primarily on exports.
The country’s extensive infrastructure, including ports, airports, and roads, has been meticulously developed to position Ukraine as a vital transit hub connecting Europe and the East.
However, the Russia-Ukraine war has induced seismic shifts in the nation’s trade landscape. Despite the disruption caused by the war, Shchur brought attention to the enduring relevance of trade finance, asserting, “Currently, the situation is different in terms of volumes, geography, and products, but in terms of trade finance, it continues to be an important instrument to support trade.”
Furthermore, Radanović illustrated Serbia’s strategic advantage, situated at the intersection of Central and Southeast Europe. She underscored the nation’s remarkable surge in exports, mainly to EU countries, coupled with the proliferation of EU companies engaged in local production.
She said, “The number of EU companies producing in Serbia has risen significantly, impacting the level of export in total external trade.”
“The overall external trade of the Republic of Serbia, from January to July 2023, amounted to around €38.3 billion, with €21.4 billion attributed to imports and €16.9 billion to exports.”
Radanović also pointed out the considerable presence of branches belonging to EU companies that have established production facilities within Serbia. These enterprises, she explained, operate with the objective of exporting their products to their parent or sister companies within the EU.
She added, “In Serbia, we have a lot of branches of EU companies that are doing production in Serbia, with the aim of exporting those products to their parent or sister companies located in the EU, so in this regard, they do not need any financial instruments.”
She further highlighted that the European Union is a key trade partner for Serbia, accounting for an impressive 60% share, remarking, “Since the main portion of trade is being done with our partners and countries from the neighbourhood, there’s a significant level of trust that exists so local shipments are mostly arranged based either on an open account or on advanced payment.”
Geopolitical shifts: Impact of conflicts on trade
In the wake of the Russia-Ukraine war, Eastern European nations find themselves at a critical juncture as their supply chains and financial strategies are intricately intertwined with geopolitical events.
In examining the repercussions of the Russia-Ukraine war on the region’s trade dynamics, it’s evident that Romania occupies a distinct position. Bernat referenced the country’s trade partnerships and the distribution of exports, stating that “70% [of exports] is directed towards the European Union.”
Recently, Romania has increased their working partnership with Ukraine, allowing grain to be exported through the Constanţa Harbor, signifying a significant shift in trade routes.
Bernat noted, “Nowadays, Constanţa Harbor is extremely important for all the exports that are coming through Romania from Ukraine,” underlining the central position Romania currently plays in regional trade.
For Ukraine, Shchur pointed out the broader challenge of de-risking and the disruption of correspondent banking relationships.
He emphasised the initial hurdles caused by the war, as correspondent banks worked to comprehend the situation, stating, “With the war, we experienced an initial period when our correspondent banks were trying to grasp the situation and understand what was going on. But we never actually stopped payments. We never stopped transactions, whatever it cost us in terms of operational activity.”
This resolute commitment to maintaining financial flows even in distress times showcases the resilience of not only Ukraine’s trade finance landscape, but Ukraine as a whole.
Meanwhile, Radanović detailed Serbia’s dependency on energy imports, specifically crude oil and gas, making the country highly susceptible to supply disruptions. The ongoing tension has profoundly altered import preferences, resulting in changes in procurement sources, with associated cost escalations.
She added, “The Russia-Ukraine war has changed import preferences for oil and gas, for many countries not only for Serbia, forcing us to import oil and gas from other suppliers, provoking significant cost increase.”
Multilateral support: Nurturing communities
The significance of multilateral institutions in bolstering trade networks cannot be overstated. The European Bank for Reconstruction and Development’s (EBRD) Trade Facilitation Programme has been integral in enhancing trade finance operations for several financial institutions.
Bernat stressed the role of the EBRD’s programme in building robust communities within the banking sector, stating, “What EBRD is emphasising is building a community of banks, of customers, and everybody to get in touch with each other and do business together.”
According to Bernat, this approach has proven instrumental in facilitating smooth exchanges, creating an environment where all parties can collaborate effectively.
From his side, Shchur accentuated the invaluable support that Ukraine received from multilateral institutions and international financial institutions (IFIs) during wartime.
He noted that despite existing limits imposed by IFIs, transactions were never halted and the country has secured access to various vital lines of credit, further underlining multilateral institutions’ commitment to trade facilitation.
He said, “We have access to the EBRD TFP line, we have access to the IFC TFP line, we are executing a credit line with World Bank which provides access to long-term financing for exporters so it’s dedicated to the facilitation of trade as well as with EIB.”
Adding on, Radanović highlighted Eurobank Direktna’s proactive approach to leveraging EBRD’s TFP. As one of the key financial institutions in Serbia’s local market, Eurobank Direktna’s focus on guarantees and letters of credit for exporters has been complemented by the EBRD programme, a partnership that has seen consistent engagement in numerous deals with high levels of limit utilisation over the years.
She affirmed, “In terms of trade finance, we are primarily focused on guarantees and letters of credit mainly for exporters, but we also provide import-export financing, and in this regard, we have significant support provided by EBRD.”
Moreover, she noted the bank’s active involvement in various balance instruments, especially when clients seek to establish collaboration with new suppliers, often assuming the role of an issuing bank to facilitate seamless transactions.
Besides, this collaborative approach extends to encompass green initiatives and transactions, underlining Eurobank Direktna’s commitment to supporting sustainable energy projects. In Radanović’s words, “Our bank supports green energy projects. We even won a prize for a green deal of the year given by EBRD.”