The European Bank for Reconstruction and Development (EBRD) has recorded its highest-ever profit, according to new results for 2021. The figure of €2.5 billion beats the previous record, set in 2006.
The EBRD recently announced a €2 billion economic resilience package to help Ukraine and neighbouring countries affected by the Russian invasion. However, the Bank is also highlighting that the war on Ukraine is likely to have a significant impact on 2022’s financial performance. The EBRD has a large portfolio of investments and equity holdings in Ukraine, as well as portfolios in Belarus and Russia.
The Bank’s record results for last year were largely due to the excellent performance of equity investments across its regions of operations.
The EBRD invests primarily in the private sector, with the aim of supporting the transition to market economies. Its equity investments recorded a gain of around 30 per cent (€1.7 billion) – growing at roughly triple the rate compared with the 2021 benchmark of equity growth in EBRD economies. Substantial gains in the Bank’s technology-related investments were a particular feature.
A reduction in expected credit losses also contributed to the scale of the profit. The ratio of non-performing loans (NPLs) dropped relative to the 2020 year-end, as economies bounced back from the Covid-19 pandemic.
At the end of 2021, the EBRD had a capital base of €20.3 billion, and the Bank operates well in excess of triple-A requirements set by rating agencies. The Bank expects to remain strongly capitalised, despite the economic consequences of the war. Increased costs for energy and food as a result of the war, and the potential for higher interest rates, are all likely to have an impact on the economies where the Bank operates.
Speaking about the results for 2021, Soha El-Turky, EBRD Chief Financial Officer, said: “These record financial results show that the Bank is really making a difference with its investments, helping businesses to transform economies and improving people’s lives. The results demonstrate an all-around strengthening of the balance sheet and put the EBRD on a very firm financial footing.
“The Bank quickly announced an initial €2 billion economic resilience package for Ukraine and its neighbouring countries affected by the war, and we are determined to do all we can to help them deal with the consequences of the conflict.
“More widely, the EBRD has both the capital base and liquidity cushion to withstand the financial shock and continue to support Ukraine and the other economies where we work.”
The EBRD recently announced it had reached 2021 its second-highest-ever business volume – €10.4 billion, only slightly below the record figure achieved in 2020 when EBRD investments were buoyed by emergency lending at the start of the Covid-19 pandemic. In 2021, private-sector investment rose to 76 per cent of annual business volume and green financing reached 51 per cent. The Bank committed to aligning all its investments with the Paris Agreement on limiting climate change. It also committed to making a majority of its annual investments green by 2025, a target that the EBRD has met four years ahead of schedule.
The Bank expects to maintain adequate operational capacity and retain its strong capital and liquidity positions:
As a triple-A rated institution, the EBRD is extremely well capitalised. The capital base of €20.3 billion as of December 2021 is comprised solely of fully loss-absorbing paid-in capital and reserves (common equity tier 1). In terms of capital strength, the Bank operates well in excess of the triple-A requirements set by rating agencies and expects to remain strongly capitalised.
In December 2021, the Bank held within its treasury portfolio €34.0 billion of liquid assets with an average rating of AA-. While the EBRD has comfortable access to funding markets and is expected to continue to do so, this liquidity cushion ensures continued business operations for the foreseeable future.
On 31 December 2021, the Bank carried on its balance sheet the following loan and equity exposures:
Ukraine: loans of €2.1 billion and equities of €0.3 billion
Russia: loans of €0.2 billion and equities of €1.2 billion
Belarus: loans of €0.5 billion and equities of €0.1 billion
The EBRD has not carried out any new business in Russia since 2014 or in Belarus since 2021.