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Environmental Lending in EU Eastern Partnership Countries

image of Environmental Lending in EU Eastern Partnership Countries

This report presents an overview of existing environmental credit lines in the EU’s Eastern Partnership (EaP) countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine), which are mostly supported by International Finance Institutions and donors and disbursed by local commercial banks. Lessons learned from this type of credit-line implementation provide useful insights for spurring the banking sector into financing green investments.

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Executive Summary

The financial and capital markets in the European Union’s Eastern Partnership (EaP) countries remain under-developed, with commercial banks having a dominant position. While foreign funding remains commonplace in the region, and foreign currency lending continues, there is a process of consolidation and a move towards more sustainable lending models financed by domestic savings. However, local banks are likely to face a range of new challenges, including new and stricter regulations, higher funding and risk costs, especially for longer-term investments with unfamiliar risk profile, and changing customer behaviour. This, combined with a period of slow global growth, a long period of deleveraging, and higher levels of market volatility is likely to make it more difficult for banks to provide more lending to customers and deliver shareholder returns above the costs of capital.

English

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