The European Investment Bank (EIB) has approved a new financing instrument for Cyprus aimed at making letters of credit (L/Cs) and other trade finance instruments better available.

Trade finance support worth up to EUR 150m will be made available by the end of 2013 to support companies capitalised at up to EUR 10 billion, including small- and medium-sized enterprises.

Risk mitigation

The instrument aims to mitigate transaction and systemic risks of foreign banks writing trade business with Cyprus by providing those banks with guarantees.

This aims to facilitate an export-led recovery for the country and replicates an instrument implemented in Greece five months ago, which the EIB says had a positive impact.

The EIB guarantees for Cyprus are expected to support a volume of transactions of some EUR 300m to EUR 450m per year.

More to come

EIB President, Werner Hoyer, said in Nicosia earlier this month that the instrument aims, "to maintain the capacity of the Cypriot banking sector to provide a sufficient volume of products such as L/Cs despite the deterioration of their credit rating,"

"It addresses a precise and very acute market gap, for an economy whose banking sector needs support in order to maintain the financing of basic trade products," according to Hoyer, who says more support for Cyprus can be expected.

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