IFC and Erste Bank Partner to Boost MSME Growth and Catalyze Green Transition in Serbia

• IFC is investing up to €65 million in Erste Bank in Serbia's first MREL-eligible senior preferred loan.
• The funds will be channeled towards supporting micro and smaller businesses and boosting access to climate finance.

Belgrade, Serbia, November 7, 2024-In a strategic move to bridge funding gaps for micro, small, and medium enterprises (MSMEs) and green initiatives in Serbia, IFC is set to invest up to €65 million in Erste Bank a.d. Novi Sad. The funding marks the first MREL-eligible senior preferred five-year loan instrument in Serbia, underpinning a broader effort to bolster market resilience and economic sustainability.

MREL, or Minimum Requirement for own funds and Eligible Liabilities, is an EU regulatory requirement designed to ensure banks have sufficient loss-absorbing capacity to maintain operations and avoid taxpayer-funded bailouts. Meeting Serbia's newly set MREL targets is crucial for banks to build investor confidence and boost lending.

Micro and smaller businesses represent 99 percent of all businesses in Serbia, employ over 65 percent of the workforce, and contribute significantly to the national economy. But many struggle to access finance, with the shortfall estimated at 12 percent of Serbia's 2022 GDP. IFC's investment in Erste will improve access to critical longer-term financing for nearly 9,000 micro and smaller businesses over the next three years.

"This partnership with IFC marks a significant milestone for Erste Bank and Serbia's financial sector. By combining our resources to support green and sustainable growth, we are ensuring that micro and small enterprises-key drivers of our economy-gain the financial support they need to thrive," said Jasna Terzić, CEO of Erste Bank a.d. Novi Sad. "Additionally, dedicating part of this funding to climate initiatives aligns with our strategic commitment to sustainable banking. Together with IFC, we are proud to contribute to Serbia's green transition."

IFC's investment will also allocate at least 30 percent of its proceeds to support climate change mitigation projects. Serbia's energy consumption and carbon output significantly exceeds the EU average, making it one of the most energy-intensive economies in the Western Balkans. This high energy footprint leads to substantial air quality challenges, particularly in urban areas.

"Through this pioneering MREL financing, IFC is establishing a robust market benchmark, encouraging other systemic banks to follow with similar financial instruments," said Nicolas Marquier, IFC Regional Manager for the Western Balkans. "This will improve financial sector stability and offer much-needed long-term funding critical for MSME growth and the green transition."

Erste Bank Serbia is a subsidiary of Erste Group, IFC's strategic partner and one of the largest banking groups in the Central and Eastern Europe region.

IFC has supported private sector development in Serbia for over 20 years, with investments totaling more than €2 billion since 2001. IFC's current committed exposure has reached €316 million, with a focus on boosting the country`s green transition, digital and physical connectivity, and integration into global value-chains.