EBRD kicks off capital review amid some member criticism

                                
 By Sebastian Tong
                                
 LONDON, May 16 (Reuters) - EBRD shareholders on Saturday
decided to bring forward a planned review of the development
bank's available capital as some countries criticised its
lending practices for leaving eastern Europe and Central Asia
exposed to the global financial crisis.
                                
 The European Bank for Reconstruction and Development (EBRD)
also faced shareholder calls at the end of its two-day annual
meeting to review its role in helping former communist countries
make the transition to market economies following the credit
crunch that has savaged its 30 countries of operations.
                                
 "There have been some preliminary debates about what is the
sustainable business volume for this bank, how do we cope with
risks and what could this mean for a possible capital increase,"
EBRD President Thomas Mirow told reporters.
The lender's 63 shareholders will decide on whether to
increase the bank's capital, now at 20 billion, at next May's
annual meeting in Zagreb instead of 2011.
                                
 "We will be ready in time so that governors can make their
decision," Mirow said.
                                
 The EBRD has said it would spend a record 7 euro billion in
investments this year in sectors ranging from banking to
infrastructure to help the region cope with the deepening
economic slowdown.
                                
 Major shareholders, such as the European Union, said the
bank had to be mindful of financial risks as it scaled up its
lending activities, cautioning it against further expanding its
operations.
                                
 "On account of the EBRD's strong exposure to the private
sector, the high share of equity in its portfolio and the
considerable country and sector concentration in its activities,
the recent unfortunate developments are certainly affecting the
bank's capacity to bear further risk," it said.
                                
 Japan, another large EBRD shareholder, said the lender had
exposed the former Soviet bloc to "excess risks" by helping to
privatise banking sectors in these countries without ensuring
the development of domestic capital markets. 
                                
 "While market economies actually took root in the region,
they have turned out to be neither sound nor sustainable after
all," Shinsuke Suematsu, Parliamentary Secretary of the Ministry
of Finance told fellow governors at the EBRD's annual meeting.
                                
 "(The) introduction of markets or development of private
companies as market players alone cannot bring about
long-lasting stable economic growth," he added.
                                
 This rare criticism from Japan came as some other major
shareholders continued to question the EBRD's longer-term
mandate.
                                
 Australia, which has previously threatened to withdraw from
the organisation, said it remained "concerned about the lack of
a clear long-term mandate" for the EBRD."
                                
 Some of the EBRD's recipient economies, such as Poland and
Hungary, had planned to graduate from its lending programmes,
spurring an expansion by the lender beyond its original emerging
European remit into countries such as Turkey and Mongolia.
                                
 But the deepening economic crisis has put these graduation
plans on hold and halted the EBRD's eastwards expansion.
                                
 Mirow said EBRD shareholders agreed that the crisis should
not derail the longer term goal of graduation for the countries
of central Europe but said the discussion "on what a
post-graduation phase might mean for those countries" would have
to begin after their economic recovery.
  (Reporting by Sebastian Tong; editing by Patrick Graham)