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Trade advance facilities broaden access to funding

Bulgarian Development Bank gets boost in goal of supporting and promoting SMEs

The challenge

The Bulgarian Development Bank supports the financing needs of small and medium-sized enterprises in line with their government strategy for the segment.

The Republic of Bulgaria owed small and medium-sized enterprises (SMEs) BGN500 million (EUR250 million) for the supply of goods and services to various government agencies, which was rescheduled to be reimbursed in July 2011. The government wanted to help boost the SME sector by paying its debts immediately (by Sept 2010) and injecting liquidity into the broader economy.

The Council of Ministers mandated the Bulgarian Development Bank (BDB) through a special Decree in April 2010 to purchase a receivables portfolio. The operation was closed at an amount of BGN276 million, of which BGN120 million were allocated from the state budget. The remaining portion was funded by BDB's own resources.

BDB's funding base traditionally includes funding from supranationals, which historically have been the mainstay of development bank's financing arrangements. However, Citi proactively contacted the BDB and offered to contribute to the receivables financing. Citi disbursed a one-year €12 million trade advance facility to the BDB, which enabled it to finance the receivables of its clients that were due from various government organizations, helping to stimulate the Bulgarian economy.

The success of the trade advance facility deepened the relationship between the BDB and Citi. Following repayment of the facility, Citi wanted to further support the BDB and its efforts on behalf of the government to strengthen SMEs.

The solution

Citi and the BDB worked together to devise a solution that would enable the BDB to support domestic trade flows for its SME clients, many of which are subcontractors for multinational companies. The trade financing arrangement covers cross-border import of goods; domestic purchase of goods; cross border and domestic provision of services, pre-shipment finance and other trade-related transactions involving the BDB, such as assignment of proceeds.

In October 2011, Citi disbursed a one-year dedicated trade advance of €7.9 million to BDB in two tranches to finance the receivables. The trade advance targets specific contractual trade obligations of BDB clients for local municipalities.

The result

Citi's commitment to building its relationship with the BDB has made it one of the most important commercial banks within the BDB's funding portfolio. Citi's willingness to provide cost-effective finance has enabled the BDB to broaden its access to funding and diversify its reliance on supranational financial institutions – a process that could eventually lead it to finance itself in the international markets. By working with the BDB, Citi is helping the government achieve its goal of supporting and promoting the SME sector in the Bulgarian economy.