171159 9/23/2008 14:01 08BUCHAREST752 Embassy Bucharest UNCLASSIFIED 08STATE95763 VZCZCXYZ0004 PP RUEHWEB DE RUEHBM #0752 2671401 ZNR UUUUU ZZH P 231401Z SEP 08 FM AMEMBASSY BUCHAREST TO SECSTATE WASHDC PRIORITY 8732 UNCLAS BUCHAREST 000752
STATE FOR EUR/CE: ASCHEIBE AND EUR/ACE STATE PLEASE PASS TO OPIC: WJONES
E.O. 12958: N/A TAGS: EINV, EAID, ECON, RO SUBJECT: APPLICATION FOR OPIC FINANCE: CAPA FINANCE ROMANIA
REF: STATE 95763
1. In response to reftel request for comments on a proposed USD 25 million OPIC loan to CAPA Finance, post has no derogatory information with regard to the intended loan recipient. Post is similarly unaware of any information linking the shareholders of CAPA Finance to terrorism or corruption.
2. However, post wishes to note for OPIC's information that the USAID Mission in Romania officially closed this summer. In connection with USAID's departure, the Romanian American Enterprise Fund (RAEF) is scheduled shortly to end its active investment phase in Romania. The assets from the liquidation of its investments will be used to establish a new legacy institution, known as the Romanian-American Foundation (RAF), which will support private sector development in Romania with a focus on education, primarily through providing guarantees for student loans. Post cannot advise OPIC on the specific implications, if any, of this major change in RAEF's status and activities for RAEF sponsorship of CAPA Finance to receive OPIC financing as described in reftel. However, post strongly advises that OPIC consult with USAID in Washington with regard to RAEF before proceeding.
3. Concerning CAPA Finance, the institution occupies a local niche market which is under increasing pressure from the commercial banking system. Foreign-owned commercial banks, which control 88% of the overall market, have until recently been less interested in the smaller market for lending to Romanian small- and medium-sized enterprises (SMEs). Now, hungry for new market share and increasingly able to access new sources of EU and EBRD capital, these banks are beginning to expand slowly into SME lending. The sector is under additional pressure due to the implementation of new "EU passport" rules, which have made it easier for banks from outside of Romania to offer services on the local market. This development presents a medium- to long-term risk to the survival of smaller independent players such as CAPA Finance, unless they are able to link up with a major bank or to differentiate themselves from their larger competitors by carving out a specific market or sector niche.
4. The EBRD has estimated Romania's micro-finance market to be worth more than euro 500 million, with commercial banks currently meeting about 55% of demand. Only 15% of the market has so far benefited from financing through non-banking financial institutions, and CAPA Finance's activity is an important component in expanding this segment. With only 36.6% of GDP in financial intermediation in 2007, significant credit growth potential exists in Romania, especially lending in rural areas.