VZCZCXRO5236
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDBU RUEHDF RUEHIK RUEHLH RUEHLN
RUEHLZ RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHAH #0991/01 2171236
ZNR UUUUU ZZH
P 051236Z AUG 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 3247
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 5503
RUEHBJ/AMEMBASSY BEIJING 3225
RUEHKO/AMEMBASSY TOKYO 3090
RUEHIT/AMCONSUL ISTANBUL 3746
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 3773

UNCLAS SECTION 01 OF 02 ASHGABAT 000991 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: ECON EAID EBRD PGOV EFIN SOCI TX
SUBJECT: TURKMENISTAN: EBRD MOVING AHEAD ON SME GREEN FIELD 
BANK CONCEPT 
 
REF: A. ASHGABAT 111 
     ¶B. ASHGABAT 139 
 
¶1. (SBU)  On August 4, Poloff met with a visiting EBRD Small 
Business Development Mission, Senior Banker Oksana Pak and 
Senior Investment Officer Marie-Paule Claes, and local Head 
of Office Neil McKain to discuss EBRD's proposed start-up 
bank project.  The concept to establish a privately held 
bank, operating on a strictly commercial basis and focused on 
lending to small and medium enterprises (SME), has been 
approved by the EBRD.  The purpose of the Mission was to lay 
the groundwork for a U.S. Treasury-funded feasibility study. 
 
¶2. (SBU) The new bank would be set up under auspices of 
Turkmenistan Union of Entrepreneurs.  The Union has already 
been working on such a concept for a year.  Ownership of the 
bank would be held by a mix of international financial 
institutions (EBRD, International Finance Corporation, FMO 
Dutch Development Bank) and interested members of the Union 
(44 total), some of whom are EBRD clients.  The project for a 
private SME bank lending on commercial terms apparently has 
the support of President Berdimuhamedov, at least the 
concept.  The Union's chairman is actively pursuing the 
effort.  EBRD could put the project together without Union 
involvement, but considers the involvement of local 
entrepreneurs would play an important role in capacity 
building.  The final level of local interest and involvement 
remains to be seen.  Although the Central Bank is nominally 
EBRD's government partner, in practice EBRD goes directly to 
Deputy Chairman for Economy and Finance Tuwakmammet Japarov 
to get government approval for its proposals, including this 
bank. 
 
¶3. (SBU) Key threshold issues for the feasibility study are 
the legal regulatory framework, the ownership structure and 
market demand for such loans.  All three pose challenges. 
The new bank would need to operate on commercial terms, 
without government interference.  Part of any final agreement 
to set up the bank will include a list of "Ten Commandments," 
agreed to by the government, to insure that the bank has 
freedom to charge commercially feasible interest rates and 
make loans according to its own standards.  Currently there 
is no lending carried out by Turkmen banks on commercial 
terms.  For example, a government-funded SME loan program 
offers loans at five percent interest, but because that rate 
is heavily subsidized and provides no profit for the lending 
bank, in practice such loans are not promoted.  EBRD 
estimates that the start-up bank's loan rates would be in the 
25-30 percent range, taking into account the cost of capital 
(which is high because the bank likely would not have a 
substantial deposit base), inflation and the bank's built-in 
margin, which would itself be 11-12 percent due to the high 
cost of processing such loans.  That level of interest rate 
poses two challenges: making sure the government does not 
interfere to cap the rate at an unprofitable level, and 
overcoming marketplace resistance from potential borrowers 
who are accustomed to government-subsidized loan rates, even 
if in reality such loans are not available to them.  The 
Union's chairman told EBRD that he wanted the bank to be open 
by October 28, 2009.  EBRD officials felt a more likely 
target date would be October 2010. 
 
¶4. (SBU) COMMENT:  The concept of lending on a truly 
commercial basis is a novel one for the Turkmen.  While the 
project is a reasonable step in the direction of establishing 
a commercial banking sector in Turkmenistan, implementation 
will require buy-in from Turkmen authorities, including the 
almost 100 percent state-owned banking sector.  While in 
theory, dealing directly with the presidential apparat could 
push the necessary approvals (read "presidential directives") 
through the system, in practice, the opposition of the entire 
banking sector would be a tough burden.  This bank project 
 
ASHGABAT 00000991  002 OF 002 
 
 
will serve as a litmus test of the government's willingness 
to back-up its free market, private sector reform rhetoric 
with the requisite policies.  END COMMENT. 
MILES