Poland - Enterprise Finance Project

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB4817 Project Name Poland Enterprise Finance Project (PEF) Region EUROPE AND CENTRAL ASIA Sector General industry and trade sector (50%); General finance sector (25%); Other industry (25%) Project ID P116213 Borrower(s) PKO Bank Polski SA (PKO BP) Implementing Agency PKO Bank Polski SA (PKO BP) Environment Category [ ] A [ ] B [ ] C [X] FI [] TBD Date PID Prepared June 26, 2009 Estimated Date of Appraisal Authorization November 17, 2009 Estimated Date of Board Approval February 16, 2010 1. Key development issues and rationale for Bank involvement The global financial crisis is creating the risk of a credit crunch for enterprises in Poland, which already faced limited access to finance in comparison with the region. Funding risk in the financial sector is created by uncertainty in international financial markets and weaknesses in some parent banks, which limit the availability of funding sources and especially credit lines from parent banks to Polish subsidiaries or branches. This is exacerbating the access to finance constraint for enterprises in Poland, where domestic credit to enterprises amounts to just 16 percent of GDP, or about half of what is typical in the region. The proposed credit line project could mitigate the access to finance constraint by providing medium term loans to enterprises so they can continue to operate through the downturn. The project would: (i) help sustain finance to enterprises, (ii) help further develop medium term lending for working capital and investment purposes, and (iii) help sustain enterprise performance. The project would complement the efforts by the National Bank of Poland and the Government to mitigate the effects of the crisis. There are several reasons for targeting the small and medium enterprise (SME) segment: (i) SMEs in general have greater difficulty in accessing finance due to higher credit risk and relatively higher intermediation costs for banks as they must perform credit appraisal for a smaller loan amount, and the focus on SMEs is therefore likely to increase additionality; (ii) SMEs are less likely than large enterprises to be foreign owned or affiliated, a characteristic associated with better access to finance; (iii) credit to SMEs has contracted more in response to the crisis than loans to large enterprises, and (iv) by distributing the loan to many borrowers the risks in the project gets more dispersed. 2. Proposed objective(s) Page 2 The Project