BERD is testing in Ukraine a debt reduction mechanism for assets destroyed by war

EBRD launches in Ukraine, together with PrivatBank and Raiffeisen Bank Ukraine, a pilot mechanism through which debtors whose assets financed by loans have been directly affected by the war can receive partial debt relief.

In short

EBRD is testing the Enterprise Security Enhancement (ESE) mechanism with PrivatBank and Raiffeisen Bank Ukraine. The mechanism allows partner banks to grant partial debt relief to debtors affected by direct war-related damages. ESE applies only to sub-loans for capital investments that finance fixed assets. The pilot has allocations of 6.8 million euros for PrivatBank and 1.2 million euros for Raiffeisen Bank Ukraine. The mechanism is funded by EBRD grants, and its expansion could later be supported by external donors, including the European Commission through the Ukraine Investment Framework.

The European Bank for Reconstruction and Development is launching a new support mechanism for companies and households in Ukraine affected by Russia's war against the country.

The mechanism, called Enterprise Security Enhancement (ESE), is being tested together with PrivatBank and Raiffeisen Bank Ukraine within the EBRD's portfolio risk-sharing facilities.

According to EBRD, the mechanism will allow the two Ukrainian banks to grant partial debt relief to debtors whose assets financed by sub-loans covered by EBRD facilities suffer direct and verified war-related damages.

EBRD states that the instrument is the first of its kind that it is piloting and is designed to cover a critical gap in business financing under war conditions.

Under the mechanism, if a fixed asset financed by an eligible loan is directly affected by the war, the partner bank can grant the debtor a partial debt relief. EBRD, with donor support, compensates the bank for the resulting credit loss.

The goal is for Ukrainian firms to be able to continue operating and reinvesting, instead of bearing the full remaining debt for destroyed assets.

EBRD shows that, under normal lending conditions, Ukrainian companies remain obligated to fully repay loans even when the assets financed by those loans are destroyed due to the war.

In the context of limited availability of insurance against war risk, this situation has discouraged the capital investments that the Ukrainian economy needs to sustain activity, preserve jobs, and rebuild.

The ESE mechanism aims to maintain the incentive for companies and households to invest in long-term capital projects, despite the uncertainty generated by the war.

EBRD specifies that the instrument operates alongside existing market-supported or donor-supported insurance mechanisms but does not duplicate them. Anti-duplication rules must ensure that ESE is used only when there is no other form of recovery.

The mechanism is available exclusively for investment sub-loans that finance fixed assets subsequently affected by direct war-related damages. It does not cover working capital.

Each ESE request will be analyzed and verified by EBRD's partner banks, in cooperation with EBRD or with consultants designated by it, before any compensatory payments are made.

Minimum damage thresholds and aggregate ceilings per project will apply to keep the mechanism targeted and fiscally controlled.

The pilot is launched within the EBRD's portfolio risk-sharing facilities with PrivatBank and Raiffeisen Bank Ukraine, approved in 2025. The allocations are limited: 6.8 million euros for PrivatBank and 1.2 million euros for Raiffeisen Bank Ukraine.

The pilot allocations are funded from EBRD grant resources. As the mechanism is extended beyond the pilot phase to other partner financial institutions in Ukraine and other risk-sharing facilities, future allocations are expected to be funded by external donors, including the European Commission through the Ukraine Investment Framework.

PrivatBank, state-owned, is the largest systemic bank in Ukraine. The bank focuses on retail and clients in the micro-enterprise and SME categories, serving over 18 million individuals and over 910,000 business clients through a network of over 1,100 branches. Over 70% of Ukrainians use its services.

Raiffeisen Bank Ukraine is the largest private bank in Ukraine and the fourth largest nationally. It has 306 branches, serves 2.52 million active clients, and offers banking products for corporate clients, SMEs, and retail. EBRD has had a relationship with this bank since 1998.

EBRD is the largest institutional investor in Ukraine and has significantly increased its investments since the beginning of Russia's large-scale invasion in 2022.

Since the beginning of the war, the bank has mobilized 9.7 billion euros to support the real economy in Ukraine, focusing on energy security, private sector resilience, and critical infrastructure.

The ESE mechanism is part of the effort to maintain the capacity of Ukrainian companies to invest in fixed assets and continue operations in an environment where the risk of war is not sufficiently covered by the insurance market.