At its meeting on July 16. 2015,VEB’s Supervisory Board discussed terms of funding a project on the comprehensive development of the Bystrinsk iron-oxide-copper-gold ore depositon the Zabaikalye Territory providing for developing open-pits, constructing an ore mining and processing integrated plant and required transport and engineering facilities. This project is of national significance and it is included in the strategiesfor socio-economic development of the Far East, the Baikal and the Siberia regions and for development of non-ferrous metals industry. Due to the fact thatconsumers of products will be the largest Chinese industrial and trade companies, VEB explored the issue of tied lending with Chinese financing institutions. The project’s total value is 1.378 billion dollars. VEB is to fund the project in yuans in the amount equivalent to 874 million dollars (63% of the project’s value).
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Commentaries to Vnesheconombank’s Consolidated Financial Statements of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ and its Subsidiaries for the First Quarter of 2015
Dynamics of main components of assets and liabilities
(analysis on the basis of comparing balance indicators as of 31.03.2015 and 31.12.2014)
In thethe first quarter of 2015, Vnesheconombank’s assets increased by 28.6 (+0.7%) to 3 914.5 billion rubles.
The growth in assets was for the most part brought about by the increased portfolio of loans extended to customers, it increased for the first quarter of 2015 by 80.5 billion rubles (+3.1%) to 2 712.5 rubles. The proportion of credits to customers in the assets of Vnesheconombank Group for the first quarter increased from 68% to 69%.
The amount of monetary funds and their equivalents on the contrary deceased significantly from the start of 2015 against the backdrop of general reduction in liquidity in the banking system. In the accounting period, their amount decreased by 71.2 billion rubles (-21.8%) and was 254.8 billion rubles.The decrease affected equally both funds in corresponding accounts with credit institutions (owing to non-resident banks which was partly compensated for by increased funds with Russian banks) as well as short term interest-bearing loans (up to 90 days) and deposits with credit institutions.
In the first quarter of 2015, an increase in financial investment assets(by 24.0 billion rubles + 6.2%) and practically symmetric decrease in investment financial assets transferred underloan agreements and made available as collateral under REPO agreements (by 24.4 billion rubles or -23.5%) were associated above all with the repurchase of bonds under direct REPO transactions
The following changes occurred in the resource basis.
The amount of liabilities for the first quarter of 2015 increased by 17.6 billion rubles (+0.5%) to 3 524.9 billion rubles.
In the accounting period the amount of issued debt securities increased by 17.7 billion rubles (+1.8%) to 1 000.9 billion rubles for the most part by way issuing bonds on the domestic market by Vnesheconombank Group.
An increase in the dollar exchange rate against the ruble for the first quarter of 2015 resulted in the increased ruble equivalent of subordinated deposits placed with Vnesheconombank through using financial resources of the National Wealth Fundin order to additionally capitalize Vnesheconombank with 16.1 billion rubles (+5.3%) to 319.1 billion rubles.
The debt to the Russian Government and the Bank of Russia increased by 10.5 billion rubles (+1.9%) to 569.8 billion billion rubles largely because of the increased amount of funds raised by Vnesheconombank from the Bank of Russia which was partly compensated for by a decrease in the debt under repo agreements with the Bank of Russia and by raising deposits of non-budgetary funds by subsidiary banks.
In the accounting period, the amount of funds in banks decreased by 34.8 billion rubles (-3.4%) to 975.7 billion rubles. This was caused by a decrease in funds in corresponding loro accounts as well as by deceased funds placed with Vnesheconombank as collateral against letters of credit as a result of executing the letters of credit.
In the first quarter of 2015, capital increased by 11,0 billion rubles (+2.9%) and as of 31.03.2015 it amounted to 389.6 billion rubles. The positive dynamics of capital was due to the unrealized revaluation of investment financial assets available for sale. As opposed to 2014, when this indicator was negative (-13.9 billion rubles),by the end of the first quarter of 2015 unrealized revaluation of such assets reached a positive value of 21.5 billion rubles. The said change in the unrealized revaluation (by 35.5 billion rubles) was caused not only by increased market value of assets but also to a significant extent by a reclassification of unrealized negative revaluation of securities in the amount of 18.1 billion rublesfrom capital with a simultaneous recognition of a loss from depreciation of the said securities inthe profit and loss statement. Taking into account this reclassification, Vnesheconombank recognized a loss of 9.5 billion rubles in the first quarter of 2015. In addition to recognizing a loss, a reduction of 14.8 billion rubles in the foreign currency conversion fund caused by the fall in the Ukrainian Hryvniaexchange rate against the Russian ruble by 30% had a negative influence on capital.
Dynamics of main profit components
(analysis on the basis of comparing data for the first quarter of 2015 and the first quarter of 2014)
In the first quarter of 2015, Vnesheconombank Group recognized a loss of 9.5 billion rubles, in the first quarter of 2014, the loss amounted to 11.8 billion rubles.
Net interest income amounted to 19.0 billion rubles a decrease of 4.1 billion rubles, (-17.8%) from the same period in the previous year (23.1 billion rubles).
Interest incomes increased by 16.1 billion rubles (+25.2%) as compared to the first quarter of 2014 and amounted to 79.7 billion rubles for the most part as a result of the growth of 17.1 (+43.8%) billion rubles in interest incomes to 56.1 billion rubles under credits to customers which was due to the increased volume of such credits.
Interest expenses increased by 20.2 billion rubles (+49.8%) to 60.7 billion rubles. The growthwas caused for the most part by increasedinterest expenses on funds raised from banks and the Bank of Russia (by 8.9 billion rubles) and issued debt securities (7.0 billion rubles) which was caused by the increase in average amounts and value of funds raised.
In the first quarter of 2015, expenses on transactions with investment financial assets available for sale amounted to 18.6 billion rubles an increase of 15.3 billion rubles from the first quarter of 2014. A significant amount of expenses in the accounting period was caused by the recognition of a loss from depreciation of securities as a result of reclassification of a part of unrealized negative revaluation of securities from capital.
In the first quarter of 2015 as in the first quarter of 2014, there was a negative balance of incomes/expenses with regard to transactions in foreign currency in the amount of 0.5 billion rubles and 5.9 billion rubles. A significant negative foreign currency revaluation in the first quarter of 2014 in the amount of 6.2 billion rubles was associated for the main part with the dynamics of exchange rates of foreign currencies in which investment financial assets are denominated.
In the first quarter of 2015, net incomes from initial recognition of financial instruments, changes in contractual terms and early repayment amounted to 11.9 billion rubles. In the same period of 2014, a net loss of 0.2 billion rubles was recognized in this item. A significant part of income in the accounting period is associated largely with the recognition of incomefrom the extension of the deposit of the Federal Treasury for a ten-year period at a below-market rate for funding banks and legal entities through subsidiary SME Bankfor them to provide support for small and medium-sized enterprises.
Non-interest expenses (minus expenses on forming other reserves and reserves against depreciation of other assets) increased by 3.3 billion rubles to 16.1 billion rubles from the first quarter of 2014.
In the first quarter of 2015, expenses on forming reserves against depreciation of assets and other reserves amounted to 10.0 billion rubles against 16.3 billion rubles in same period of 2014.