Commentaries to Consolidated Financial Statements Vnesheconombank and its Subsidiaries for 9 months of 2015
Dynamics of main components of assets and liabilities
(Analysis on the basis of comparing balance indicators as of 30.09.2015 and 31.12.2014)
As of the end of the third quarterof 2015, the amount of Vnesheconombank’s assets increased from early 2015 by 428.7 billion rubles (+11.0%) and was 4 314.5 billion rubles.
The portfolio of loans extended to customers and the portfolio of net investments in leasing increased for 9 months of 2015 by 260.4 billion rubles (+9.9%%) and amounted to 2892.4 billion rubles. The total proportion of credits to customers and net investments in leasing in the assets of Vnesheconombank Group as compared to the start of 2015 decreased slightly from 68% to 67%.
Pursuant to Decree of the Russian President dated June 5 2015 № 287 and Federal Law dated June 29, 2015, № 156-FZ “On Introducing Changes to Individual Statutes of the Russian Federation on the Issues of Developing Small and Medium-Sized Enterprises”, Vnesheconombank is to transfer shares JSC SME Bank it owns to pay for additional shares of JSC the Federal Corporation for the Development of Small and Medium-Sized Enterprises. To that end, assets of JSC SME Bank recognized in the consolidated financial statements were classified as of September 30, 2015 as assets disposal group, the amount of assets specified as “Assets of Disposal Groups Designed for Sale” increased by 126.0 billion rubles to 130.3 billion rubles.
The amount of investment financial assets available for sale and held to maturity increased for nine months by 110.4 billion rubles (+28.3%) to 500.6 billion rubles. At the same time, the amount of financial assets transferred under loan agreements and made available as collateral under repo agreements and this is related for the most part withthe maturity of the second part of direct REPO transactions.
The following changes occurred in the resource base.
The amount of liabilities for 9 months of 2015 increased by 479.9 billion rubles (+13.7%) to 3987.1 billion rubles.
The amount of issued debt securities increased for the accounting period by 134.3 billion rubles (+13.7%) to 1 117.4 billion rubles. The mentioned change is related both to reduction in the ruble exchange rate against foreign currencies which brought about increased ruble equivalent under bonds denominated in foreign currencies and to issuing bonds by the Group on the domestic market.
The debt to the Russian Governmentand the Bank of Russia increased by 100.1 billion rubles (+17.9%) to 659.3 billion rubles. The main changes in the structure of the stated debt were caused by increased debt to the Bank of Russia under interest-bearing credits and deposits and the reduction in the amount of raised funds under REPO agreements with the Bank of Russia.
The amount of customers’ funds increased by 94.4 billion rubles (+18.6%) and amounted to 603.2 billion rubles for the first half-year of 2015. The increase was mainly caused by the growth in the amount of balancesin customers’ time deposits with subsidiary institutions incorporated in Vnesheconombank Group.
Due to the fact JSC SME Bank was classified as of September 30, 2015 as a disposal group, the amount of liabilities specified as “Liabilities of Disposal Groups designed for Sale” increased by 65.3 billion rubles.
The rise of the dollar against the ruble during 9 months of 2015 increased the ruble equivalent of subordinated deposits placed with Vnesheconombank through using financial resources of the National Wealth Fund to additionally capitalize Vnesheconombank by 55.8 billion rubles (+18.4%) to 358.8 billion rubles.
In 9 months of 2015, Vnesheconombank’s capital decreased by 51.2 billion rubles (-13.5%) to 327.4 billion rubles. The capital decreased due to the loss in the amount 133.0 billion rubles for nine months of 2015. At the same time, Vnesheconombank’s authorized capital increased by 27.5 billion rubles (+6.6%) in accordance with Federal Law dated 02.05.2015 № 109-FZ “On the Specifics of Transferring Profits in 2015 generated by the Central Bank of the Russian Federation in 2014. Additional capital increased by 12.3 billion rubles (+8.9%) due to subsidies in the form of monetary contributions in the amount of 10 billion rubles purchase shares of JSC EXIARto further increase JSC Roseximbank’s authorized capital and a contribution worth 2.3 billion rubles to purchase additional units of the closed share investment fund of the Russian Direct Investment Fund. The unrealized revaluation of investment financial assets available for sale was a positive value of 29.9 billion rubles. The change in the unrealized revaluation of financial investment assets by 43.8 billion rubles from (-)13.9 billion rubles in 2014 to 29.8 billion rubles as of 30.09.2015 was caused to a large extent by reclassification of the shares and bonds depreciation amounts of (29.9 billion rubles) as expenses.
Dynamics of main profit and loss components
(Analysis on the basis of comparing data for the first 9 months of 2015 and the first nine months of 2014)
For a period of 9 months of 2015, Vnesheconombank Group recognized a loss of 133.0 billion rubles as compared to a loss of 86.3 billion for a period of nine months of 2014.
Net interest income amounted to 49.5 billion rubles, a decrease of 23.5 billion rubles, (-32.2%) from the same period in the previous year (73.0 billion rubles).
Interest incomes increased by 32.0 billion rubles (+15.8%) fromthe nine months of 2014 to 233.9 billion rubles, for the most part as a result of the growth of 37.3 (+29.5%) billion rubles in interest incomes to 163.7 billion rubles under credits to customers caused but the increased portfolio of such creditsas compared to the same period of 2014.
Interest expenses increased by 55.5 billion rubles (+43.1%) to 184.4 billion rubles. The growth was caused for the most part, by the increase in interest expenses on funds raised from banks and the Bank of Russia 23.1 billion rubles (+50.3%) and on issued debt securities - by 22.5 billion rubles (+70.1%)on funds raised from customers and the Russian Government – by 9.6 billion rubles. These changes ware also caused by the growth in the volumes andof the raised funds and the growth of the ruble equivalent of interest expenses on issued debt securities denominated in foreign currencies.
In nine months of 2015, expenses on transactions with investment financial assets available for sale was 24.5 billion rubles. They increased by 19.8 billion rubles The main reason for it was the fact that unrealized negative revaluation of bonds recognized earlier in the Bank’ capitalwasbooked to expenses.
In nine months of 2015, net incomes from the original recognition of financial instruments, changes in contractual terms and conditions and early repayment amounted to 7 billion rubles. The recognition of income worth 14.5 billion rubles in nine months of 2015 was caused for the most part by the recognition of income from rolling over the deposit of the Federal Treasuryfor a period of 10 years at a below market rate to fund through VEB’s subsidiary – JSC SME Bank banks and legal entities involved in supporting small and medium-sized enterprises.
Non-interest expenses (except for expenses on forming other reserves and reserves against depreciation of other assets) decreased by 1.1 billion rubles to 46.3 billion rubles in the accounting periodfrom nine months of 2014.
Expenses on forming reserves against depreciation of assets and other reserves amounted to 139.0 billion rubles in nine months of 2015 against 186.8 billion rubles in the same period of 2014.
In accordance with the terms of issuing eurobonds, on the Russian Finance Ministry’s instructions State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ transferred funds in the total amount of 159 million 365 thousand 437.5.50 US dollars to Citibank N.A., London Office.
These funds were transferred to repay the government foreign debt of the Russian Federation to pay interest on eurobonds issued in 1998 for an amount of 2.5 billion US dollars for a tenure of 30 years.
The payment was made in a single currency.
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Vnesheconombank Chairman Vladimir Dmitriev participates in a ceremony to launch Angstrem-T power plant
Vnesheconombank Chairman took part in a ceremony to launch a trigeneration Angstrem-T power plant in the city of Zelenograd.
The supply of heat, electric power and cooling using its own fully stand-alone power plant would make it possible to fully meet the needs of a new microelectronics fab. Maximum installed power of the power plant is 42 MW, heat generation – up to 30 MW, cooling generation – up to 27 MW. It is the only dual-fuel power plant in Europe with the equipment of the Finnish manufacturer Wartsila, which works on gas and diesel fuel. Gas is the main fuel, however in case of disruptions in energy supply, the power plant promptly goes directly to the mode of diesel fuel consumption. In terms of environmental impact, the power plant complies to the world’s standards.
The unique trigeneration system of the plant allows to provide the fab with heat electricity and cooling.
Vnesheconombank participates in funding a project on creating a production facility to manufacture submicron semiconductor components with topological norms of 90-130 nm. The production facility’s total value is 897 million euros. The Bank for Development participation share is 815 million euros. The project is being implemented by JSC Angstrem-T.
Now construction and installation works of the main manufacturing building are fully completed, they have performed work on preparation and accreditation of clean manufacturing areas. They also supply technological equipment. Startup operations are underway.
One of Vnesheconombank’s main lines of investment activity is to implement investment projects aimed at developing innovations. At present, the amount of funding innovation projects in VEB’s portfolio is more than 600 billion rubles.
JSC Angstrem-T is a production facility to manufacture submicron semiconductor products with topological norms of 90-130 nm with a potential for further modernization.
Manufacturing of domestic submicron semiconductors is designed to develop innovations in electronics industry and create a competitive research- production center of Russia’s new economy.
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Dmitry Medvedev’s opening address:
Today we are holding a regular meeting of Vnesheconombank’s Supervisory Board. As usual, we’ll discuss a lot issues but before we start doing it, I’d like to say a few words about what we are supposed to do.
We need to support the Bank for it to operate and carry out its statutory tasks. To this end, we’ll have to make decisions and adopt a plan to optimize the Bank’s operations through various forms of government and non-government support. This issue is under consideration at various meetings in the government.
These decisions should be made in the most immediate future because Vnesheconombank remains our country’s key financial development institution. The government cannot leave it completely alone to deal with the problems stemming from the financial and economic situation in the country, as well as from various sanctions imposed on our financial sector too.
We held various meetings and discussions and in the near future final proposals should be formulated. I entrust this task to the Finance Ministry. Anton Germanovich (turning to A. Siluanov) take the matter in hand, get proposals prepared and report to the Government of the Russian Federation and VEB’s Supervisory Board having in mind that the central part of the work is to be performed by the Finance Ministry as the country’s main financial authority.
Today, we’ll discuss a whole number of issues that are included in the agenda. Here I’d like to mention my recent business trip to the People’s Republic of China. Vnesheconombank’s Chairman was there too. An agreement was signed on raising a credit worth 10 billion yuans from the China Development Bank. This agreement was signed in the course of our meeting with Premier of the State Council of China Li Keqiang.
The funds will be used to finance Vnesheconombank projects in which Chinese companies participate. We want the number of such companies to increase. We already have a specific project and we’ll hope that other projects will emerge too.
We’ll also look into financial statements and other documents that were submitted for consideration by VEB’s Supervisory Board.
Vladimir Dmitriev’s briefing after a meeting of Vnesheconombank’s Supervisory Board
V.Dmitriev: A regular meeting of Vnesheconombank’s Supervisory Board is over. The keynote of the meeting is that the state is ready and finds it necessary to provide maximum support for Vnesheconombank in terms of the Bank’s liquidity, balance sheet, foreign debt repayment and internal debt repayments in the coming year.
To this end, a specially formed working group is working. And it is to submit proposals until the year-end for implementing measures for providing the state’s support for Vnesheconombank.
It is obvious that these measures would require optimization of Vnesheconombank’s operation and here I mean optimization of administration and other expenses not related to the Bank’s operation as a development institution. And this line of activity is its priority. Vnesheconombank is and remains to be a key financial development institution as the Prime Minister said today in his opening address.
There is no doubt that due to its status VEB has to carry out certain tasks which could at some point of its activity worsen its balance-sheet indicators. Here I mean the so-called special projects. But (the state is aware of these projects giving us certain instructions) the state should share responsibility with the Bank for funding these transactions and if required shore up Vnesheconombank’s balance sheet.
We also discussed issues related to specific investment projects and here I’d like to stress some progress in restructuring debts and the whole scheme for funding Concern Tractornye Zavody. We and our partners did a lot to structure transactions related to optimizing this concern’s operation both in the military and civil sectors.
A decision was made to approve a transaction on raising by Vnesheconombank a credit worth 10 billion yuans from the China Development Bank, with the funds to be used for implementing joint investment projects. A decision was also made on funding administration costs and expenses related to fixed assets for the 1st quarter of the next year. And it is very important for our work with investors that decisions proposed by Vnesheconombank on restructuring a number of Olympic facilities were approved. The main idea of these decisions was to improve investors' financial standing and prolong decisions related to cash sweep until July 2017 not to worsen our borrowers’ financial and economic situation. In general, we made this sort of decisions, so we are ending the year with optimism.
Question: Could you be more specific about support for VEB? In what form does the state intend to provide support for VEB?
V.Dmitriev: The working group is working and concrete proposals for state support measures are to be made to Vnesheconombank’s governance bodies in a week’s time.
Question: What are in your opinion the most urgent measures?
V.Dmitriev: The Finance Ministry and personally member of VEB's Supervisory Board are responsible for addressing this issue. The proposals he voiced are the ones of top-priority on our working group’s agenda.
Question: Is it now a matter of lump sum support for VEB?
V.Dmitriev: It’s a matter of systematic support for VEB related to liquidity, foreign debt repayment and internal debt repayments, implementation of projects for which VEB is responsible, funding of new projects using among other things financial resources worth 300 billion rubles from the National Wealth Fund.
VEB, RDIF and the China-Eurasian Economic Cooperation Fund intend to invest in projects in the Eurasian region
In the course of the 20th regular meeting of Russian and Chinese heads of government in Beijing, Vnesheconombank, the Russian Direct Investment Fund (VEB Group) and the China-Eurasian Economic Cooperation Fund entered into an agreement on cooperation.
On behalf of Vnesheconombank the agreement was signed by RDIF Director General Kirill Dmitriev and on behalf of the Chinese side by the Fund’s Director Yuan Jinong. The signing ceremony was held in the presence of Russian Prime Minister Dmitry Medvedev and Premier of China’s State Council Li Keqiang.
Under the agreement the parties intend to enhance cooperation in co-funding projects that help to strengthen trade and economic ties between the Eurasian region and China.
The parties decided to give high priority to joint implementation of investment projects designed to develop industrial sector, transport infrastructure, power engineering as well as to projects in energy efficiency and sustainable development aimed at improving environmental and social conditions.
The China-Eurasian Economic Cooperation Fund (CEF) was established in 2014, its shareholders are the Bank of China and the Eximbank of China. CEF’s capital amounts to 5 billion US dollars. Direct investments in the Eurasian region are to be made in the amount of up to 150 million US dollars.
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