Vnesheconombank’s Chairman V.A. Dmitriev’s Interview to TV Channel Russia-24 (the Petersburg International Economic Forum)
HOST: We continue telling you about the Petersburg Economic Forum’s events and introducing its participants to you. Dmitry Shchugorev is on direct line with the studio. He is ready to introduce his next interviewee.
CORR: Good morning. We continue our discussions at Russia-24’s booth and right now in these morning hours before the start of the Forum’s regular sessions we are welcoming Vnesheconombank Chairman Vladimir Dmitriev.
Good morning, how are you doing on the Forum’s second day?
Vladimir Dmitriev, Vnesheconombank Chairman: I’m fine.
CORR: Did you enter into any agreements and take any principal decisions on the previous day?
Vladimir DMITRIEV: Yes, as always, because a Forum provides us with a unique opportunity not only to meet and discuss numerous current problems but also agrees upon concrete issues. And the current Forum is not an exception. We are close to signing several agreements and some agreements were signed yesterday. We are to formalize a number of agreements today, so we are happy about the results Vnesheconombank achieved at this Forum.
CORR: It must be said that in general the banking sector’s operation would greatly enhance innovation and modernization process that was launched in Russia. Vnesheconombank is known to have signed a number of agreements with state-run companies, non-government organizations on providing support for innovation projects. But the law does not give a definition of innovations. And how should you select appropriate projects in this uncertain situation and how should you support them?
Vladimir DMITRIEV: Things are easier for us because heads of such line ministries as the Economic Development Ministry, the Ministry of Industry and Trade, the Transport Industry are members of our Bank’s Supervisory Board. So, all innovation-oriented projects submitted to our Bank for expert examination are examined by experts in line ministries and it’s up to them to decide whether these projects are innovation ones or not. And on the basis of their recommendations we deal with purely financial aspects of various deals.
But on the other hand, it’s of course important to have a general idea as to what category a specific project falls into. I am aware that this is a very difficult task, but it was not by accident that Vnesheconombank proposed to join efforts of key companies and institutions involved in innovation activities. We have signed agreements with 9 companies including Rusnanotech and the Fund for the Promotion of Small Enterprises in the Science and Technology Sector, the Russian Venture Company and others. Under the signed agreements these companies make decisions as to what projects should be accepted for financing and to what extent they are in line with innovation line of business. And of course Vnesheconombank’s decisions to open financing are of primary importance.
CORR: So, now companies that submit their business plans to Vnesheconombank should prove that their business plans are innovation-oriented?
Vladimir DMITRIEV: Yes, of course, if we mean innovation projects. This is the task that was set before us by Vnesheconombank’s Supervisory Board Chairman Vladimir Putin when he said that a certain quota in Vnesheconombank’s loan portfolio should be allowed for innovation projects. Even now, 15 percent of our loan portfolio accounts for the innovation sector with its advanced breakthrough technologies.
CORR: We know that or about a year Vnesheconombank has been implementing the program aimed at supporting small and medium-sized enterprises. Am I right?
Vladimir DMITRIEV: The program has been under way for about a year, although it was launched at the last year’s start but actually the money was made available only in August. Here I mean 30 billion rubles we received from the National Wealth Fund. These funds were provided to the Russian Development Bank, our subsidiary bank, on a repayable but interest-free basis. The Russian Development Bank is responsible for implementing the program of supporting small and medium-sized enterprises through extending credits to regional banks, which in their turn provide credit resources to small and medium-sized enterprises. To this end, 40 billion rubles have been already committed, 30 billion rubles of which have already reached their final recipients, that is, small and medium-sized enterprises and we are constantly controlling and monitoring the situation. We are working in 72 constituent entities of the Russian Federation and this year we are going to expand this program to all constituent entities of the Russian Federation. More than 150 regional banks are involved in this project. In our opinion, the program is progressing successfully.
CORR: Vladimir Alexandrovich, its’ quite obvious that after a year and a half it’s too early to talk about any intermediate results and yet I’d like to ask you about intermediate results. Final results will be available years from now.
Vladimir DMITRIEV: If we are talking about small and medium-sized enterprises, the results speak for themselves. This program involves 72 constituent entities of the Russian Federation, the enterprises’ turnover worth 100 billion rubles, 10 billion rubles in taxes, more than 100 thousand workers are employed by small and medium-sized enterprises that enjoy Vnesheconombank’s support through a network of regional banks I mentioned earlier. We hope that by the year-end this program could be brought to 100 billion rubles, which is in line with an obligation we assumed. So, even our intermediate results show that the program is effective in terms of funds availability and a high demand for it.
CORR: I’d like to ask you whether Vnesheconombank is implementing any projects within the BRIC countries: Brazil, Russia, India and China. Have any practical decisions been taken in this respect?
Vladimir DMITRIEV: In fact, we made a proposal to establish a consortium of development banks within the BRIC countries and signed an agreement on cooperation at a BRIC summit in Brazil with the China State Development Bank, Brazilian bank BINDES and the India Eximbank. It’s too early to talk about concrete results; nevertheless, we take advantage of our experience in cooperating with banks of Shanghai Cooperation Organization member countries. It was our initiative to establish an Interbank Consortium. We made the most significant progress on a bilateral basis. We maintain constant and stable relations with the China State Development Bank. We are active in cooperating with the Kazakhstan Development Bank. As far as interbank cooperation is concerned in the BRIC countries, we are going to place great emphasis on developing bilateral ties. I’ve already mentioned our Chinese colleagues. We have long-time and already formalized relations with the Brazil Development Bank. We are sure to use this bank’s business experience in financing development projects in key industrial sectors. It’s not a secret that the Brazilian aviation industry developed successfully due to the Brazil Development Bank’s support. Now it’s a highly competitive industry on a global scale.
CORR: At present, the Long-Term Investors’ Club is quite a promising institution judging by the recent remarks about it. You’ve been elected to this Club’s Organizing Committee lately. What sort of institution is it? How does it help to enhance the innovation process?
Vladimir DMITRIEV: Nobody should be afraid of our participation in various international institutions. It’s not mere pro-forma participation. We view this sort of participation as an important instrument for raising foreign investments for the Russian economy. By the way, it was our initiative to join this elite institution - the Long-Term Investors’ Club. Among the initiators to establish this Club were also such prestigious institutions as KfW in Germany, and perhaps the largest development bank – the European Investment Bank, Caisse des Depots, one of the oldest financial institutions in France, it is 150 years old. They have a similar institution in Italy too. It is these four key national and international financial institutions that initiated the establishment of the Long-Term Investors’ Club. It incorporates representatives of 10 countries. For the most part, its members are development institutions including our Bank that represents Russia’s interests in this Club. This is the third international banking institution where we work together with the China State Development Bank. The Club’s main objective is for its members to join efforts to finance infrastructure projects, above all, projects in the innovation sector and this is undoubtedly an alternative to raising venture capital that to some extent brought about the global economic and financial crisis. So, this Club’s motto is to invest money in the real economy, in infrastructure projects in those sectors that could be of great interest to international investors.
CORR: We are now talking about long-term investments. Is this a promising line of business? And the most important thing is to what extent our Western partners are willing to make such investments?
Vladimir DMITRIEV: This is a very important and pressing issue because there is a lot of free money on the world financial and capital markets but it’s very important for investors to match their wishes with risks they assume and in this sense, the involvement of state banks, banks with state participation in funding projects, serves as a sort of guarantee to Western investors for the success of projects and repayment of funds.
It was for this reason that we decided to participate in implementing an ambitious but quite a realistic project aimed at building a major recreation and tourism cluster in the Northern Caucasus. The Russian President spoke at a plenary session yesterday and in fact backed this project politically. And this political backing is of great importance to Russian and foreign investors. It was not by accident that German Gref, I and foreign investors participated in the panel discussion. Foreign investors confirmed their intention to financially support this project in their letters of comfort that they gave to Akhmed Belalov. And in their conversations on the sidelines they stressed their intention to participate in the project because they are aware that it is backed by the country’s leaders and that such banks with state participation as Sberbank and Vnesheconombank will participate in the project and this is a serious guarantee for them.
CORR: Akhmed Belalov participated in our live broadcast telling about the prospects for this project. This sounds really fascinating. Thank you for answering our questions.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Post of Russia Magazine
Vladimir Dmitriev:
Large-Scale Projects Like the One to Establish a Postal Bank Do Not Require Haste
Interviewed by Konstantin Suvorov
-What role a Postal Bank is going to play for your Bank, the Post of Russia and the country as a whole?
For the Bank for Development the project to establish a Postal Bank will be a top-priority one designed to modernize the Russian banking sector. By our estimates this project is going to be one of the largest projects in the Russian banking sector in the coming years. It should be noted that due to the current regional imbalances, the bulk of the Russian population, millions of Russians, have problem receiving top-quality banking services. Since it costs a lot of money to open and operate bank offices, the number of credit institutions operating on the Russian territory is much lesser than in European and even Latin American and Asian countries. For example, the number of banking service outlets per a million of people is 192 in Russia as compared to 806 in Brazil and the number of sales outlets per one bank in Russia is 22 whereas in Europe, America and Asia this indicator is twice higher. The following statistical data show that our primary objective is to make financial and banking services more affordable for general public. Only 20-25% of Russians have bank time deposits, less than a third use consumer credits and three percent use mortgage credits. Moreover, the Russian banking network is developing in the cities (for the most part in regional and provincial centers) where main financial flows are concentrated whereas in rural and remote areas these flows are diminishing. The Postal Bank joint investment project to be implemented by Vnesheconombank on the basis of OJSC Svyaz-Bank with the participation of the Post of Russia is designed to promptly rectify the current unfavorable situation and effectively remove the bottlenecks. I would single out two main objectives: first, we should remove constraints in making financial and communications services affordable to people in the regions through creating an appropriate infrastructure, second, we should fundamentally upgrade the Post of Russia technologically and expand its range of services. In our opinion, improved infrastructure of financial services would encourage Russians to save money in banks thus making it possible to raise additional money for the banking sector. I’d like to add that in implementing such a big investment project in the banking sector we hope to achieve synergetic effect: a Postal Bank to be established in cooperation with the Post of Russia would provide Russian citizens with new offices offering them access to various financial and communications services and by way of spreading banking infrastructure across the whole Russian territory the state would raise additional money of the Russian people for the Russian economy outside the banking sector. This would expand the project’s participants customer base and sales volume in part through providing new services.
The establishment of a new Postal Bank that would apply advanced financial technologies is sure to further automate banking services through introducing electronic payments, reducing cash flow in favor of non-cash transactions, using electronic card products and electronic payments. As a result, we’ll be able to create favorable conditions for improving the quality of banking services, especially in the regions where the said services are in short supply. In our opinion one of Vnesheconombank’s main tasks in the Postal Bank project is its participation in financing the Post of Russia’s modernization and technical re-equipment of it offices. By preliminary estimates, the said modernization under the Post of Russia’s Program “Development of the Postal Services Sector “ would cost more than 100 billion rubles in investments including on the terms of public private partnership. The Project’s implementation would make it possible to boost postal services efficiency as well as increase the Post of Russia’s earnings and profits.
-At present, The Post of Russia is a state-run enterprise which does not by law have the right to own bank shares. Should this problem be addressed by converting the Post of Russia into a joint stock company or by introducing changes to applicable legislation?
-You are quite right. The implementation of the project to establish a Postal Bank is complicated by a number of legal problems. So, if we are to integrate Svyaz-Bank with the Post of Russia we have to resolve a number of legal issues including those associated with the need to change applicable legislation, which regulates activities of unitary enterprises (the fact is that the Post of Russia is a Federal Unitary Enterprise). We’ll have to introduce changes to a number of Bank of Russia regulatory documents.
It’s quite obvious, that given the magnitude and complexity of our tasks, it’s not possible to change applicable legislation right now. So, a number of intermediate steps and stages are being considered now to move the project forward.
If we are to put in place an appropriate legal and institutional network for a Postal Bank to function, we’ll have to introduce relevant changes to five regulatory acts including such laws as “On State and Municipal Unitary Enterprises”, “On Postal Services”, as well as the government’s regulations “On Terminating the State’s Participation in Credit Institutions’ Charter Capitals” and two Bank of Russia Instructions – “On the Rules of Issuing and Registering Securities by Credit Institutions on the Territory of the Russian Federation” and “On the Procedure for Making Decisions by the Bank of Russia on State Registration of Credit Institutions and on Issuing Licenses for Conducting Banking Transactions.” This work is now being performed by the ministries and departments on the instructions of Deputy Prime Minister Segrei Ivanov. He heads the working group responsible for working out comprehensive measures for establishing a Postal Bank of the Russian Federation on the basis of OJS Svyaz-Bank.
-Postal banks operate in many countries of the world. Let’s for example remember success stories of Italy and Japan. A postal bank there is either a division of the postal service or is not incorporated in it formally. Which option is more preferable for Russia?
-Under Russia’s banking legislation (the Federal Law “On Banks and Banking”) a credit institution shall be a separate legal entity. It can’t be a division of other organization.
At the same time, a strategy and a business model of a Postal Bank is being worked out on the basis of foreign postal banks’ business experience including the successful experience of postal banks in Germany, Italy and Japan.
As a rule, postal banks abroad were established on the basis of postal service departments that offered financial services. But recent standard practice was to implement joint projects by the Post in tandem with banks to establish a separate legal entity responsible for offering banking services. Moreover, international practice shows that there is a tendency to separate banks from the Post. And there are a number of reasons for it including significant differences in terms of managing the Post and banking business, and the fact that a bank as a specialized institution is better at selling financial services.
-You said that the first stage of establishing a Postal Bank would cost 30 billion rubles. How much would it cost to establish a “turnkey” Postal Bank?
-Depending on a chosen strategy, formats and the number of Postal Bank offices, total investment costs (buildings, technologies, equipment) are to be finalized. We’ll be able to answer this question in a more exact way after holding talks with our partner banks, which are to submit detailed financial project models for establishing a Postal Bank until June 15, 2010.
-What’s the percentage of state and private outside investments to be made for establishing a Postal Bank?
-I don’t know so far. This issue is being comprehensively analyzed and will be ultimately settled in the coming months.
-How long will it take to establish a Postal Bank?
-The project to establish a Postal Bank is tentatively scheduled to be launched no later than on January 1, 2011. The date of putting all Postal Bank divisions in place depends on the scale of the project and the terms of financing it. In our opinion a period of up to three years is optimal. Such large-scale projects do not require haste.
- What about the Postal Bank’s potential customers, are they going to be private individuals, small and medium-sized enterprises, big business?
-To my mind, general public, small and medium-sized enterprises, and of course the Post of Russia. Telecommunications sector companies including those serviced by OJSC Svyaz-Bank might become our target customers. This issue is being considered by specialists dealing with the project to establish a Postal Bank.
-What services are going to be popular with Postal Bank customers?
-International practice shows that for the most part post banks operate as ordinary universal banking institutions servicing various categories of customers and offering a wide range of banking products. As a rule, postal banks conduct various kinds of transactional operations (transfers and payments), opening and maintaining of current and savings accounts, extending small-size credits to private individuals and small and medium-sized enterprises. So, potential customers are most likely to be offered basic financial services. At the same time, if we are to more exactly determine a range of Postal Bank potential services, we need to conduct special marketing research. And taking into account the said research results, we’ll be able finalize the Bank’s product line.
-What conclusions did you arrive at after examining applications by claimants for participating in the project to establish a Postal Bank?
-In March of 2010, Vnesheconombank’s Supervisory Board as advised by the interagency working group reviewed five applications for partnership with Vnesheconombank in the project to establish a Postal Bank of the Russian Federation. I must say that we didn’t receive any ideal proposals. All applications had their pluses and minuses. On the short list of candidate partner banks are such leaders of retail banking as JSC Russian Standard Bank, JSC UniCredit Bank, OJSC NOMOS-Bank together with LLC HKF Bank.
Judging by the commercial banks’ proposals the general concept of the Postal Bank project hasn’t changed. By June 15, 2010, the listed banks are to submit their revised project implementation budget plans and determine the format and share of their participation in the project. After examining the said documents Vnesheconombank’s Supervisory Board will make a decision as to which bank to involve in the project on the terms of public private partnership.
-What’s the strongest point of the Postal Bank project?
-I’d like to say once more what I’ve already said at the start of my interview describing the importance of establishing a Postal Bank. The project’s primary goal is to offer affordable customer-friendly financial services to large sections of the population in all Russia’s regions. In order to achieve this objective the bank to be established would have an extensive network of more than 40 thousand offices as well as advanced technologies and expertise to be received from a chosen partner bank. So, we believe that the establishment of a Postal Bank is an important socially meaningful, state-run project.
PROFILE
Dmitriev Vladimir Alexandrovich
- Born August 25, 1953, in Moscow
- In 1975, graduated from the Moscow Finance Institute, specialty – “International Economic Relations”
- Doctor of Economics
- Corresponding member, Russian Academy of Natural Sciences
- 1975-1979 - State Committee of USSR Council of Ministers for Foreign Economic Relations, engineer
- 1979-1986 – Attachй, third secretary, USSR Foreign Ministry Department
- 1986-1987 - Institute of World Economics and International Relations, USSR Academy of Sciences, research worker
- 1987-1992 - USSR Embassy of USSR Ministry for Foreign Affairs, Second, First Secretary
- 1992-1993 - Russian Embassy of Russian Ministry for Foreign Affairs, First Secretary
- 1993-1997 – Deputy Chief Executive Officer, Russian Finance Ministry Department
- 1997-2002 - Bank for Foreign Economic Affairs of the USSR, First Deputy Chairman
- 2002-2004 - Bank for Foreign Trade of the USSR (OJSC), Deputy President - Chairman of the Board
- 2004-2007 - Bank for Foreign Economic Affairs of the USSR, Chairman
- From June 2007 – State Corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)”, Chairman
- For his great contribution to the development of the Russian financial and banking system and many years of dedicated work Mr. Dmitriev was awarded the Order of Honor; the Medal of the Order “For Services to the Fatherland”, second degree; the Association of Russian Banks Badge of Honor “For Services to the Banking Community”; “Excellent Employee of Vnesheconombank” Badge’, his name is recorded in Vnesheconombank’s Book of Honor.