Kommersant: VEB will live to see full recovery. Svyaz-Bank and Globex won’t be sold in a period of five years

4 september 2009 года
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Kommersant
№ 163 (4218) of 04.09.2009
Elena Kiseleva

 

In the coming five years Vnesheconombank (VEB) intends to retain control over the two banks under reorganization – Svyaz-Bank and Globex. At the same time, VEB believes that it doesn’t make sense to incorporate them into a single institution. Yesterday, VEB Chairman Vladimir Dmitriev told Kommersant that the Bank made such a proposal on Wednesday at a meeting of its Supervisory Board chaired by Vladimir Putin. The ultimate future of VEB’s subsidiary banks will be determined in a month when the state bank submits a concept of their development agreed upon with relevant authorities to the government. Vladimir Dmitriev told Kommersant about VEB’s plans to retain control over Globex and Svyaz-Bank. “We regard these banks as members of VEB’s Group and in the coming five years we think it is necessary to retain them in our Group. They should develop on their own but VEB must exercise stringent control over them,” he said to Kommersant adding that VEB plans to establish a subdivision within itself that will be responsible for coordinating its subsidiary banks activities. According to Mr. Dmitriev, he made these proposals at a meeting of VEB’s Supervisory Board on Wednesday evening. “I hope that the idea would be welcomed, we were instructed to agree upon a concept of VEB’s subsidiary banks development with relevant authorities within a month”, said Vladimir Dmitriev.

VEB purchased Svyaz-Bank and Globex at the last year’s end within the measures for stabilizing the banking sector. The two transactions were financed by the Central Bank by way of placing deposits with VEB for an amount of 2.5 billion dollars to reorganize Svyaz-Bank and 2 billion dollars to reorganize Globex. At the beginning of this year, VEB was instructed to formulate a concept of its subsidiary banks development by June. The Bank hired Ernst and Young Company to develop the concept. There were several options for VEB’s subsidiary banks development in the report prepared in summer including a merger of Svyz-Bank with Globex as well as their sale to an outside investor. Yesterday, Vladimir Dmitriev told Kommersant that “an issue of merging these banks is not on the agenda any longer”. “This option was under discussion but we decided that it offered no prospects”, said Mr. Dmitriev.

The second option – the potential sale of the two banks being reorganized by VEB to an outside investor – was made public in summer by VEB Deputy Chairman Anatoly Tikhonov. He said then that a major foreign investment bank showed interest in Svyaz-Bank (see Kommersant of June 22). On Wednesday, news agencies quoted Mr. Dmitriev as saying that such an option might be authorized by the Bank’s Supervisory Board at its meeting in the near future, but yesterday he told Kommersant that the sale of Globex and Svyaz-Bank might take place in the distant future only after these banks got back on their feet. “Sooner or later we’ll have to repay the Central Bank’s deposits worth 212 billion rubles for the servicing of which we have to pay 13 billion rubles annually”, he explained to Kommersant.

Analyst Dmitry Dmitriev from VTB Kapital believes that VEB’s refusal to sell its subsidiary banks is quite a logical step under the current market conditions. “VEB wouldn’t be able to sell the banks at an acceptable price: there is no doubt that the banks have problem assets and now even trouble-free banks are traded at a big discount. It would be more expedient to invest money to strengthen these banks and prepare for selling them as they are reorganized and as market conditions improve, believes the analyst. Leonid Slipchenko, an analyst from Uralsib, goes along with him. “In three-five years from now these assets would look more attractive and would be more expensive. “It would be problematic to reorganize these problem banks for a shorter period of time”, he says.

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A Lot of Money for Small Ones

31 august 2009 года
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Expert №33 (670)
August 31, 2009
Marina Talskaya

 

Vnesheconombank plans a fourfold increase in lending to small and medium-sized enterprises. About 60 banks are to participate in the program that provides for committing 40 billion rubles.

Mikhail Kopeikin
The photo is provided by VEB

The first stage of the new state program of supporting small and medium-sized enterprises (SMEs) ended in the second half of July. Vnesheconombank acts as the financial coordinator of the program. From June 19 to July 17, Vnesheconombank was engaged in receiving applications from banks seeking to participate in lending to small companies under this program. Vnesheconombank Deputy Chairman Mikhail Kopeikin is going to talk about a new mechanism for state support and its prospects.

New mechanism

- Mikhail Yuryevich, why did you have to launch a new program of providing support for lending to small and medium-sized enterprises? Did the old one prove to be bad?

- The old program which our subsidiary institution, the Russian Development Bank, has been implementing since 2004, was not a bad one at all. In my opinion, it yielded tangible results. We provided support for more than four thousand small enterprises in the total amount of 26 billion rubles. So, I think highly of this program’s implementation. And I also can tell you that this program is still being implemented now and about two thousand small enterprises are receiving and are going to receive support worth about 10 billion rubles. Formally, under the old program but based on the new requirements we are providing support for small and medium-sized enterprises of Kabardino-Balkaria, the Astrakhan region. In the most immediate future small enterprises of Adygeya, Karachaevo-Cherkessia, the Kaliningrad and Magadan regions will receive money. I’d like to stress that all these regions are deficit ones and they don’t have banks capable of meeting the new program’s requirements. That is why under the framework of the old program we are putting in place a transition period. It will be effective until 2011 as agreements with banks were concluded for a period of three years.

- Then why did you have to change the program? What’s the principal difference of the new program from the old one?

- One of the reasons is the increased state support for small and medium-sized enterprises. 30 billion rubles were earmarked to this end. If you add to this figure 10 billion rubles that VEB commits from its charter capital to the Russian Development Bank’s charter capital and 10 billion rubles from the old program, the amount of real support might be brought to 50 billion rubles.

In order to manage this substantial sum of money a principally new mechanism is expected to be used. The main idea behind it is that credits to small and medium-sized enterprises are to be refinanced on condition of transfer of claims under them. At first, the Russian Development Bank will refinance regional banks against factually extended credits. And then, having gathered a pool of credits under the program, the Russian Development Bank will apply to the Central Bank for refinancing. To this end, a principal agreement has been reached with the Central Bank. Thus, we’ll have a closed cycle of providing state support. How can we benefit from it? At least we’ll be able to double the amount of funds raised under the program of financing small and medium-sized enterprises. And by our estimate, we’ll be able to triple the amount of funds earmarked for supporting infrastructure of small and medium-sized enterprises. I’d like to remind you that out of 30 billion rubles 25 billion rubles would be used to support small and medium-sized enterprises through regional banks and five billion – for supporting infrastructure and here I mean leasing and factoring companies, microfinancing institutions.

- You are talking about doubling and tripling. So you mean refinancing to a full extent?

- In the case that a bank confirms that credits it will extend after refinancing will be used to support small and medium-sized enterprises they will be refinanced to a full extent by the Russian Development Bank. At the second stage of refinancing at the Central Bank there might be a discount I believe that it wouldn’t be large.

-What’s the expected effect of such multiplication of funds? Will this allow to meet demand for credit resources by most of small and medium-sized enterprises?

-This is hardly the case. But under the new program we’ll try to involve as many regions and small and medium-sized enterprises as possible. We have already established limits for constituent entities of the Russian Federation as well as regional quotas for partner banks. Actually, this would make it possible for a considerable member of banks to participate in supporting small and medium-sized enterprises. Quotas were set depending on the economic status of a region and the SME level of development in it. The maximum amount of quota is 800 million rubles, the minimum one is 100 million rubles. All regions with due regard to their capabilities should be given a chance to participate in this program. At the same time, we won’t be able to meet all requirements for credit resources. For example, a limit for Moscow is 800 million rubles and we received applications for financing in the amount of 3.5 billion rubles. The demand was more than four times the supply in Moscow, 1.5 times in Saint-Petersburg, three times in Tatarstan. By the way, there are also regions where even minimum limits were not in demand.

-What are these self-sufficient regions? Maybe it makes sense to hand over their limits to those who need them?

-We haven’t received applications from banks of eight regions whose total limit is 800 million rubles. They are the Altai Republic, Ingushetia, Kalmykia, Tyva, the Chechen Republic, the Yamalo-Nenets and Nenets Autonomous Areas. We together with the Ministry of the Economic Development are planning to work with these regions’ leaders and try to understand why they are not interested in the program. We’ll try to find out how many SMEs are there and if there are any partner banks there. Maybe, they don’t have regional banks that meet the program’s requirements. So, we are going to analyze the reasons for their reluctance to participate in the program. And then, if we fail to find appropriate options we’ll submit this issue for consideration by our Supervisory Board and might redistribute the funds.

Requirements for participants

-You’ve mentioned new requirements for partner banks. Can you specify them? How do they differ from the old ones? How many banks meet these requirements?

-We have received applications from 161 banks located in 75 regions. The total amount of applications was 43 billion rubles. We selected 60 banks from about 70 regions. In our opinion, we achieved a pretty good result for the first stage. Under the new program we decided to somewhat change the terms to favor banks. We decided to relax some of our requirements for them taking into account the complicated situation in the economy as a whole and in the banking system in particular. There are two principal relaxations. First, we relaxed requirements for the amount of a bank’s assets. Originally, it was 2 billion rubles, then we decided to allow banks to participate in the program if the amount of their risk-weighted assets was 1 billion 750 million rubles.

-The second important relaxation is related to bad loans percentage. The former requirement was eight percent with regard to credits extended to SMEs. The current requirement is 12 percent and it does not apply to credits extended to SMEs but to a loan portfolio as a whole. The reason for it was on the one hand that some banks do not set off SME debts in a separate line. On the other hand, the amount of total debts gives a clearer idea of a bank’s financial position. At the same time, we know that it’s not always correct to compare one bank with another. Some quite stable banks’ bad loans percentage with regard to SMEs can amount to 14 percent. But we decided to allow them to participate in the program. There are also some other relaxations of technical nature.

-By the Central Bank’s estimate, the general bad loans percentage in the banking system as a whole is 4.2 percent. When liberalizing your requirements for partner banks you assumed that the situation would worsen?

-I believe that banks servicing SMEs are more stable because their portfolio is diversified. The fact is that bad loans percentage in the banking system as a whole is on the rise and we believe that it is going to increase. In our opinion the said relaxation is not excessive and quite acceptable. It is designed to allow some banks to participate in the program. By the way, one of the program’s objectives is to feed the banking sector.

-Well, does the program after all give high priority to enterprises or banks?

-Of course to enterprises. I would like to stress another top priority: we are, above all, going to extend credits to companies operating in the real economy and here I mean transport, telecommunications, industrial and innovation sectors and etc. Under the previous program it was these sectors that accounted for 60 percent of support. Nevertheless, originally trade and service sector were in the lead. But we made consistent efforts to focus on lending to the real economy. While implementing the new program we are going to move in the same direction. We are going to formulate proposals for creating favorable conditions for financing the innovation sector.

A sign of comfortable lending is a simple procedure for obtaining funds. You have liberalized a number of key requirements for partner banks. And what about end borrowers? They say that bankers require credit applicants to present a business plan that can be compared with an application to the Nobel Committee in terms of size and requirements.

-I can’t tell you anything about the Nobel Committee but in fact borrowers are required to present a substantial package of documents. At a recent meeting of our Supervisory Board we made a decision to simplify the procedure for preparing and submitting documents to the Russian Development Bank by partner banks.

-Will this make things easier for end borrowers?

-Frankly speaking, I don’t think so. In any case in the near future. Regional banks are unlikely to make any serious changes in their products. But in the future we intend to recommend regional banks to minimize the list of required documents. Small enterprises where there are no full-fledged legal and economic subdivisions find it the hardest to prepare such business plans.

-Which proportion of SMEs would be refused credits because they fail to meet banks’ administrative requirements?

-I think more than a half.

-Perhaps, the most evident indicator of credit availability is a cost of borrowing. What cost of borrowing might we expect?

-Actually, it’s a key issue. We think that under the new program an interest rate for the end borrower would be 13.5 percent. For comparison, under the old program an average interest rate is 17.8 percent per annum.

I’d like to tell you how we get our new interest rate. We, that is, VEB receive 30 billion rubles on deposit at an interest rate of 8.5 percent. Then without setting any margin, we transfer these funds to the Russian Development Bank. We estimated the Russian Development Bank’s margin, its expense on monitoring the program, at two percent. Thus, we get a rate of 10.5 percent at which the Russian Development Bank would lend partner banks. And we recommend partner banks not to increase a margin by more than three percent. Ultimately, an interest rate for end borrowers might amount to 13.5 percent.

Furthermore, the new program provides for new mechanisms for making credits less expensive for borrowers. First, they will be able to have their interest rate subsidized – two thirds or even three thirds of it – through regional business support funds. Second, they can obtain guarantees in regional guarantee funds. 15 billion rubles were allocated to establish these funds. These institutions’ functions are being determined now and requirements for them are being formulated. As a result, I hope we’ll be able to reduce partner banks’ risks and make credit resources a lot less expensive for borrowers.

Control

-The new program hasn’t been launched to a full extent but we already know about some problems associated with it. They say that not all partner banks are happy about restrictions on the margin.

-The more so, I can say that a significant number of banks are very unhappy that their margin is limited. In this respect, our position is as follows: if they want to lend at higher rates of 20-25 percent, let them raise money on their own on the market. If they want to deal with state money, let them operate in accordance with the program. They can make money here too but within sound limits. I believe that we should impose restrictions on interest rates growth.

And we’ll exercise strict control over the implementation of our recommendations. And if we receive signals that an interest rate is too high this will influence the amount of funds to be extended to a bank in the future. Although we don’t rule out the possibility that banks can set commissions and increase interest for service.

-And if you find out that a bank ignored your recommendations, do you have an instrument for exerting pressure on the bank? Will you be able to force the bank to return the money it received?

-No, we won’t.

-So, one can gain at the program’s expense but only once.

-Yes, theoretically. But you should not forget about consequences. Those who wish to work in line with the program should act correctly.  By the way, we select reliable banks for participating in the program. So, “take and run” behavior is almost ruled out.

Efficiency

-The amount of state funds earmarked for the new program is significant but by your estimate it is not sufficient to meet the current demand for credit resources. Are you going to raise funds to finance SMEs from other sources?

-Business is business, funds are always in short supply. The size of the new program is substantial; the financing amount is to be increased from 10 to 40 billion rubles. Moreover, our subsidiary banks are also active in financing SMEs. For example, the National Trade Bank earmarked 9.5 billion rubles to this end, Svyaz-Bank – more than three billion, Globex-Bank – about 0.9 billion rubles. Thus, we get a sum of more than 100 billion rubles inclusive of funds from our subsidiary banks and cumulative effect of refinancing.

Moreover, we are making efforts to involve foreign partners in lending to SMEs. In particular, Vnesheconombank and the German Development Bank KfW signed an agreement worth 200 million euros. 14 Russian banks participate in the program and agreements were signed with half of them. We reached a preliminary agreement that the amount of this program might be increased to 400-500 million euros. The scheme is as follows: KfW is to extend foreign currency credits to Russian banks against Vnesheconombank’s guarantees. Unfortunately, we have to assume currency risks in this situation. But we believe it’s the right thing to do. As a result, money becomes rather expensive: about 10 percent per annum for a bank and 13 percent for the end borrower. But this product is in demand. If the economic situation in the country improves, we’ll be able to reduce the interest rate. We are planning to implement a similar program with the EBRD which is ready to open a credit line worth one billion euros on similar terms.

-So far, large-scale state lending remains to be the most important source of supporting SMEs within the framework of the new program. What criteria are you going to use to assess the efficiency of the program? For example, will the program’s implementation increase SME contribution to GDP substantially?

-We intend to assess the program’s efficiency on an annual basis. But it would be difficult to calculate the program’s efficiency numerically. By various estimates, the proportion of state support amounts from one to two percent of SME needs in financing. So, we can talk about the program’s efficiency only in terms of these parameters. The program would help to increase SME contribution to GDP but I don’t think that we’ll get a multiplier effect. In Russia, SME products account for 17-20 percent of GDP and in Western European countries they account for 60-75 percent. Factually, we are lagging three-four times behind.  So, I believe that this program would contribute to the development of our economy but I don’t think that this contribution would be very noticeable. If the first experience in implementing the program proves to be positive and I think this is bound to happen, we should expand the program further taking advantage of the so-called cumulative effect that would benefit both small and medium-sized enterprises and regional banks.

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Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Information Channel Vesti

6 august 2009 года
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HOST: This year about 116 thousand profit making businesses have been registered in Russia. This is almost down by half from last year. Moreover, about a quarter of a million of businessmen closed down their companies. The crisis severely affected small and medium-sized enterprises, experts say. They also say that state support, namely, tax reduction and preferential lending has not worked so far. What should be done to help private business? This is an issue my colleague Evelina Zakamskaya is talking about today with Vnesheconombank Chairman Vladimir Dmitriev. I’m giving the floor to the Fifth Studio.

Hello, Evelina.

Reported by Evelina Zakamskaya

CORR: Yes, Dmitry, hello, thank you. At present, applications from banks that want to participate in Vnesheconombank’s program of lending to small enterprises are being selected. VEB is supposed to extend credit resources to banks at enviable interest rates of about 10.5% per annum. And banks in their turn would extend credits to small and medium-sized enterprises. As many as 75 banks have already expressed their readiness to work with VEB. In the coming twenty minutes we’ll try to find out about the cost of borrowing for business and the number of small and medium-sized enterprises that might be covered by a new program.

CORR: Good evening, Vladimir Alexandrovich. Thank you for coming to our studio today.

Vladimir DMITRIEV: Good evening.

CORR: We’ve mentioned 75 banks but you said that 160 Russians banks were ready to cooperate under Vnesheconombank’s new program. There have been always a lot of those interested in working with your banks. In what way do small and medium-sized enterprises benefit from the new program, will Vnesheconombank be able to help to rectify the situation at the time of the crisis? In what way does the new program differ from the old one, why did you have to change it? What sort of program is it?

Vladimir DMITRIEV: In fact, we have already started to implement the new program of supporting small and medium-sized business and its main difference from the old one is that it is bigger in size. It’s not 9 billion rubles that were earmarked last year although more than10 billion rubles were made available. Now it’s 30 billion rubles. But a new scheme will make it possible to multiply this program’s effect. By our estimate, small and medium-sized enterprises would receive about 100 billion rubles. A new feature of this program is that we extend credits, to be more exact, the Russian Development Bank through which funds are made available lends regional banks against an already existing loan portfolio of credits extended to small and medium-sized enterprises. Moreover, the Russian Development Bank can use credits extended to regional banks as agreed upon with the Central Bank as collateral for obtaining new ruble resources at the Central Bank and these resoures will also be used for extending credits to regional banks against the existing package.

CORR: To put it simply, you commit money to the Russian Development Bank and it in its turn distributes it among regional banks.

Vladimir DMITRIEV: You are absolutely right.

COR: At what interest rate do you lend money?

Vladimir DMITRIEV: We lend funds at the same interest of 8.5%, at which we receive them from the National Wealth Fund. We also made an arrangement with the Russian Development Bank and this arrangement was agreed upon with the Ministry of Economic Development that regional credits would be extended to banks at a rate lower than a refinancing rate. We proceed from the premise that on average an interest rate would be 10.5 percent. And end borrowers would receive credits at an average interest rate of 17 percent.

CORR: 17 percent is a guaranteed interest rate and it can’t be higher.

Vladimir DMITRIEV: Yes, this is a rate to be strictly monitored by the Russian Development Bank and the Bank will be accountable to us for this monitoring.

CORR: You should maintain a certain balance between regions in order to distribute the money evenly across the country. Have you got regional limits, how do they operate?

Vladimir DMITRIEV: As far as applications submitted to the Bank under the new scheme are concerned, there are regional limits. At present, we have applications from regional banks located in 75 regions of our country. Regional limits are set depending on the extent of a region’s socio-economic development, banks’ participation share in lending to small and medium-sized enterprises and in fact on the degree of small and medium-sized enterprises’ development. There are also a number of other criteria used to set regional limits.

CORR: Which regions were lucky?

Vladimir DMITRIEV: I’ve already said that 75 regions are among those that can count on receiving significant funds to finance small and medium-sized enterprises. By the way, there are regions where the amount of applications is many times higher than the regional limits set. As a rule, these are the regions which both on their own and due to the federal financial support programs  and as well as financial resources extended by the Russian Development Bank are actively involved in working with small and medium-sized enterprises. This is the Volga region where Tatarstan is an undisputed leader. This is also the Central region; this is the Urals Federal District. We are launching our pilot projects in Kamchatka and in a number of areas of the Far-Eastern Federal District. In principle, our program covers almost the whole country.

CORR: What sort of enterprises do you select for financing? What economic sectors do you give top priority to?

Vladimir DMITRIEV: You asked a very good, relevant question. Our priorities are industrial. And this is what distinguishes our and the Russian Development Bank’s program of supporting small and medium-sized enterprises from that of commercial banks. About 60 percent of funds committed to support small and medium-sized enterprises account for the production businesses. We also operate in transport, communications and service sectors. And less than 20 percent accounts for trade. Nevertheless, only five years ago the proportion was opposite, with about 60 percent accounting for trade where you can make fast money, where small and medium-sized enterprises’ activity is not associated with innovation, industrial and production sectors. Now, we have succeeded in redressing this imbalance.

CORR: Hence, banks are supposed to report to you on to whom and for what purposes they lend money.

Vladimir DMITRIEV: Of course, they are. It’s a very strict requirement. It’s one of criteria for obtaining Vnesheconombank’s money. By the way, not only banks and businessmen are well aware of it by also our foreign partners who have already joined our program.

CORR: How are you after all going to exercise control? What sort of control is it going to be: annual reports, half-year reports? Site visits by your specialists?

Vladimir DMITRIEV: We created a pretty strict and in our opinion an effective system of control and monitoring over small and medium-sized enterprises’ activity over credits extended by regional banks. This is a remote monitoring based on quarterly reports submitted by regional banks. And these are also site visits that enable us to communicate directly with representatives of small and medium-sized enterprises, examine their loan portfolio and discuss methodological aspects. So, we exercise full control over financing small and medium-sized enterprises.

CORR: Vladimir Alexandrovich, you’ve stressed repeatedly that Vnesheconombank is not a profit-making business entity and many regard Vnesheconombank as a big wallet out of which you can get money and boast to everybody that you have borrowed money from Vnesheconombank and this means that they trust you. Do they actually repay your credits? Do you expect small and medium-sized enterprises to repay your Bank’s credits?

Vladimir DMITRIEV: Strange as it may seem and maybe it’s quite symptomatic that the bad loans problem affects not only the Russian Development Bank but also regional banks and major commercial banks. And the fact is that the percentage of bad loans among small and medium-sized enterprises is lower than in ordinary loan portfolios intended for implementing industrial projects, financing construction, trade and etc. And in principle, in innovative small and medium-sized enterprises the percentage of bad loans is even lower. Now that the crisis has also affected small and medium-sized enterprises we have to provide them with constant, everyday support.

CORR: Under the program, 100 billion rubles are to be committed to small and medium-sized enterprises. Which percentage of businessmen will be able to get the money? By experts’ estimate, it’s only about one percent of businessmen.

Vladimir DMITRIEV: I find it difficult to give you exact figures and indicators. I’d like to mention that the previous program in the amount of about 10 billion rubles covered 4 thousand small and medium-sized enterprises. We believe that the new program would cover more territories and more enterprises.

CORR: Now I’d like to give you some more data from experts. The fact is that only twenty percent of Russian small and medium-sized businessmen know that the state is ready to support them. Obviously, they should be told about it for a long time and in great detail. How is Vnesheconombank going to popularize its program?

Vladimir DMITRIEV: We place great emphasis on this program’s public relations element. You know that in spring, we, together with the Ministry of the Economic Development, held an All-Russian Conference on Small and Medium-Sized Enterprises. It caught attention not only of small and medium-sized businessmen but also of the government. Russian Prime Minister Vladimir Putin spoke at the conference. He used harsh words saying that we had, above all, to break down administrative and bureaucratic barriers on the way of small and medium-sized enterprises’ development. The conference backed the program of extending credits to small and medium-sized enterprises through regional banks that can refinance these credits at a later time at the Central Bank thus increasing lending amounts. Of course we have some problems here. If we look in regional banks’ internet sites we can see that there is no information on their readiness to implement the program of supporting small and medium-sized enterprises through the Russian Development Bank and Vnesheconombank. In this respect, we have made great progress. In cooperation with the World Bank we designed a special site, the Russian Development Bank’s site, where we posted  information onour methodology, main principles and approaches, opportunists the program of supporting small and medium-sized enterprises opens up. Judging by the number of the site’s visitors we can see that the program generates interest. But a lot remains to be done.

CORR: Can I have the address of this site?

Vladimir DMITRIEV: I don’t remember the address but you simply need to enter the site of the Russian Development Bank, there is a special section there devoted to providing support for small and medium-sized enterprises.

CORR: BY the way, Vladimir Alexandrovich, don’t you think that the chain comprised of Vnesheconombank, the Russian Development Bank and regional banks is too long to provide support for small and medium-sized enterprises as soon as possible. Why do you need it why do you need this intermediary?

Vladimir DMITRIEV: Unfortunately, the Law “On the Bank for Development” and our Financial Memorandum stipulate that Vnesheconombank as a state corporation is not entitled to directly lend small and medium-sized enterprises. And perhaps, it’s not the right time now for Vnesheconombank to assume the function of lending regional banks at present  performed by the Russian Development Bank. The fact is that the Russian Development Bank had performed this function before State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ was established; before the program in the amount of 9 billion rubles I told you about was implemented. The Russian Development Bank already performed the exclusive function of supporting small and medium-sized enterprises when it raised 300 million dollars on the markets against the state’s guarantees and used these funds to lend small and medium-sized enterprises. The bank has already built infrastructure and developed techniques for supporting small and medium-sized enterprises. So, perhaps it makes no sense to swap horses while crossing a stream. As the saying goes – the best is the enemy of the good. We believe that the current system of supporting small and medium-sized enterprises is optimal.

CORR: On the other hand, with fewer intermediaries, it might be possible to reduce the interest rate.

Vladimir DMITRIEV: I think we need to address this issue. Upon implementing the current program, Vnesheconombank receives funds from the National Wealth Fund at an interest rate of 8.5 percent and it extends funds to the Russian Development Bank at the same interest rate. So the parent company does not cash in on small and medium-sized enterprises.

CORR: Nevertheless, Vnesheconombank started to search for investors capable of investing Russian small and medium-sized enterprises.

Vladimir DMITRIEV: Yes, it did. I think this process was of mutual interest.  National and international financial development institutions were the first to respond to our large-scale program of supporting small and medium-sized enterprises.

CORR: I’m glad to hear that they take an interest in our small and medium-sized enterprises abroad.

Vladimir DMITRIEV: I’d like to say that there is not only an interest there but this interest is growing despite the crisis. Their interest in Russia is also growing both in terms of investments and in terms of maintaining and promoting normal trade-economic, financial and investment relations. As far as investors are concerned, we signed our first agreement associated with foreign partners’ support for Russian small and medium-sized enterprises with the German Development Bank KfW. This bank is our long-time partner; we have been cooperating with it for decades. In fact, we cooperated with it while implementing major investment projects in Russia. But the bank is also Vnesheconombank’s partner in supporting small and medium-sized enterprises which is this bank’s core activity too. Our German partner earmarked 200 million euros for supporting small and medium-sized enterprises. Under the lending scheme, the bank is to extend credits to Russian banks against Vnesheconombank’s guarantee. Funds are to be committed exclusively for supporting innovation activities of small and medium-sized enterprises, energy-saving technologies and other top-priority lines of activity. The first such agreement was signed just two weeks ago with Russia’s Promsvyazbank for an amount of about 30 million euros against Vnesheconombank’s guarantee. And in this case, being aware of the need for stringent monitoring, we and our German partner established a system of control over the targeted use of these funds.

CORR: Therefore, this money is committed in addition to those 100 billion rubles.

Vladimir DMITRIEV: Yes, of course, these are new funds. Now we are in talks over a similar issue with the European Bank for Reconstruction and Development. On their part they said that were ready to earmark about one billion euros for supporting small and medium-sized enterprises. We are also in similar talks with the International Finance Corporation. This is one of the World Bank’s institutions. Therefore, it is not only our government and our bank that are interested in enhancing Russian small and medium-sized enterprises but also our international partners.

CORR: Is money expensive in the West? And what impact could foreign credit resources have on an interest rate of lending to businessmen?

Vladimir DMITRIEV: Actually, this is a key issue that hinders speedy completion of…

CORR: Do you mean extension of monetary funds?

Vladimir DMITRIEV: Both extension of money and speedy completion of talks.International financial institutions are coming up against the problem of currency risk. At a time when devaluation expectations…

CORR:  You mean that devaluation expectations  are always present.

Vladimir DMITRIEV: They are always present. And unfortunately, in reality the ruble’s behavior is not always in line with our desire to have a reliable, strong and stable currency. But I think that our monetary authorities would cope with the problem after all and our Western partners’ attitude to the ruble would change for the better. But in any case, we have to address this problem. And taking into account high currency risks, our foreign partners build an excessively high interest rate into their currency resources. While talking about our foreign partners I’d like to say that with the German Development Bank we managed to agree on pretty acceptable parameters for end borrowers which are in general are in line with the program that is being carried out now through the Russian Development Bank.

CORR: Could you specify the parameters?

Vladimir DMITRIEV: These are the same 17 percent that the end borrower pays to a regional bank.

CORR: Are credits to be extended in foreign currency or in the national currency, in rubles?

Vladimir DMITRIEV: Credit resources are made available in foreign currency at least as far as the German bank I’ve mentioned is concerned. So, preference is given to companies that are in a position to bear currency risks and are sufficiently profitable and adequately able to repay foreign currency credits.

CORR: So, these are not very small companies and are not the weakest ones.

Vladimir DMITRIEV: They are at least medium-sized enterprises. And as to a thirty-billion credit, it is intended not for a single borrower but for a whole number of enterprises operating in the innovation sector.

CORR: Does the Russian Development Bank’s program and the program with the German Bank provide for the maximum amount of credit?

Vladimir DMITRIEV: At least, our 30-billion program provides for the maximum amount of credit. AT the moment it’s a 30 billion ruble program but believe that it would eventually transform into a 100 billion one. And even this amount could be increased due to a potential multiplier effect. And we reduced substantially the maximum threshold from 150 million to 60 million rubles believing that it would increase the number of participants in our program. We also reduced the credit period in order to involve more businessmen. The current minimum period is half a year.

CORR: Taking into account your active talks with the European Bank for Reconstruction and Development, with the German bank, does this mean that Vnesheconombank in its turn takes interest in German and Western business? Do you make any investment there?

Vladimir DMITRIEV: We are active in working with our foreign partners from the real economy. We can’t boast so far that this activity is associated with…

CORR: With multi-million infusions?

Vladimir DMITRIEV: With small and medium-sized enterprises. And as far as multi-million infusions are concerned, we have achieved a certain amount of success. The latest state visit to Germany, the talks and an agreement signed in the course of the visit demonstrate that German companies are ready to supply modern equipment and German banks are ready to bankroll these transactions. We signed a credit agreement worth 500 million euros with our partner, the German Development Bank KfW. The agreement provides for the German bank to finance supplies of modern German equipment for a number of projects financed by Vnesheconombank. They include the construction of the Tobolsk associated petroleum gas utilization plant, the first in the last thirty years pulp and paper mill to be built in the Lower Angara Area and a number of other projects in need of foreign equipment including German equipment.

CORR: Vnesheconombank is joining the Long-Term Investors Club. What sort of club is it? Why do you need to join it?

Vladimir DMITRIEV: Actually, not long ago Vnesheconombank was for the first time invited to participate in a conference of the Long-Term Investors Club. The Bank was offered to join this club as a development institution as a bank that gives high priority to long-term and large-scale investments in the economy of our country. The Club’s participants are our partners, development banks from France, Germany and Italy. Their intention to promote long-term investment business is backed by government insurance agencies, and we regard our membership of this prestigious club as a clear sign of trust in Vnesheconombank as a development institution in the Russian Federation and as an opportunity to raise major foreign investments for our economy. The most important thing is that we are confident that foreign investments coming into our country and this confidence is based on our relations with our Western partners.

CORR: And now my last question for today. It deals with Vnesheconombank’s recently expanded investment declaration and the Bank’s new opportunities for managing pension savings funds of the so-called “undecideds”. What can “undecideds” do now, how is the portfolio formed, how else can you diversify the management of these funds?

Vladimir DMITRIEV: In the first place “undecideds” need to decide if they want to remain in the conservative declaration or remain in the status of ‘undecideds”.

CORR: Should they take risks?

Vladimir DMITRIEV: The best policy is to take moderate risks. Our main operating principle is to ensure optimal risk to profitability ratio. Moreover, we think that “undecideds” at least conscious “undecideds” will undoubtedly be interested that their investments yields are not lower than inflation but even in this sense they should not blame Vnesheconombank but…

CORR: It’s now clear whom they should blame. It would be nice to have lower inflation.

Vladimir DMITRIEV: You are quite right. In my opinion our “undecideds” should know that by expanding our Bank’s investment declaration the government is also opening up new opportunities for a large-scale and long-term financing of our economy. We believe that from November when we might form not quite a conservative portfolio we’ll have about 80-90 billion rubles for financing the real economy. These are bonds issued by reliable Russian issuers, these are sub-federal bonds issued by constituent entities of the Russian Federation, these bonds are also issued for implementing regional investment projects. These are also deposits with commercial banks which will allow us to address liquidity issues, expand the resource base of our banks and finance our real economy.

CORR: But you don’t rank these instruments as high-risk ones?

Vladimir DMITRIEV: Of course we don’t. The investment declaration and the law boil down to the fact that by expanding our investment declaration the authorities assume that criteria we should follow upon choosing borrowers must minimize the risk of investing funds of would-be pensioners.

CORR:  And what about those who want to protect themselves and maintain a conservative policy, are they supposed to write an application?

Vladimir DMITRIEV:  You are absolutely right.  Would-be pensioners wishing to remain in the former conservative sphere of investing must write an application stating their intention to remain in the former conservative declaration. And those who won’t state their intention will be included in the extended investment declaration.

CORR: Again we have to choose between a bird in the hand and two birds in the bush.

Vladimir DMITRIEV: Nevertheless, in all these years Vnesheconombank has been demonstrating maximum efficiency in investing pension funds under the former investment declaration. And we believe that even one bird in the hand might be the best choice.

COR: Thank you very much for coming to our studio today. Vnesheconombank Chairman Vladimir Dmitriev answered our questions today. Thank you.

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Ask Ballo

27 july 2009 года
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The government made State Corporation Vnesheconombank a key instrument of its crisis management policy. The funds for refinancing credits to foreign companies were made available to Russian companies through Vnesheconombank; troubled banks were put on its balance sheet in order to rescue them and it became responsible for financing Olympic facilities. VEB Deputy Chairman Anatoly Ballo was in the thick of these events.

Evgeniya Pismennaya
Vedomosti
23.07.09, № 135 (2405)
Photo: A. Makhonin


Anatoly Ballo who is responsible for the State Corporation's core activity - investments and support for top-priority economic sectors, became responsible for anti-crisis support for the real economy when the crisis started. His investment subdivision looked through all 142 applications submitted by banks and companies for refinancing their foreign debts worth 82 billion US dollars and it prepared credits for the ten lucky ones. When you ask someone of VEB's employees about financing specific projects their usual answer is: "Ask Ballo".

Vnesheconombank
State Corporation

The Supervisory Board is headed by the Prime Minister.
In 2008, assets amounted to 1597.2 billion rubles.
VEB's profit in 2008 was 9.3 billion rubles.
Net interest income was 20 billion rubles.

Anatoly Ballo refused categorically to meet in a restaurant. "I am not particular about food and the more so I'm too pressed for time to go to restaurants", he says. He suggested that we should have a crisis-time lunch in a simple and quick way. I had to take crisp bread rings and ring-shaped rolls to his office in Sakharov Avenue, 9, and Ballo offered chocolate candies and orange souffle.

The office of VEB's Deputy Chairman who is in charge of the State Corporation's core activity looked to me quite modest and I can say even small. "Why so ascetic?" - I couldn't help saying.- You sort of deal in billions and your office is so tiny". "It's enough for work", he answered drily.

"A Last Resort"

Ballo asks all those who apply to Vnesheconombank for credits one and the same question: "Have you applied to any other banks?" "I don't want Sberbank and VTB to say that we deprive them of projects", he explains. In Ballo's firm opinion, VEB should be a last resort in search of money.

"He has often to say "no" but he always does it in a very refined way", recollects Valery Bezverkhny - a member of the UABC's Board of Directors. Ballo is the State Corporation's key Deputy Chairman, explains a manager of a major company that receives credits from VEB. "If his subdivision says "yes", it's almost a 100% guarantee to receive a credit".

"Ballo and his employees always examine a subject in depth. I think they have the most thorough expert's examination among financial institutions in Russia and this of course makes you respect them", says Elena Matveeva - Group GAZ Management Board Deputy Chairman (VEB is considering the Group's application for financing one of its engine projects).

Airports "are our pride" says Ballo meaning airports in Kaliningrad, Yekaterinburg, Sheremetjevo-3 and the Bank's strategic participation in Pulkovo. "Pulkuvo is our particular pride", he stresses. "Then, foreign banks and international financial institutions said quite openly that if VEB didn't finance Pulkovo, they wouldn't finance it either". "VEB is a sort of marker.  VEB's participation in a project guarantees the project's reliability", he says.

VEB often operates as a mechanism for hedging currency risks, explains Ballo: "Quite often projects fail to withstand currency risks. Paradoxically, but in a number of cases it's easier to incur long-term liabilities in foreign currency than in rubles. Nevertheless, the ruble model of projects proved to be more reliable than the currency one. Now VEB is addressing this problem with regard to first concession road projects. VEB extends currency credits to finance only those projects that generate foreign currency incomes.

VEB's problem, Ballo sighs, is that in economic sectors of key importance for the Bank there are now very few engineering companies: "Sometimes we happened to be in situations when we had to do this engineering work from scratch on our own". In this respect, he gives an example of establishing jointly with German Company MAN Ferrostaal AG an investment-engineering company that came into being in the course of financing the pulp-and-paper mill construction project in the Lower Angara Area.

Ballo is keen to talk at length about each project financed by the Bank, each seems to be the most important, the most loved to him: whether it be the construction of a research and production complex to manufacture semiconductor products, the development and batch production startup of SSJ 100 or the building of the rail branch line the Kuzbass - Far Eastern Transport Hub.

"And do you know how healthy turkey meat is?" asked Ballo suddenly. VEB finances LLC Evrodon in the Rostov region. The company is building an industrial turkey-breeding complex. It is to produce 30 000 tons of turkey meat per year and in the future - 60 000 tons. With the same enthusiasm as before and emotional vigor which is the least expected of a solid investment banker and passion Ballo got down to describing strong points of the project aimed at building a cement factory in the Leningrad region, an automobile cluster in the Kaluga region and a nitrogen fertilizers manufacturing complex in Tatarstan. According to him, this is the best proof that despite the crisis and the fact that the Bank had to scale down some projects because it became responsible for implementing crisis management measures of the government its main line of activity as a development institution didn't "dry up". In the last year the number of projects financed by VEB has increased by 1.5 times, about 70 billion rubles were committed to implement 21 new projects and a program and about 13 billion rubles were committed to finance projects launched earlier. In total, for a two-year period of VEB's operation as a development institution about 100 projects totaling 1 trillion rubles were approved.

Ballo's main merit is his system thinking, says Bezverkhny. "He has such a deep insight into a technological environment of various kinds of companies - from agriculture to space, that it is hard to believe".

But for the crisis, VEB might not have started to finance Olympic facilities. In any case, to such a great extent. At the moment, the State Corporation is considering 12 projects totaling 166 billion rubles. We made a decision to finance six of them. "We had to help private investors who were affected by the crisis, says Ballo. We are also co-financing projects on the terms of public-private partnership. We make no allowances for anybody. We are for a level playing ground for all". VEB extends credits guaranteed by Olympstroi, which will take possession of assets if a private investor stops fulfilling his obligations. "This is our safety net", explains Ballo.

In response to my request to give me specific figures illustrating the extent of the Bank's crisis management efforts and tell me about the impact the Bank's efforts to support the financial system had on its balance sheet, Ballo fumbled through his papers on the desk and found a paper with relevant data. It says that Vnesheconombank's total assets increased by more than three times during the crisis (from October 1, 2008 to July 1 of this year). A decision was made to commit 1.3 billion dollars for refinancing Russian companies' and banks' debts to foreign financial institutions (in total, companies drew down 10.5 billion dollars - Vedomosti), the Bank extended subordinated loans worth 276.3 billion rubles, 174.5 billion rubles were spent to support the stock market, the loan portfolio (investment projects and export contracts) - a bit less than 250 billion rubles, Ballo quotes with some relief.

 

"I Remember that Night Pretty Well"

I couldn't help asking Ballo about a credit extended to Oleg Deripaska for refinancing a loan to foreign banks in the amount of 4.5 billion dollars. I wonder how it was.

"I remember that night pretty well, recollects Ballo. There were so many people in the Bank as though it was not 12 o'clock at night but 12 o'clock in the afternoon. We were in a great hurry to close a transaction. Every minute mattered. We were aware that there was a threat of losing an asset that was in pledge". Ballo is glad that the government and VEB acted at a lightning speed: law Ўн 173 on measures for supporting the financial system was published on October 13 and as early as on October 30 first money was committed. "We had only two weeks to study the transaction and make a substantiated judgment. The process involved five levels of decision making - three - inside VEB and another two - with the participation of the inter-departmental commission and VEB's Supervisory Board. Such a high speed was unprecedented. We did a great job in VEB's style", he said. In Ballo's opinion such a great speed was possible due to the State Corporation's business experience: the refinancing mechanism was combined with the procedures for considering standard investment projects. "Each customer was regarded as a project. What mattered was not an individual customer but benefits the Russian economy could derive from implementing a particular project", said Ballo. I asked: "Why after all did you help PIK, is it really of strategic importance? It turns out that other developers aren't of strategic importance?" "PIK is one of the few integrated regional construction companies; it is of great social importance. It would be unwisely to lose such a company the more so in the period of the crisis. For example, we didn't support Don-Stroi that for the most part involved in building exclusive housing but supported PIK", he answered.

"VEB is still being accused of having supported only those they saw fit in an unsystematic way", here I'm just voicing dissatisfaction of many companies with VEB. "We considered all companies but many companies failed to go through formal procedures", parried Ballo. Now, he says the program of refinancing is closed, it has exhausted itself, enterprises were supported at the appropriate time and then the government put in place a mechanism for extending subordinated loans and refinancing within the framework of the Central Bank. Companies that obtained credits at VEB can have their credits rolled over for a period of one year, says Ballo, the Supervisory Board made such a decision so that borrowers should not have cross defaults with regard to other obligations. Thus, the government did a goodwill gesture for borrowers, he believes. "But it was not an indulgence .All the companies are to fulfill terms and conditions of the current agreements. For example, we require Nornikel's shares (UC Rusal pledged them with VEB) to come under Russia's jurisdiction", Ballo specifies the Bank's approach. Credits are to be rolled over only on market terms, in each company VEB's representatives will be responsible for monitoring the situation.

VEB-Invest is to be responsible for dealing with bad credits, as they emerge, that is, their collaterals. The company was established to manage bad assets received in the course of rescuing Globex. We are going to develop the competence in dealing with problem assets at VEB-Invest, promises Ballo. "Therefore, we are already well-equipped", he jokes.

A Point of no Return

The crisis compels us to reevaluate our values completely, says Ballo. "Once we sacredly believed in various indicators and coefficients. For example, foreign banks accepted 25% plus one of Nornikel as pledge from UC Rusal and felt comfortable but several months later everything devalued. Ballo says that they are rethinking values in the banking community; we have to take a more serious approach to bank modeling. Demand is growing for professionals who can predict the consequences of a crisis and see which sectors are going to receive an impetus for development, he says. "The crisis showed that even the most problem-free projects could get in a real crisis situation, a lot depends on engineering managers' proficiency", sums up Ballo. The crisis taught us to be more cautious, he says: "If we approve a project for implementation we base our decision on its worst-case scenario". Now VEB is trying not to approve greenfields and projects on a business-idea level", he says.

There were cases when the crisis changed the project structure. For example, VEB suspended the funding of the second stage of the Moscow Business Incubator for small-size enterprises. "We'll see how the first stage will operate and then we'll start to think about the second one", said Ballo.

"We often have to approve projects that have already passed the point of no return. If financial resources were invested we must go on financing the project in order to avoid throwing real money down the drain", he says.


A Certain Symbolism

"What a family name - Ballo?" It is an Assyrian family name, explains Ballo. It's a shame to say that I don't know my ethnic language. My great grandfather came to Moscow in the Ў®20s so I am a third generation Muscovite. I grew up in Tishinka. Ballo graduated from the Moscow Finance Institute majoring in international economic relations. Many of his former fellow students became famous. Their names are known to everybody: Vladimir Dmitriev, Mikhail Prokhorov, Alexandr Khloponin, Andrei Akimov, Ballo counts off on his fingers.

Anatoly Ballo was the first in his family to receive higher education. His father was a cabinet maker. It was Ballo's father who recommended him to apply for the Moscow Finance Institute. "I did well at school so I had no problem getting enrolled", Ballo says to me. Now Ballo's father is proud of his son's successful career. "It's an honor for a representative of such a small ethnic group to hold such a senior position".

In 1991, Ballo started to work at Gosbank of the USSR. "Then, many looked upon me as an idiot. Civil service was not considered to be prestigious. Everyone wanted to find a job in Western representative offices of banks, companies and in all kinds of stock exchanges", he says. "I remember my first working day at the Bank; it was on August 19, 1991, when the State Committee for the State of Emergency (GKCHP) announced a state of emergency, there was a tank or an infantry combat vehicle in the Central Bank's enclosed court. They might have been searching for the Communist Party's gold. It was pretty amusing. I guess they haven't found any gold so far", he laughs. After the breakup of the Soviet Union, Ballo worked for another year at the Central Bank of Russia in the organizing committee on establishing a Russian Project Finance Bank (a subsidiary institution of the EBRD). "A sort of development bank", jokes Ballo. And then he said bitterly: "At the time, our attempt to establish a project finance bank failed. Only two years ago Vladimir Dmitriev's team created a bank for development on the basis of VEB".

Ballo is proud of working at VEB. "It's the oldest banking institution that has been operating since 1924". Now, he says, we are in a way getting back to the past as VEB is engaged in recovering the economy as it did in the past. "There is a certain symbolism in it".


Hobby under the Nick of "Fedya"

Football

Ballo is a great fan of Spartak. In the past, he used not to miss a single match, now he is pressed for time. His favorite football player is Fedor Cherenkov who is soon going to be 50. "He is a very creative, truly popular player,- says Ballo. - All of a sudden my eight-year-old son started to support Luch-Vladivostok (laughing). Primorsky region Governor Sergei Darkin promised to give me a uniform of this team but he hasn't done it so far".

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Svyaz-Bank and Globex Bank were in a Severely Poor Condition

19 june 2009 года
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№ 106, June 19, 2009
VREMYA NOVOSTEI

 

In Anatoly’s Tikhonov”s opinion Svyaz-Bank and Globex were in a severely poor condition. “We need not only support problem banks but also give a fresh impetus to boost the economy.” With the advent of the crisis, Vnesheconombank’s financial resources were needed to support the Russian banking system, specifically, to stabilize the troubled Svyaz-Bank’s financial position. First Deputy Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’, Chairman of Svyaz-Bank’s Board of Directors Anatoly TIKHONOV told us about Vnesheconombank’s rescue efforts and the future of Svyaz-Bank in his interview with Vremya Novostei.

- Why did Vnesheconombank get involved in rescuing Svyaz-Bank?

- Svyaz-Bank was the first swallow that got into the whirlwind of the crisis. A decision to rescue it was taken in accordance with orders given by the President, the Prime Minister and VEB’s Supervisory Board. We could not let this bank collapse because it handled more than 15 million accounts of pensioners. In the course of several months we managed to correct the imbalance between assets and liabilities, clean up the loan portfolio and make a comprehensive business analysis of the bank. Our line departments examined the situation and proposed a rescue package. In April, VEB made an additional issue of the bank’s shares worth 70 billion rubles. As a result, the bank’s charter capital was increased 15-fold to 75.1 billion rubles. And today the bank is operating normally.

-Were Svyaz-Bank’s problems that necessitated the state’s emergency intervention brought about by the crisis alone?

- No, they were not. The main source of problems is a huge bad debt. By our estimate, it is no less than 40 billion rubles. And a main reason for it was not the market situation but a low quality of the bank’s loan portfolio. In our case, the crisis was a sort of acid test that revealed the existing problems. Loans were extended without proper collateral, under incomprehensible schemes and not only to Russian but also to foreign companies. For this reason, VEB’s Supervisory Board made a decision to set up an interagency task force that incorporated representatives of law enforcement authorities to thoroughly study the situation with problem assets. We believe that we’ll be able to find a solution through legal actions and recovering debts by court.

- How many customers ran on the bank?

In September 2008, when VEB agreed upon a program of financial support for Svyaz-Bank with the Bank of Russia, periods of many deposits were expiring and corporate customers were withdrawing them. In October, the process continued but not as quickly as before. In total, the amount of funds in corporate customers’ accounts shrank from 104 to 58 billion rubles (during September – October). Companies related to the bank’s former shareholders as well as a number of organizations which were not related to the communications sector (construction, industry) accounted for the largest outflow of customers.

Communications companies with which the bank established open and reliable relations, namely, Federal State Unitary Enterprise (FSUE) the Post of Russia, and Svyazinvest are still being serviced by the bank, although the amount of their funds dwindled: the average balance calculated for the first quarter of 2009 with regard to FSUE the Post of Russia fell from 17 to 14.4 billion rubles from the same period in 2008, with regard to Svyazinvest - from17.8 to 16 billion rubles. Since November 2008, the bank has been pursuing an active policy aimed at preserving its customer base and at raising funds from new corporate customers, above all, by way of placing balances into settlement accounts and deposits and implementing its own bill of exchange program. State guarantees and reliability provided to the bank by VEB makes this process more effective. Customer confidence is returning. Moreover, this year the bank is trying to focus on diversifying its loan portfolio due to companies in other industrial sectors.

- Has the structure of corporate customers changed in the last months?

- It remains almost unchanged. Such communications companies as Megafon, Rostelecom, including Westelcom, MMT, Gidrosvyaz still account for the largest deposits. A major transaction in placing Zentrteleom’s funds is nearing completion. Besides the Post of Russia and Svyazinvest such companies as Angstrem. Trust Management Company Dostoyanie and Sinterra have substantial balances in their settlement accounts.

As to the structure of liabilities, short-term deposits (from one to six months) are dominant and customers roll them over if required. Since January the bank has started to work with new customers such as Mining and Steel Group Evraz and Development Company Invest-Group.

- And what happened to natural persons’ deposits?

- At the start of 2008, natural persons’  ruble deposits accounted for 95% of all deposits in the bank’s portfolio - 7.1 billion rubles and 70% of them were owned by VIP-customers. By the start of September the portfolio shrank to 5.2 billion rubles and the proportion of VIP-customers – to 26%. From September to December the amount of liabilities decreased by another 2.4 billion rubles because of deposits withdrawn by VIP customers, the proportion of which shrank to 5.8%. At this year’s start the situation changed for the better: people started to put their money in the bank. From January to May, the growth in deposits was 1.1 billion rubles and their amount increased to 3.8 billion rubles. The pattern of deposits also changed: the proportion of deposits in rubles dropped to 48.2% and in dollars in euros increased twofold and amounted to 21.2 and 28.2% respectively in the total portfolio. It should be noted that almost all deposits in the bank are retail ones and the proportion of VIP- customers declined to 1.6%.

- Did you have to reshuffle personnel?

- We replaced the management staff right away and nominated professional bankers to all key posts. Then we started to optimize the bank’s administration costs, trying to maximally retain personnel in the regions. It numbers about 3 thousand people and there are many real professionals among them.

- Did you have similar problems with Globex?

- No, the situation in Globex was somewhat different. For the most part, its credits are concentrated in one and the same sector, so it didn’t take us a lot of time to clean up its balances. Now the bank’s assets have been handed over to a specially established Vnesheconombank’s subsidiary – VEB-Invest Company.

- How much money has been spent on rescuing Svyaz-Bank?

- The total sum is 87 billion rubles. It includes Bank of Russia’s deposit and VEB’s own funds. For us Svyaz-Bank is an investment project. At the first stage our objective is to solve day-to-day problems, expand the bank’s branch network and offer quality services. And within three-five years we’ll be able to withdraw from the project by selling it to a strategic investor. By the way we are already receiving proposals. For example, recently a major foreign investment bank has turned to us expressing its readiness to enter Svyaz-Bank’s capital but with so far a small stake.

- In line with the Government’s crisis management program VEB started to perform newly-assumed functions of rescuing troubled banks. How does this correspond to typical functions as a development institution?

- There’s no doubt that both Svyaz-Bank and Globex were in a severely poor condition when they were transferred to VEB’s jurisdiction. But it was more a matter of supporting the banking sector rather than rescuing problem banks. We are trying to combine these two seemingly incompatible objectives - providing support and encouraging development. And while the problem is really formidable it is not unmanageable. In the long run we should not only help problem banks get back on their feet but boost the development of the whole economy.

I’d like to give just one example and maybe it’s not the most typical one. The Law on the Bank for Development and the Memorandum on its Financial Policies stipulate that the Bank is to finance major projects with long pay-back periods in certain economic sectors. But in real practice there emerge small projects, around above all, infrastructure projects. It would be wrong not to support them as they are important for the development of the country’s economy and regions. But we can solve this problem by using capabilities of VEB’s two subsidiary institutions - Svyaz-Bank and Globex. These banks have formed a good branch network in the regions. This would help us to channel money to those places where major Moscow’s banks have not come yet. Svyaz-Bank has already been drawn in implementing our regional projects. It is an operator responsible for VEB’s Olympic facilities construction projects. Now we are expanding its branch in Sochi so that it could fully service companies engaged in building Olympic facilities.

- This means that you have already identified Svyaz-Bank’s scope of work?

- Not exactly. We are still considering this issue. And it’s not only a matter of Svyaz-Bank. We are formulating a concept and identifying potential lines of activity for all members of Vnesheconombank Group which incorporates Svyaz-Bank, Globex, the Russian Development Bank and Roseximbank. We turned to a financial consultant – Ernst and Young Company. This Company has completed preparing several options of the concept for reorganizing VEB’s subsidiary banks. The Bank’s Management Board would consider these proposals and make an agreed decision and submit it to approval by the VEB’s Supervisory Board.

-Does this concept encompasses Belarusian Belvnesheconombank and Ukrainian Prominvestbank – Vnesheconombank participates in these banks’ capital?

- No, it does not. We didn’t set this objective.

- What options are under discussion, what do consultants recommend?

- Roseximbank is expected to give top priority to supporting exports. The more so, this function was assigned to VEB. At present, Globex is operating as a universal commercial bank.  We can’t rule out that it would continue to operate like this. There is a very interesting option for Svyaz-Bank. We believe that it might become a very influential sectoral bank operating in the communications sector, may be with functions of a “post bank”. Svyaz-Bank has been cooperating closely and for a long time with the Post of Russia and Svyazinvest, it also services accounts of other telecommunications companies. By joining forces, we’ll be able to create a pivotal bank which would enable us to make a breakthrough in restructuring, developing and financing one of the fastest growing, high-technology economic sectors. This idea was favored by the Telecommunications Ministry, Svyazinvest and the Post of Russia. We set up a joint commission which is to formulate a final decision.

- If such a pivotal bank is established, will it be responsible for servicing companies in a specific sector?

- Not only. Today more than 70% of Russians do not have bank accounts. And to a certain extent such a situation arose because many people do not have access to retail banking. I have already said that Svyaz-Bank is well represented in the regions – it has 49 branches and more than 160 branch offices. But now it’s too early to talk in great length about the bank’s and Vnesheconombank Group’s future core activity as a whole. It remains to be seen later whether the banks’ assets will be consolidated or whether each of them will go its own way. I’d like to stress that so far none of the options have been given high priority. According to our plans, a final scenario would be submitted to the Supervisory Board in July.

VEB purchased Svyaz-Bank and Globex at the last year’s end as part of measures for stabilizing the banking sector. The Central Bank provided financial aid by depositing 2.5 billion dollars with VEB to purchase Svyaz-Bank and 2 billion dollars to purchase Globex Bank.

 

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