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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