Vnesheconombank’s Chairman Interview to TV Channel Russia 24

23 december 2011 года
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TV Channel Russia 24
OPINION
23.12.2011, 19:23

Host Evelina Zakamskaya

HOST: Good evening Vladimir Alexandrovich.

Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Good evening.

HOST: How and to what extent did Vnesheconombank participate in the development of Russia’s real economy in the outgoing year?

Vladimir DMITRIEV: In the outgoing year, Vnesheconombank participated above all in investment projects being implemented by Russian companies in the real economy. We have been building our loan portfolio dynamically. It increased by forty percent. And Vnesheconombank’s loan portfolio as a bank for development is now close to 500 billion rubles. As before, we gave top priority to key economic sectors, especially to those five sectors that correspond to five main lines of modernization, namely, energy efficiency, space, supercomputers, public health care. We also financed projects that are being implemented in such basic economic sectors as aircraft construction, petrochemestry, auto industry and a whole number of other sectors including agriculture.

HOST: These sectors are strategically important for the country’s development but were they cost-effective for the Bank?

Vladimir DMITRIEV: You asked a very good question about cost effectiveness. In our activity we are guided by the Law on the Bank for Development and it stipulates that all the Bank’s projects must be breakeven. And at the same time our activity’s main aim should not be to generate profits. So, we balance between these main indicators or criteria of our activity.

And in this sense, Olympic facilities are good examples. On the one hand they are important for implementing this ambitious project aimed at creating comfortable conditions for holding the Olympic Games and for accommodating Olympic participants and spectators in the Sochi Winter Olympics and on the other hand all these projects are on the verge of profitability. And unfortunately, we have to state that some of them are predictably unprofitable projects and here the state and Vnesheconombank assume a large share of responsibility for their further future because we should view these projects not only in terms of staging the Sochi Olympics but also in terms of Olympic facilities’ operation after the Olympics. So, payback periods go beyond the year 2014. So, on the one hand this is a very interesting socio-political project and it’s very important in terms of Russia’s international image but on the other hand in terms of normal banking logic it’s obviously not attractive. Hence, it’s Vnesheconombank that participates in such kind of projects rather than commercial banks.

On the other hand there are projects that are rather acceptable in terms of profitability although interest rates are significantly lower than market rates. But in terms of their real contribution to certain economic sectors these projects are pretty important. I would like to single out among them such projects as the Ford-Sollers project aimed at setting up a joint venture between Sollers and Ford to manufacture cars, commercial automobiles and engines for Russia’s automotive industry.

This is also the Tobolsk Polymer project which is nearing the end of its final investment phase. A large-scale and maybe the largest propylene production facility in Russia and in the former Soviet Union based on associated petroleum gas utilization is being built in Tobolsk. We’ll continue to implement our project in Kaluga. We established the Kaluga Region Development Corporation. We created massive infrastructure together with the local government and the local authorities in order to build a serious auto cluster on its basis. There are also a number of other projects in key sectors of the Russian economy.

HOST: What are the terms on which credits are extended and how do you differentiate credits with regard to specific sectors?

Vladimir DMITRIEV: Of course, we see to it that credits extended by Vnesheconombank for this kind of projects are affordable for project initiators, for investors. We lend at market or lower than market rates. But the most tangible difference is seen when we finance small and medium-sized enterprises because here interest rates offered by Vnesheconombank above all in sectors associated with innovation technologies are substantially lower than standard market rates.

HOST: What rates do you offer?

Vladimir DMITRIEV:  If we talk about innovations and modernization, rates amount to about ten percent. And here we shouldn’t overlook the fact that up until now, small and medium-sized enterprises have taken credits at rates of about 15 and even 20 per cent. So, innovations sectors and innovative small and medium-sized enterprises are provided with serious privileges.

HOST: Ten per cent for what period of time?

Vladimir DMITRIEV: Most credits (you know that we are implementing this program through SME Bank) are extended for a period of more than three years. So, our services  differ greatly from mid-market ones because most credits are extended to small and medium-sized businesses operating above all in the trade sector with short payback periods.

HOST: And if we talk about innovation sectors, they normally need long-term credits there. What’s the maximum credit tenor?

Vladimir DMITRIEV: Our maximum tenor of credit is fifteen years. And eighty per cent of Vnesheconombank’s loan portfolio accounts for credit resources extended for a period of more than five years.

HOST: Are you going to change interest rates upward, given economic conditions abroad?

        

Vladimir DMITRIEV: It goes without saying that we respond to the general situation on the market, to borrowing costs. As opposed to commercial banks our sources of funding, our transactions are limited. These sources above all include contributions to our capital and the market. Unlike commercial markets, which extend credits through using great amounts of natural and legal persons’ deposits in their accounts we are limited in raising such deposits. We simply do not have the right to take deposits from individuals. So a bank margin generated by Vnesheconombank differs substantially from that of ordinary commercial banks. A margin is the difference in borrowing and lending rates. Our average margin is a bit more than two per cent, while large commercial banks with state participation have a margin of five – seven percent. So, our capabilities to generate profits are also limited.

HOST: Is the interest rate on credits for businesses going to increase next year?

Vladimir DMITRIEV: It is bound to increase, given the fact that we raise funds on the market. So, if the market responds negatively to Vnesheconombank’s and other financial institutions’ risk exposures, borrowing rates are sure to increase and we can’t help responding to it by increasing lending rates.

HOST: On the other hand, Vnesheconombank has a good international standing and reputation. Will it help you to raise funds abroad on international markets? The foreign capital market is completely closed for commercial banks.

Vladimir DMITRIEV: Unfortunately, it’s common knowledge that we are in the same situation. Foreign investors’ and creditors’ approach to Vnesheconombank does not differ much from their approach to other Russian banks.  Nevertheless, I’m happy to say that Vnesheconombank credibility and risks are perceived adequately. Our ratings are in line with sovereign ones. Transactions on the interbank lending market and on capital markets this year demonstrated a minimum interest rate compared with other Russian banks at which Vnesheconombank raised funds. Here I also mean our debut loan at the beginning of this year worth more than five hundred million francs where the interest rate was minimal compared with other Russian borrowers that borrowed in francs. We raised a large syndicated loan worth almost two and a half billion dollars at an interest rate that was minimal among similar level banks.

In fact, we do not overindulge in foreign borrowings as we extend ruble-denominates credits to Russian companies and avoid foreign exchange risks by raising funds on the Russian market as well. This year we have placed two loans in the total amount of about thirty billion rubles for a period of ten years at interest rates of 7.9 and 8.5 per cent – very good indicators for the Russian market.

This year end has seen a significant volatility and an unstable situation both on capital markets and on interbank lending markets. So, it’s not a secret that we decided not to place a bond issue for this reason. Nevertheless, we are still planning to enter into markets next year. I don’t rule out the possibility for raising funds on foreign markets. Of course, markets should calm down and the situation should stabilize and undoubtedly a lot depends on political decisions in the euro zone. But to be honest, I’m not very optimistic. But let’s see how the situation will develop. We’ll wait till February. I think that the situation isn’t going to change dramatically in January. And we’ll discuss this issue again in February.

HOST: As you have already mentioned, Vnesheconombank gives high priority to small and medium-sized enterprises. And when I talk to small and medium-sized businessmen they always say that it’s very difficult to get insight into various support programs. Where should businessmen turn to? Should they turn to RUSNANO, there is also the Russian Venture Company, there is Vnesheconombank.

Vladimir DMITRIEV: A year ago we agreed to closely coordinate with key development institutions that provide support for SMEs operating in the innovative sector. A relevant agreement was signed between Vnesheconombank, RUSNANO, the Russian Venture Company and the Fund for Supporting Entrepreneurship in the Innovation Sphere.

HOST: You mean all the development institutions.

Vladimir DMITRIEV: In fact, all the development institutions. Recently the Skolkovo Fund has joined the program. Factually, all important development institutions providing support for small and medium-sized enterprises that focus on assisting innovative development and modernization are united by the said agreement. We have been already involved in coordination efforts for a bit more than a year. We have already more than a hundred projects which otherwise would have never been started for the reason you’ve mentioned. People simply didn’t know where to turn to for money.

HOST: If I came up with an idea to start a nano or some other business, where I should turn to?

Vladimir DMITRIEV: Fortunately, they now know where to turn to.

HOST: Is this a principle of “single window”?

Vladimir DMITRIEV: You are absolutely right. If they turn either to the Russian Venture Company or the Bortnik Fund or to RUSNANO they are sure to receive an answer. This means that there are many windows but all this is channeled through one and the same mechanism. If they turn to us for credits in this or that field they we’ll say to them: come on guys, we are ready to provide you with money but you should go to Chubais or to the Russian Venture Company, because we already know quite well thanks to such a close coordination where a given customer can promptly and quickly receive required quality assistance   with minimum administrative costs.

HOST: We must stress that all this involves innovative products.

Vladimir DMITRIEV: There’s no doubt about it. It would look pretty strange, if a florist would turn for support to RUSNANO or to our Bank. We are working only with small and medium-sized enterprises involved in innovation business.

HOST: How did the Bank perform this year in terms of managing pension savings funds of Russians?

Vladimir DMITRIEV: To my mind, we performed pretty well, especially compared with private non-government management companies. There’s of course room for improvement. The amount of funded portion of savings pension funds under the management of the state management company is a bit less than one and a half trillion rubles. Huge funds that we should use (we have been trying to do it for a long time) in the real economy. Fortunately, we managed to do a lot in this line of activity. But I’d like to say once more that there’s still a lot that can be done. You know that our investment declaration has been expanded. Now we can invest in the bonds of reliable borrowers, that is, bonds backed by state guarantees and in mortgage-backed bonds. By the way, the requirement for guarantees was cancelled. We can invest in debt instruments of international financial institutions. But unfortunately, on the one hand, the system of issuing this sort of instruments is not perfect and on the other hand we obtained a large package of government bonds and we can’t withdraw from it because of markets’ volatility without placing bonds on a balance of losses. Nevertheless, our figures for this year, at least for the first three quarters are 5.7-5.8 per cent (depending on the loan portfolio). On average, they are better than those of non-government management companies. Of course, they fall short of inflation rate but we believe that we performed well in the current situation.

HOST: Pending the second wave of the crisis and in some experts’ opinion it has already started – there is more talk about new additional assistance to various economic sectors, specifically, to the banking sector. Is Vnesheconombank ready to lend a helping hand as it did in 2008 to Russian banks? Will there be such a need for it?

Vladimir DMITRIEV: We are ready. We are quite experienced in it. You remember that in 2008-2009 seventeen banks received more than four hundred billion from Vnesheconombank, from the National Wealth Fund.

HOST: Have they already repaid these credits?

Vladimir DMITRIEV: No, they haven’t. These credits remain to be on the balance of commercial banks as a subordinated debt. As far as some banks are concerned they are exploring the opportunity for transferring subordinated debt to first-tier capital. But I don’t think it’s a form of support in a crisis situation, I view it as a need for increasing capital, above all, in order to expand the funding of the Russian economy. I’d like to say it once more that we are ready to help if the state deems it necessary to provide such support to banks and corporations. But from my point of view, such mechanisms that were set in motion as the Finance Ministry’s auctions, deposits that can be raised from the Central Bank, mutual bank guarantees than can be used as a security instrument upon obtaining credits from the Central Bank are fully sufficient for securing the banking system’s liquidity. Nevertheless, the problem remains and it is associated not only with the current volatile and uncertain situation. The main problem is long money. And banks should address this problem only together with monetary and financial authorities. The country needs long money. To be more exact, the economy needs long money. And such money is available. There are pension funds and funds of insurance companies. And thank goodness, the first infrastructure projects have emerged where these funds are involved. These are the projects being implemented on the principles of public private partnership: Moscow-Saint-Petersburg, the Odyntsovo Bypass. In general, these are the first projects that got off to a good start.

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VEB to Help Belarus to Build Nuclear Power Plant (NPP) and Host the 2014 Ice Hockey World Championship

7 december 2011 года
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Belvnesheconombank’s project number one is to participate in funding the construction of a nuclear power station in Belarus. Moreover, the Bank will become an active and interested player in the retail service market. The Bank also plans to participate in Minsk’s preparations for the 2014 World Ice Hockey Championship.

In his interview to the Interfax-West News Agency Vnesheconombank Chairman Vladimir Dmitriev told about Belvnesheconombank’s performance and ambitious plans of VEB’s subsidiary bank.

-How does the core shareholder assess the preliminary performance of its subsidiary bank in Belarus for this year and for the past years in terms of qualitative and quantitative indicators?

-We view them as pretty successful. Despite well-known rather complicated macroeconomic conditions, this year Belvnesheconombank retained the position of a leader in the banking sector of Belarus in terms of its performance dynamics.

For example, in terms of authorized fund amount the Bank retained third place among Belarusian banks and sixth place – in terms of assets and customers’ credits. And in terms of capital adequacy ratio moved from 4th top 3d place and in terms of equity capital – from 6th to 5th place.

From January to October 2011, Belvnesheconombank’s assets increased by 2.5 times, its loan portfolio – by 3.4 times, capital adequacy ratio by 1.5 times. The Bank’s equity capital rose due to internal sources (profits and the Bank’s funds) as well as due to the subscription to additional shares conducted in August with Vnesheconombank’s direct participation. The subscription increased the authorized fund by 25% or by 154 billion Belarusian rubles. I’d like to say that only few Belarusian banks managed to increase their authorized fund.

As far as Belvnesheconombank’s qualitative indicators are concerned, during January-October the Bank increased its profits by 1.6 times from the same period last year.

Since its inception Belvnesheconombank has been one of the largest banks in the Republic servicing the real economy and specializing in servicing foreign economic activity of private and government economic entities. The Bank’s performance allows us to arrive at a conclusion that the fact that Vnesheconombank became its strategic investor provided Belvnesheconombank with an additional impetus for development. For a pretty short period of time Vnesheconombank participated in three subscriptions to the Bank’s shares and contributed 307 million US dollars to the Bank’s authorized fund which was highly instrumental in increasing it by 31 times.

-Does Belvnesheconombank meet forecast parameters provided for by its development strategy? Has this strategy been adjusted?

-OJSC Belvnesheconombank’s development strategy was developed for 2011-2015 and was approved by the Bank’s Supervisory Board in February of 2011. Actual performance indicators (as of October 1, 2011 and those projected for January 1, 2012 demonstrate that all the forecast parameters provided for by the Bank’s development strategy for the current year were met taking into account the devaluation of the Belarusian ruble.

Nevertheless, Vnesheconombank’s and Belvnesheconombank’s specialists are developing Belvnesheconombank’s development strategy for a period of up to 2015 taking into account changes that took place in the Republic’s economy and monetary sector. The concept sets forth the Bank’s development goals, key lines of its strategy implementation including competitive activity, business management, cooperation with subsidiary banks of Vnesheconombank’s Group, development of Russian-Belarusian integration ties. The concept also identifies means to achieve the set goals.

-What main risks have emerged this year and what measures has Vnesheconombank taken to reduce them?

-This year a rather complicated situation has developed in the Belarusian economy. Belvnesheconombank together with Vnesheconombank’s specialists are assessing and stress testing main risks of the Belarusian Bank with due regard to the emerging macroeconomic situation. They include credit, interest-rate, currency and liquidity loss risks. Their mutual influence on capital adequacy ratio is also being assessed.

So, integration of risk management into business processes became one of Belvnesheconombank’s main lines of activity in 2011.

As of now we can pinpoint the following competitive advantages of Belvnesheconombank:

-         stable positions in the banking system;

-          

-         extensive network of territorial subdivisions:

-          

-         extensive correspondent network: more than 600 banks in 77 countries;

-          

-         application of advanced banking information technologies;

-          

-         top-quality loan portfolio: problem loans accounted for only 0.1% as of 01.11.2011.

We are considering the possibility of increasing the share of state-run enterprises in the customer base and developing retail business as potential lines of the Bank’s further development and growth.

-What prospects for Belvnesheconombank’s development does the Russian investor see?

-Belvnesheconombank and Vnesheconombank are planning to play a key role in implementing joint projects of Belarus and Russia. These projects provide for exports of Russian and Belarusian industrial equipment, products and services, development of communications and electro-energy and transport sectors of Belarus, modernization of the road network, creation of logistics centers etc. The projects are also designed to help raise foreign investments for the Republic of Belarus.

Prospects for Belvnesheconombank’s development should be to position the Bank as Vnesheconombank’s partner in implementing interstate and other projects of Belarus and Russia funded through Vnesheconombank and position it as an expert in analyzing project proposals and in funding these projects together with Vnesheconombank. The Bank’s activity in promoting Belarusian-Russian economic cooperation is designed to reduce costs of both sides and boost financial investments efficiency. The Bank is to act as a consultant to Vneasheconombank in the course of privatization.

There are plans to expand Belvnesheconombank’s role as an agent bank for the Belarusian Government in raising and implementing investment projects funded against government guarantees through using foreign banks’ credits including those of Vnesheconombank. Belvnesheconombank is supposed to help raise foreign investments for the Republic of Belarus.

For a long time Belvnesheconombank was seen as a bank for servicing corporate sector. Do you favor Belvnesheconombank’s plans to expand retail and small and medium-sized enterprises segments?

-Earlier Belvnesheconombank focused on supporting the country’s basic industries although it was called a universal bank. But given the changing market conditions, you have to diversify your business and offer what customers need at any given moment. And this involves not only corporate customers.

I’d like to remind you that Vnesheconombank participates in providing financial support for small and medium-sized enterprises through funding credit institutions and legal entities involved in supporting small and medium-sized enterprises.

We support Belvnesheconombank’s plans to expand its activity in this sector and excellent prospects for enhancing small and medium-sized enterprises in the Republic. Belvenesheconombank is developing a product line for small and medium-sized enterprises and natural entities.

Since Vnesheconombank became majority shareholder, Belvnesheconombank has been transforming into an active and interested player in the retail service market. And it has all it needs to achieve this goal: a network of territorial subdivisions and self-service terminals, highly qualified personnel, a wide range of retail services on offer including payments with the use of bank cards.

The Bank views its activity in the retail service market as a way to efficiently raise and place financial resources, diversify its income base and banking risks. In our opinion Belvnesheconombank’s main line of developing retail business in the coming years will be to move from offering individual banking products and services to customers to forming a comprehensive model of servicing customers. It will make it possible to meet most of their needs for financial services and to service a significant share of transactions.

The outrunning growth of retail markets and the use of new competitive advantages would create conditions for increasing retail business share in Belvnesheconombank’s active-passive transactions and bring this share closer to that of transactions with corporate customers.

-Is Vnesheconombank ready to support large-scale projects in the Belarusian economy and does it consider the possibility of providing resource support for the Belarusian government?

-As I’ve already mentioned Belvneshecnombank jointly with Vnesheconombank are planning to play a key role in implementing joint projects in Belarus and Russia. As far as large-sale projects are concerned strategic sectoral priorities for 2011-2015 have been identified. They include railway and air transport, power engineering, network facilities and smelting industry.

The railway sector is funded under the Government Program of Developing Railway Transport of Belarus for 2011-2015.

The projects in the aerospace industry include a project of the State Enterprise National Airport aimed at building the second runway and a passenger terminal worth 600 million US dollars, with Belvnesheconombank’s share being 48 million US dollars. As part of the project Belvnesheonombank offered to act as an agent for the Belarusian Government in servicing credits extended by the China Eximbank which is to fund the remaining cost of the project.

The Bank is exploring the possibility of its participation in setting up a joint venture on modernizing IL-76 aircraft between OJSC Airline Transaviaexport and Russia’s OJSC Ilyushin Aviation Complex in order to create a technical maintenance and repair center for IL-76 planes in the city of Minsk. The project is estimated at 250-300 million US dollars.

Moreover, Belvnesheconombank has offered to fund the purchase of short-haul planes by the National Airline Belavia in 2013-2015 and the technical re-equipment of the aero navigation and communications systems of Belaeronavigation State Enterprise.

The Bank is to carry on funding the investment project “the Construction of a Production Building to Assemble and Test Space Systems” at OJSC Peleng.

In the Belarusian power facilities sector the Bank’s project number one is to participate in implementing the project to construct a nuclear power station. OJSC Atomstroiexport was appointed as general contractor under the project.

Financing the network facilities including Minskenergo’s project on the comprehensive construction of substations and cable lines is inextricably linked to the energy saving program. The Bank expresses its readiness to provide funds worth about 40 million US dollars to Minskenergo.

Under the development program of the UN and the Global Ecological Fund “Removing Obstacles to Increasing Energy Efficiency at Belarusian State Sector Enterprises” the Bank participated in establishing an International Energy Center with a 52% stake in the authorized fund. As a principal shareholder the Bank plans to commit 120 million US dollars to fund energy saving projects including 75 million US dollars directly through the International Energy Center.

Under Minsk’s Investment Program for 2011, Belvnesheconombank participates in the preparations for the 2014 World Ice Hockey Championship in Minsk. The Bank is funding the construction of engineering transport facilities and provision of urban amenities by Gordorstroi.

Belvnesheconombank expressed interest in funding the purchase of underground carriages by the Minsk Metropolitan in 2012 in the amount of about 1 029.2 million Russian rubles.

Is VEB determined to recapitalize Belvnesheconombank taking into account that its capital decreased because of the devaluation?

For a period of 2007-2011 Vnesheconombank’s financial support in the form of contributions to the charter capital and credit lines exceeded 900 million US dollars including 130 million US dollars in 2011. In 2011, Vnesheconombank purchased shares of Belvnesheconombank’s additional issue for an amount of 30 million US dollars. The amount of documentary transactions with Vnesheconombank reached 250 million US dollars in 2011.

The concept of Belvnesheconombank’s development up to the year 2015 provides for increasing the bank’s charter capital in 2012 and 2014 by another by 70 million US dollars as well as for extending a subordinated loan to the Bank in 2015. Nevertheless, upon updating the concept these figures will be adjusted upwards.

 

Origin: interfax.by 

 

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