“VEB Will Show a More Impressive Performance if it is not Diverted from its Core Activity”
Nationally significant, infrastructure, industrial and housing projects are funded by development institutions all over the world. Five years ago, Russia staked on such institutions establishing, in particular, a Bank for Development on the basis of Vnesheconombank of the USSR. Today, hundreds of major infrastructure, modernization or import-substituting production facilities construction projects are being implemented across the country. Most of them – with VEB’s assistance. Nevertheless, the track record of Brazil’s China’s and Germany’s development banks demonstrates that Vnesheconombank’s capabilities are not used to 100% yet for a number of reasons, Vnesheconombank VLADIMIR DMITRIEV told about this in his article specially written for the newspaper Kommersant.
Logic of Assets and Liabilities
In the past ten years development banks have been increasingly coordinating their activity with each other upgrading the paradigm of sustainable national and supranational development, project finance, corporate and social responsibility. To this end, international consortiums of development institutions are created, specifically, the International Development Finance Club, (IDFC) in the activity of which Vnesheconombank takes an active part.
Regular contacts between development banks of various countries help to thoroughly study their track record. Many of best practices used by our colleagues abroad might be effectively adopted in Russia.
Let’s look, for example, at the Brazil Development Bank – BNDES. This is the country’s leading financial institution responsible for providing long-term financing in line with the Brazilian Government’s strategic priorities. In 2010, it was ranked second among development banks of BRICS countries (after the China Development Bank). More than half of its liabilities are formed by two Brazilian state-run funds – Brazil’s Workers Support Fund (FAT) and the PIS-PASDEP FUND. These Funds are financed through tax payments from the labor remuneration fund made by employers. In their turn, the Funds deposit a significant part of accumulated financial resources in BNDES at a preferential rate that is lower than a market one. Such deposits’ maturity is 30-40 and it exceeds maturity of any market financing sources thus enabling the Bank to work the most complicated projects with long payback periods. Therefore, BNDES has no problem funding. For example, in 2010, BNDES’ capital increased by 2.5 times through using government budgetary funds. Financial resources were made available to support investment projects under the Growth Acceleration Program (PAC) and the Sustainable Investment Program (PSI).
BNDES’ example demonstrates an inexorable logic of its liabilities to assets ratio. Given that investments made by a classical development bank go by definition beyond purely market projects, it’s logical that sources of funding a development bank can’t be purely market ones.
It should be noted that at present this operating logic isn’t being followed to a full extent as Vnesheconombank has a significant portion of purely market liabilities. After the state’s contribution to the Bank’s charter capital VEB didn’t receive any budgetary or quasi-budgetary resources not directly linked to specific projects. The Central Bank’s deposits placed with the Bank are paid ones – the Bank makes interest payments on them in the amount of 13 billion rubles per year.
And VEB’s assets are largely non-market ones. These are investments in projects whose payback periods are a lot longer than average market ones but they have high social externalities. All over the world, high social externalities of infrastructure and economic projects are funded by taxpayers.
In this sense, Vnesheconombank set a precedent: it made a number of successful borrowings on domestic and foreign markets and this allows the Bank to undertake its core activities. At the same time, some alarming signals we received from the market at the end of 2011 show that for the Bank to develop continuously and fund investment projects it is extremely important to have room for maneuver. In our opinion, one of such opportunities is to expand the list of instruments for investing pension savings funds as well as financial resources of the National Wealth Fund. We discussed this issue at a collegium of the Finance Ministry in April of 2012. We believe that it makes sense to include infrastructure bonds into VEB’s investment portfolio. It’s of primary importance to use resources mobilized through issuing the said bonds in a strictly targeted way against direct guarantees of the Finance Ministry.
We need to connect the country
It’s pretty logical to use infrastructure bonds for building railways. In this sense, China and the China Development Bank are success stories. The China Development Bank (CDB) is designed to extend credits at low interest rates to fund infrastructure and basic economic sectors. China’s National Development and Reform Commission is responsible for selecting facilities for funding. One of CDB’s priorities over the last years has been to fund the construction of a high speed railways network. In terms of high-speed railways mileage (about 8 thousand km) China is ranked first in the world today. The amount of funds that CDB invested in the construction of national railways was $25.7 billion by the end of 2010. The following railway lines were built – Guangzhou – Wuhan line with a mileage of 1068 km and with an average commercial train speed of 350 km/h (maximum speed is 394 km/h), this speed is a lot higher than that of high-speed lines in Japan and France. The key funding source of these and other sectoral investments is CDB – it issued special bonds - the so called policy banks financial bonds.
We have also high-speed railways construction projects in Russia but their practical implementation is hampered by problems associated with raising funds. OJSC RZHD’s investment program deficit only for the coming years is estimated at 400 billion rubles and a scheme for closing this deficit through issuing infrastructure bonds with state guarantees hasn’t found any support so far. At present, an estimated amount of investments in the high-speed rail project-1 – a railway that would connect Moscow and Saint-Petersburg is 500-700 billion rubles. This project’s funding is not allowed for in the federal budget for 2012 and 2013. In our opinion the said deficit might be closed through issuing infrastructure bonds.
Skeptics say that if these bonds are not secured by direct and full guarantees their investment appeal will be low. But the world’s experience in funding infrastructure projects is pretty considerable. In particular, such infrastructure bonds can be secured through using tax increment financing generated as a result of implementing projects.
Financing requirements of Russian project-initiating companies are extremely high and they of course exceed Vnesheconombank’s current capabilities. And in connection with this we believe that it is of overriding importance to maximally concentrate the Bank’s resources on undertaking its core activity and reducing the amount of its non-core activities. Unfortunately, at present we often come up against important and responsible objectives that must be accomplished but they are not fully in line with the Bank’s core activities.
As opposed to Vnesheconombank, Brazil’s BNDES hasn’t factually any sectoral restrictions in terms of sectors where it can invest funds. VEB’s Memorandum on Financial Policies bars Vnesheconombank from investing credit resources in oil production but BNDES is actively lending to Brazilian oil companies, specifically, to Petrobras and mining giant Company VALE. It also funds bioethanol production projects, beef stock farming as well as power engineering and high technologies.
We can say that although sectoral restrictions in Russia are justified because the country seeks to overcome its dependence on raw materials we believe that another restriction that BNDES doesn’t have is unnecessary. Here we mean that companies that receive BNDES’ financial support can be controlled even by foreigners. The only principal requirement is that they must be registered in Brazil and have their headquarters and corporate governance bodies on the country’s territory. It is an instructive example of creating a clear incentive for refusing to register companies operating national assets in offshore zones.
Stages and sequence of removng industrial and scope constraints on businesses and projects supported by VEB are a matter of serious analysis and discussion. Vnesheconombank has already initiated the removal of a 25 percent limit on foreign ownership in those SMEs that receive support from Vnesheconombank Group, including through our subsidiary SME Bank. Relevant discussions with legislators are already underway.
Another aspect of our business, which requires thorough consideration, is a kind of problem faced by medium-sized enterprises. The fact is that a lower limit of loans amount granted by Vnesheconombank directly to end borrowers, is today 1 billion rubles. At the same time, an upper limit of SME loans, refinanced under the program of our subsidiary SME Bank is 150 million rubles. As a result, all mid-term loans ranging from 150 million to 1 billion rubles are regulatorily excluded from the area of our expert examination and support, although in this range of loans there is a huge loan gap that can’t be closed by commercial banks.
There may be different solutions to this regulatory conflict. They might include additional capitalization through using budgetary funds, and expanding the functions of SME Bank (Vnesheconombank has already decided to transfer 10% of its profits to SME Bank each year). However, international practice suggests that we should create a special mechanism, a special window to provide support for the fast-growing medium-sized enterprises. For example, BNDES has a program of opening automatic credit lines - BNDES Automatico. Credits are extended through authorized banks and organizations for a long period of time with a grace period. Therefore, this is another possibility, which we use in our practice, that is, a creation of specialized structures to support medium-sized enterprises. VEB is currently holding negotiations with German corporation KfW to establish a fund which would meet financing requirements of medium-sized enterprises. At the same time, we are actively cooperating with the Strategic Initiatives Agency, which supports medium-sized enterprises. At the same time, there is no doubt that this line of activity should be improved.
It would be wrong to think that development banks’ activities focus exclusively on mega projects in infrastructure and heavy industry sectors. The most important line of their activities is to provide support for housing construction and development of housing market. In this respect, business experience of the German development bank, Kreditanstalt fuer Wiederaufbau (its assets as of the end of 2010 were $591 billion, second place in the world) is extremely instructive. It is worth noting that KfW is the largest issuer of corporate bonds in Europe, with all its borrowings being covered by a sovereign guarantee.
There are currently ten programs of KfW to support and develop housing stock in Germany. Their total financing amount in 2010 reached 18 billion euros. The programs are aimed primarily at energy-efficient modernization of housing stock, and at adapting housing for the elderly, energy-efficient construction and maintenance, assisting in acquiring stakes in housing co-operatives.
It is important to note that KfW does not provide funding for all these programs directly to consumers, but through refinancing commercial banks and specialized financial institutions.
VEB’s support for the housing market today is limited to relatively small amounts of bonds that it buys out from the Housing Mortgage Lending Agency and bonds of commercial banks, secured by pools of standard mortgage loans, with the said bonds’ limited yields (weighted average coupon yield of not more than 7% per annum). The severity of the housing problem in Russia today, where 60% of its population is unable to improve their living conditions in a market or non-market way, and 15-20% of households have to live under one roof, makes it necessary for Vnesheconombank to step up its efforts in this line of activity. It seems justified to expand forms and ease terms of VEB’s refinancing commercial banks’ mortgage lending programs.
In the coming years, Russia will embark on a massive re-industrialization. In this regard, it is obvious that the Bank for Development will play a significant role in this process: we have gained extensive experience in arranging for financing large-scale and very complicated projects, we have an excellent reputation that enables us to arrange for borrowings on unique terms and we set up Vnesheconombank Group which is capable of taking various measures for diversifying the Russian economy.
At the same time, in order to achieve major and ambitious objectives we need to maximally concentrate all our resources in the most efficient way. I am sure, Vnesheconombank will be able to show more impressive results if it is not diverted from its core activity and legislative restrictions in its activity are eased and it is given a chance to use monetary resources at the state’s disposal in the most efficient way. And in this case, the last component of success will be prioritization: we need to choose several sectors in which Russia hasn’t lost its competitive edge and base new reindustrialization and modernization on them. In this respect, it makes sense to look at Brazilian company Embraer’s track record. It has been trying to become a member of the world’s elite of aircraft manufacturers since 1969. The company became successful only in the mid 1990s when it concentrated its efforts on creating small regional aircraft having frozen for the time being all other lines of development and manufacturing. Having produced its first aircraft in 1996, the company started to energetically tap the national market gradually going beyond its limits and establishing distribution centers in the U.S., Asia, Europe and even in Africa.
Embraer was among the Brazilian Bank’s top-priority projects for many years being one of the largest and credit recipients and the main beneficiary of the support program. Moreover, BNDES’ support for Emraer was not limited to money alone. Having locked horns with Canada’s Bombardier in a fight for air carriers’ orders throughout the world, BNDES managed to beat off Canadians’ claims fraught with severe sanctions within the WTO when they accused Embraer of enjoying government subsidies. Investigations and negotiations reached a deadlock when Brazilians put forward convincing arguments that Bombardier used similar but although intricately structured preferences from their government.
Today, Embraer’s planes are operating in airlines of many countries including CIS and Russia competing fiercely with Russia’s new regional SSJ-100 aircraft created with Vnesheconombank’s financial assistance.
Embraer’s success story shows that it is extremely important for development banks to conduct expert examination of projects they fund at the initial stage of their development and then support export expansion of proven industrial models and it also confirms that we should concentrate our resources on boosting competitive edge. There are a number of efficient sectors in Russia such as its defense industry, aviation industry, pharmaceutics, power engineering industry, space technologies. If we stake on them we’ll succeed.
Specifics of model or growth ceilings
A choice of operating model used by a development bank has its pluses and minuses. I have already mentioned that unlike leading national development institutions whose resources are replenished by the state on a regular basis, VEB has to replenish its resources through raising funds on the market. And the Bank does not have current accounts of corporate clients and natural persons. The Bank is not allowed to compete with commercial banks. This requirement was formulated and set forth in Vnesheconombank’s Memorandum on Financial Policies. This means that Vnesheconombank’s financial capabilities depend on the conditions of world financial markets and the Bank itself is audited by international companies and rated by international rating agencies and the cost and potential amount of borrowings depend on our balance. Despite the unfavorable market conditions in the past four years, VEB has been doing pretty well on the borrowings market. Up until now the Bank has been able to make borrowings on the most favorable terms and factually VEB managed to borrow as much capital as it needed. But it’s obvious that the Bank’s borrowing capabilities and hence its investment potential depend heavily on market conditions and any deterioration in the global economy will immediately trigger increased competition for credit resources and toughen policies of international issue centers.
We have often heard that VEB could replenish its investment purse through selling a number of its assets and above all non-core assets it received during the 2008-2009 crisis. They offer us to get rid of Globex Bank and Svyaz-Bank before the end of the current year. We are sure to withdraw from these banks capital but we’ll do it when we are able to generate proceeds for them and for problem assets bought out from their balances that are no less than the funds we spent to purchase them in order to avert negative budgetary efficiency of rehabilitation procedures. But it would be wrong to rely on these transactions as substantial sources of replenishing VEB’s resources. It would be more realistic to repay the Central Bank’s deposit. We can’t sell these banks on the sluggish market today. There are no buyers ready to pay for Svyaz-Bank and Globex as much as we would like to get. And these assets are pretty large. The banks are among the thirty largest banks in terms of assets and their total capital is 44 billion rubles.
A conservative approach to a policy of borrowings used by VEB implies that an amount of funds the Bank plans to raise on the capital market is no more than 4 rubles for one ruble of is charter capital. We’ll reach this ceiling by 2015. And this is a minimum that Vnesheconombank can reach, given its current amount of charter capital. The amount of VEB’s assets has already exceeded 2 trillion rubles. It’s quite a number but as compared with a number of colleagues, for example, with Germany’s KfW (the amount of its assets in 2010 was 442 billion euros) and BNDES (the amount of its assets in 2010 was $331 billion) and against the backdrop of Russia’s increasing demand for investments, it’s not much.
Nevertheless, development banks’ activities are associated with serious risks and in order to take them on their balances such banks should have significant capital. Therefore, our task today is to expand VEB’s funding base and this task can be fulfilled only by the economic authorities, given the Bank’s limited room for maneuver.
Perhaps, the most important lesson we should learn from analyzing foreign development banks’ track record is that their efficient activity is directly linked to identifying strategic objectives of their countries’ economic and social development. Development banks are highly instrumental in developing, examining and implementing national economic policy. And they can achieve more ambitious objectives if they adopt a more systemic and strategic approach.
“Our Projects’ Implementation Will Make it Possible to Create up to 36 Thousand Jobs in Mono-Cities
- Will you tell us about Vnesheconombank’s role in modernizing mono-cities?
- As a state-run development institution VEB provides support for mono-cities along the two lines of activity. On the one hand it’s the activity undertaken by the Governmental Working Group on Modernizing Mono-Cities, which I am in charge of. This Group is responsible for selecting infrastructure projects for them to be funded from the budget. It is within this line of the Bank’s activity the Working Group worked out all the decisions on providing state support for mono-cities. In 2010-2011, about 25 billion rubles were made available under this program. A part of this amount was used to repair apartment buildings and relocate people from unfit for use housing stock. In addition, 2 billion rubles were allocated to provide support for small and medium-sized enterprises. And about 15 billon rubles were made available to fund the construction of infrastructure. Upon implementing each project there was a specific set of infrastructure in each city. By infrastructure here I mean power transmission lines, water pipe lines and sewage treatment plants.
The second line of activity: As a credit institution Vnesheconombank forms a prospective portfolio of investment projects scheduled to be implemented in mono-cities. We select projects that might radically influence development of territories and become points of industrial growth. As of today, we have 37 mono-city projects worth more than30 billion rubles in our portfolio. Their implementation will make it possible to create 36 thousand jobs.
- Could you tell us about these projects and their specifics in more detail? What are the criteria for selecting projects? Who can turn to the Bank for financing?
- Portfolio structure of mono-city projects is extremely diverse both in terms of sectors and priorities. In our Bank’s portfolio we have projects associated with financial rehabilitation, deep modernization of traditional city-forming production facilities and with boosting their competitive edge (OJSC KAMAZ, OJSC Helicopters of Russia). There aren’t many of them: only 9 out of 37. Most projects are aimed at creating alternative production facilities in mono-cities.
If we look at our portfolio’s regional structure we can see that the Volga Federal District is in the lead (63%), specifically, the Republic of Tatarstan. Tatarstan mono-cities have the best indicators of infrastructure facilities readiness. The facilities were created through using federal budgetary funds as part of supporting mono-cities.
It should be stressed that the Bank supports not only the infrastructure construction projects financed through using federal budgetary funds (for example the solar modules plant in the city of Novocheboksarsk) but also projects in other mono-cities. These include the project on the construction of an ammonia processing complex in Mendeleevsk of the Republic of Tatarstan and a project in power engineering in Tutaev of the Yaroslavl region.
I’d also like to tell you about industrial and techno parks as one of the most advanced forms of diversifying mono-cities’ economy.
Our experience in implementing the state program showed that out of the funds committed to mono-cities 30% was used to create industrial parks and often on a brownfield basis, that is, on the basis of abandoned areas of city-forming enterprises. This form of implementing projects proved to be less risky and more profitable, because here we have infrastructure in place and there are often companies responsible for servicing primary production facilities and there are no problems with electricity, gas and water.
Engaging an investor with an anchor project into an industrial park encourages the development of small and medium-sized enterprises. And this gives a significant impetus for increased business activity in the region.
For example, the Master Industrial Park in Naberezhnye Chelny in the Republic of Tatartstan. It is comprised of more than 180 residents including those from neighboring entities. More than 2 thousand jobs were created in this park. The budget effect from this park’s companies’ activities has already amounted to more than 3.5billion rubles. I’d like to cite you another example - the Sokol Park in the Vologda region. In 2010, under the state program of modernizing mono-cities, federal funds worth 109.2 million rubles were provided for the construction and reconstruction of this park’s engineering infrastructure facilities. At the same time, the construction of a biofuel production plant on its territory has already been completed. All in all, more than 20 residents are scheduled to be deployed in the park. In parallel to funding major anchor projects included in comprehensive plans for modernizing mono-cities, Vnesheconombank provides support for small and medium-sized enterprises through its subsidiaries, namely, Globexbank, Svyaz-Bank and SME Bank.
- Mono-Cities are factually an open niche for opening production facilities alternative to city-forming ones. To put it differently, this sector should be attractive for business and private investments. Nevertheless, VEB is actively participating in such projects. What’s the reason for this?
- I wouldn’t say that mono-cities are the most attractive places. Moreover, investors are often reluctant to put their money in them. What is a mono-city like? A mono-city is an old driving force of economy. They used to be the cities where such large sectors as defense industrial and research complexes developed. These are such cities as Togliatti, Naberezhnye Chelny, Zheleznogorsk, Sarov and former Arzamas-16. As a state development institution Vnesheconombank should do its best to engage investor in them.
Program “Development Projects” as of 16.06.2012
Vnesheconombank Chairman V.A. Dmitriev’s Interview to TV Channel Russia 24
TV Channel Russia 24
HOST: 5 years ago on May 17, 2007 President Putin signed a Law on the Bank for Development. This institution’s powers were transferred to Vnesheconombank. 5 years have passed and what results have been achieved? My colleague Evelina Zakamskaya talked to Vnesheconombank Chairman Vladimir Dmitriev.
Correspondent Evelina Zakamskaya
CORR: Good evening Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: good evening Evelina.
CORR: Thank you for coming to our studio. Vladimir Alexandrovich I remember quite well a meeting of the government and complex lively discussions in the government on the need for creating such an institution which was supposed to accumulate significant government resources - to my mind about 180 billion rubles. The Bank did not focus on generating profits and was authorized to fund and subsidize major investment projects. Why did you believe in the idea of creating such a bank and did the idea prove its worth?
Vladimir DMITRIEV: At that time, many viewed the idea as unrealistic and sometimes even absurd.
CORR: We can even say who those people were. Premier Fradkov put forward the idea and Alexei Kudrin and Herman Gref argued against it. I remember it very well.
Vladimir DMITRIEV: You are quite right, we had to come up against a lot of opponents; we had to persuade and prove the need for creating such a bank and even talk about its advantages. At that time, Vnesheconombank was still called the Bank for Foreign Economic Affairs of the USSR and we were under a real threat of being transferred into an ordinary agency responsible for assisting the Finance Ministry in servicing foreign debts and claims to foreign states. But for us, VEB’s employees, the bank established in 1924 as a bank for foreign trade had for all those years become a bank for development. It raised investments, rendered financial assistance in the construction of large industrial facilities both in our country and abroad taking on functions of a development institution inside the country and a function of promoting industrial exports. The Bank was the first legal entity in our country to have placed eurobonds in the Soviet time. And by the way, despite the default of the Soviet Union, it was these bonds that were being served promptly and in full but by that time in a sovereign Russia. Thus, the idea came into being in its own right from the bank’s track record since the bank’s inception.
CORR: This means that Vnesheconombank’s main advantage is its image because similar institutions already existed. For example, the Russian Development Bank was already in place in 2007.
Vladimir DMITRIEV: Yes, there were development institutions. The Russian Development Bank was in place but it was for the most part designed to support small and medium-sized enterprises. But in terms of its size, legal and organizational framework, this bank along with the Russian Export-Import Bank were the banks operating in the system of Russian commercial banks. Therefore, all regulations of the Central Bank were applicable to them including provisioning and limits and this limited their operation as full-fledged development institutions designed to support major industrial projects.
CORR: What was the state guided by when it determined the Bank’s status as a state corporation rather than a joint stock company. We know that similar institutions abroad, in other countries have different statuses, for example, I think that the China State Development Bank is a joint stock company.
Vladimir DMITRIEV: It must be kept in mind that our Bank was being set up as a special institution and only after a lapse of several years the question of transforming it into a joint stock company came up. Nevertheless, being a joint stock company, the China State Development Bank is owned by a state-run company, namely, the China Investment Fund. There are other legal and organizational frameworks too. For example, the Development Bank of Germany (KfW) operates in the domain of public law. So, when we were establishing our Bank we relied on the experience of foreign states and were well aware that we should not create another state-run giant with the same powers as commercial banks. First, if we had retained a standard legal framework incidental to ordinary banks we would of course have competed against them. And it goes without saying that we would have driven private commercial banks out of business.
CORR: Other banks wouldn’t have been able to compete against your Bank.
Vladimir DMITRIEV: The most important thing is that competition would have eliminated other private commercial banks. The Bank has a completely different mission than that of commercial banks. So, we chose a legal and organizational network that is stipulated in our legislation, namely, a non-profit organization - a state corporation. I hope that in the near future these debates will die out because as far as Vnesheconombank and the Deposit Insurance Agency are concerned, an unequivocal decision was taken that they are to operate on the basis of a definite legal and organizational framework applicable only to them as legal entities of public law.
CORR: Doesn’t the fact that the Bank doesn’t focus on generating profits prevent it from developing efficient management? It turns out that if you have money you are fine and if don’t have money you are fine too.
Vladimir DMITRIEV: Factually, profits that we generate…
CORR: After all, Do you generate profits ?
Vladimir DMITRIEV: We generate profits. Moreover the law stipulates that the Bank is to operate on a break-even basis. And we use our profits to capitalize our Bank and our subsidiary banks, for example, the Bank for Supporting Small and Medium-Sized Enterprises. This bank’s strategy provides for Vnesheconombank to annually allocate up to 10% of its profits for its capitalization. And this in its turn would allow it to cumulatively increase its loan portfolio and provide support for regional banks operating with small and medium-sized enterprises as well as support infrastructure of small and medium-sized enterprises. We should also keep in mind that profits are used to motivate our employees. But frankly speaking, in terms of salaries, our employees’ salaries are lower than those in commercial banks and banks with state participation but this doesn’t discourage highly qualified professionals from working in our bank.
CORR: In order not to discourage employees you double bonuses for top managers and this results in reduced profits.
Vladimir DMITRIEV: It’s not a matter of doubling bonuses but of implementing a bonus system. We launched it only last year, up until that time the system was out of question. Our employees received bonuses but our top management above all Board members didn’t receive bonuses till last year. So, salaries for 2011 are a lot bigger compared with those for 2010. But I’d like to remind you once more that compared with top management of other commercial banks we are lagging behind a lot.
CORR: Do you think the timing is right for incentivizing employees. Experts say that as salaries and bonuses of top management increase Vnesheconombank’s profits dwindle. What does reduction in profits show as a whole? Looking at the Bank’s track record there remains a big question mark about how much you should invest in long-term risky projects on the one hand and how you should undertake some banking activity working as a bank on the other hand.
Vladimir DMITRIEV: In fact, we undertake a full-fledged banking activity. After all we are working with market instruments including those on the stock market. Therefore, market volatility influences our activity. Let’s recollect the year 2009. Financial resources of the National Wealth Fund in the amount of 175 billion rubles were transferred into our management. After the crisis, the stock market went up significantly and we managed to generate profits from investing the funds in the amount of 100 billion rubles. We returned both 175 billion rubles and interest for using these funds to the Finance Ministry and we also earned 100 billion rubles. We used them to support the mortgage lending program and to extend subsidized loans to fund Olympic projects. But in 2010 and in 2011 the situation was completely different in terms of the stock market and in terms of projects that we are implementing on the terms that are much favorable for borrowers than those offered by commercial banks. Hence our profits dwindled. As opposed to other development institutions in Germany, Brazil, our Bank operates under less favorable conditions in terms of funding our core activity. For example, Germany’s development bank – all its borrowings are guaranteed by the state. This means that Germany’s development bank borrows at rates at which the state itself borrows. Let’s take for example the Brazil Development Bank. Pension savings funds are a significant part of financial resources used to fund its operations. Here I mean employers’ deductions from salary fund at preferential deposit rates and these rates are significantly lower than market ones and these funds are put in the Brazil Development Bank for a long period of up to 30 years and this allows it to fund its active operations, lend the economy and invest. In 2007, we received a contribution worth 180 billion rubles to our Bank’s capital. Now our charter capital is about 370 billion rubles. And this is the main source to fund our operations besides funding on the open markets – these are syndications and bond issues. We have no other sources. Unlike commercial banks that raise deposits of natural persons in whose accounts they have funds of corporate customers we are not allowed by law to raise deposits of natural persons. We can raise funds for clearing accounts of customers which we lend under investment projects. So, we don’t regard these funds as a source of funding our operations.
CORR: But even if you are given all these instruments, commercial banks won’t be able to compete against you.
Vladimir DMITRIEV: You know, actually we do not insist on this.
CORR: You are indeed insisting on removing restrictions on investing pension savings funds. What additional instruments does VEB need now?
Vladimir DMITRIEV: There are certain restrictions on purchasing bonds of Russian issuers. For example, we are allowed to buy out only 30% of a total amount of bond issue by using pension savings funds. We can participate only in 40% of one issue of the issuer. Now we are raising a question of doubling these volumes. Now pension savings funds, in the amount of 1 trillion 300 billion rubles are under our management. It’s a huge sum of money. And only 250 billion rubles out of this enormous sum of money are invested in corporate borrowers’ bonds, the remaining funds are invested in government bonds. Nevertheless, not everything depends on our capabilities and expansion of our investment declaration. A lot depends on the quality of issuers, on Russian issuers’ capabilities to issue appropriate bonds. When I’m talking about restrictions I mean that the other part of a bond issue should be purchased on the free market by banks and investment companies and those interested in this customer. And rates at which we purchase bonds should be the same, that is, bond coupons. It’s hard to imagine a situation when, for example, the Russian Railways place a bond issue worth 15 billion rubles a third or half of which will be bought out by Vnesheconombank at a coupon rate of 5% and the remaining part will be bought out by the market at a coupon rate of 10%. Hence, purely objective restrictions on investing our portfolio. But somehow the problem is being addressed. The Pension Fund backs us and I believe that in the Government and in line ministries they realize that pension savings funds must work for the economy (these funds are long money that will see their owners only in 2022).
CORR: Vnesheconombank delivered the best performance on managing pension funds for the past year. You failed to beat inflation but you were maximally close to it. Non-government pension funds and managing companies obtained worse results. What are your projections for this year?
Vladimir DMITRIEV: For all that, performance of the state management company as well as other companies responsible for managing pension savings funds should be assessed at a more long distance because we operate in a volatile environment, conduct transactions with bonds which are instruments of the stock market. And this volatility and fluctuations in market conditions have an impact on our activity. Our two main objectives are to protect pension savings funds and generate yields above inflation. Let’s approach this issue differently. Let’s fight inflation.
CORR: I think there’s nobody against it.
Vladimir DMITRIEV: We are working hard in a professional way but not everything depends on us.
CORR: Summing up the results of Vnesheconombank’s activity for a five-year period it would be wrong not to mention the projects you managed to fund for all this time. Let’s recollect the most important ones. You can start with the Sochi Olympics.
Vladimir DMITRIEV: In fact, we have a good work history. The Bank for Development project proved its worth. I can mention the projects that were recognized as the best ones not only by us but also by competent international experts in terms of project financing and raising foreign investments. This is the Tobolsk Associated Petroleum Gas Processing and Utilization Plant Project. This large-scale plant is to manufacture fully import-substituting products. The project is advancing as a cluster as it will result in creating new jobs around the project area. The project will engage small and medium-sized enterprises. Another project is the Khabarovsk Oil Refinery. Last year, the project was recognized as Best Deal of the Year in the countries of Central and Easter Europe in terms of raising foreign banks’ syndications, credits to modernize this production facility. These are also our infrastructure projects such as Pulkovo, segment 15-58 of Moscow-Saint Petersburg motorway and Olympic projects you have mentioned. Although I travel to Sochi to see how international competitions are held at the Olympic facilities being built through using Vnesheconombank’s funds my dream is to visit the Sochi Winter Olympics to watch competitions with my own eyes. I was in Sochi last week. Vladimir Putin conducted a meeting there devoted to the Sochi Olympics. A great job has been done there. I was in the Imereti plain two years ago, they were hardly finishing the initial construction work. And now there are beautiful buildings, a new ice arena, a media center, a complex for administration of the Olympics and many other facilities constructed through using Vnesheconombank’s funds.
CORR: Olympstroy Corporation has said recently that it is ready to terminate its agreement with Vnesheconombank. What does this mean?
Vladimir DMITRIEV: This means that a decision made by Vnesheconombank’s Supervisory Board is being implemented. Under this decision Olympstroy’s surety is to be replaced by budgetary guarantees to compensate Vnesheconombank, in case of a project failure, funds allocated for this project’s implementation. It’s quite natural. It’s another matter that the surety will be replaced only when a law on the budget for 2012, 2013, 2014 is enacted.
CORR: Another result of the five-year-period is that today we are talking not simply about Vnesheconombank but about Vnesheconombank Group which is comprised of VEB-Leasing, the Direct Investment Fund, Bank Globex and others. What functions in this case does VEB retain as a head office? Maybe the Bank for Development will be divided into sectoral institutions.
Vladimir DMITRIEV: You should take into account one important special feature – none of development banks in other countries has accumulated as many functions as Vnesheconombank has. I’d like to remind you that our Bank is still the agent for the Finance Ministry in servicing foreign debt and financial assets; our Bank is also an agent for extending guarantees to enterprises operating in strategic sectors. Many of the assets you’ve mentioned engage in activities which we are not supposed to undertake. We were compelled to provide support for such commercial banks as Globex and Svyazbank in 2008 because there was no mechanism at that time to enable the Deposit Insurance Agency to cope with such situations and rehabilitate banks that were at the pre-bankruptcy stage. Of course, several years from now we’ll raise a question of selling these banks to the market: either to a strategic investor or through IPO. You’ve mentioned VEB-Leasing. It’s the largest leasing company in our country in terms of leasing transactions volume and leasing portfolio volume. But it has the same mission as Vnesheconombank. It supports infrastructure, provides support for major enterprises, shipbuilding industry, automotive industry. In fact, SME Bank provided support for small and medium-sized enterprises and regional banks.
CORR: Should all these institutions be under your management or should they become independent in the long run?
Vladimir DMITRIEV: I do not rule out that in prospect they will become independent entities but if the state believes that these institutions should pursue some government policy we have to find appropriate forms of corporate governance for this policy to become these institutions’ mission.
CORR: Having become independent in the long run should your subsidiaries remain to be state-run institutions or might they be transformed into joint stock companies?
Vladimir DMITRIEV: They might as well be transformed into joint stock companies. Let’s for example look at the track record of Germany’s Development Bank. Earlier, it combined functions of supporting small and medium-sized enterprises and functions of supporting industrial exports. Later on, these functions were assigned to individual institutions and now this development bank is comprised of several banks responsible for implementing various missions.
CORR: And now my last question. What else would you like to do? Have you got a plan for the next five-year period?
Vladimir DMITRIEV: We have a strategy. We’d like to do a lot of things and most importantly, we would like our Bank to sustainably and steadfastly implement its main mission of supporting the Russian economy, small and medium-sized enterprises and Russian industrial exports and operating in top-priority sectors. And we expect our partners and the state to help us in this mission.
CORR: A very good mission and an honorable one. I wish you every success. Thank you.
Vladimir DMITRIEV: Thank you.
Vnesheconombank PPP Center Director Alexander Bazhenov’s Interview to TV Channel Russia 24
TV Channel Russia 24
Host Nikolay Korzhenevsky
HOST: Let’s go on discussing economic issues, namely, development of the Far East and the Baikal region. Our guest in the studio is Vnesheconombank Public Private Partnership Directorate Director Alexandr Bazhenov. Good evening Alexandr. There is a special corporation to be responsible for this region’s development. Could you tell us about what sort of institution it is and about its functions.
Alexandr BAZHENOV, Vnesheconombank Public Private Partnership Directorate Director: I have to explain here. We have the Far East and the Baikal Region Development Fund. It was set up by Vnesheconombank last year under its Supervisory Board’s decision. We spent a lot of time with the regions to launch this Fund and work out its business concept. And idea of establishing a state corporation was put forward by Sergei Shoigu last January and it was presented to the Prime Minister. And it took a lot of time to develop a potential special draft law on special conditions for economic management and development of the Far East and Siberia as the center of economic activity was moving to the Pacific Region.
HOST: What did this discussion result in the end?
Alexandr BAZHENOV: It’s still going on. We’ll find out pretty soon.
HOST: What are the preliminary results?
Alexandr BAZHENOV: Nevertheless, we know that at a meeting of the United Russia faction when Dmitry Medvedev was being approved as Prime Minister he said that at this stage we had to form mechanisms for managing the Far East and the Baikal region similar to those that already existed in the North Caucasus. We know that in the North Caucasus one person holds the post of Presidential Envoy and Prime Minister of the region. There is also a special government commission headed by the Prime Minister. At the same time, there is also the North Caucasus Development Corporation – a special institution created by Vnesheconombank to support investment processes and a whole number of special instruments also designed to support investment processes, for example, such as mechanisms of state guarantees for investment projects in the North Caucasus and a special mechanism of state guarantees for investment projects to be implemented in the Chechen Republic. And a special program of the North Caucasus development is being drawn up now by the Regional Development Ministry. There is also a special institution there which is responsible for creating a whole number of special economic zones designed to develop tourist activity in North Caucasian resorts and Vnesheconombank is also represented in this institution’s management. As applied to the Far East, it means that we also should take into account its specifics and develop appropriate instruments. My understanding is that a special corporation responsible for development of such macro region that accounts for 49% of the entire Russian territory is of cause a challenge and this challenge should not undermine the whole economic and political management system.
HOST: To my best knowledge, there were ideas of setting up a Direct Investment Fund in this region. Why did the ideas fall through?
Alexandr BAZHENOV: Some time ago, Presidential Envoy Victor Ishaev proposed that the Government should appoint Vnesheconombank as general investor in the development of the Far East. He made this proposal during the crisis when it became evident that it was quite difficult to ensure the development of the Far East through using only budgetary funds to finance capital investments. This is quite obvious because in the time crisis most of funds are channeled to the most populous areas with highly advanced economy to ensure economic and political stability and the Far East has a sparse population and an undeveloped economy. So, in the time of crisis we could have sustained development through non-budgetary financing. So, Vnesheconombank came into play. Vnesheconombank’s Supervisory Board instructed us to develop a concept of setting up a Direct Investment Fund of the Far East. And we dealt with it for almost the whole last year together with Russian constituent entities, the Economic Development Ministry, the Regional Development Ministry and the Finance Ministry. What conclusion did we arrive at? We decided to determine the kind of projects, their status and a potential for making direct investments in them as well as investors’ attitudes and the kind of investment base. As far as projects are concerned the situation there is pretty complex. There is a huge demand for investments there. It exceeded 10 trillion rubles and there were about 2800 project initiatives at a time of developing a program aimed at the Far East development. And we always have problem understanding where we have an investment project and where we use budgetary funds to finance capital investments. An investment project is based on the following principles: a project period, interest payments on credits and recoverability of used funds. 12 Russian constituent entities that are included in the region offered us about 195 projects. Out of these 195 projects only about 20% projects could be good for project financing and for financing in the form of direct investments, that is, for entering into capital of relevant engineering companies.
HOST: What amount of funds is needed for 20%?
Alexandr BAZHENOV: About 350 billion rubles. About 10% of projects with the stated amount of funds is currently in the advanced stage and can be supported by Vnesheconombank and other investors. And 60% of projects, given their current structuring status, can’t be financed by private investors or funded with non-budgetary funds because they are not structured properly. They do not provide for recoverability of funds.
HOST: 10 trillion rubles – how much time is needed to invest these funds? How much money out of this sum can be in fact invested in projects?
Alexandr BAZHENOV: Some research has been done by the Academy of Sciences and Moscow State University (MGU) on investment potential for this region’s development till 2030. Their estimate is 20 trillion till 2030. We are talking about 195 projects worth 3.5 trillion rubles that regions regard as realistic ones. One project in this list is worth 800 billion rubles, it is aimed at increasing BAM’s throughput capacity to ensure the development of all territories to the north and east of Siberia. This is a huge amount of funds. But even 3.5 trillion is a justified demand. Projects worth 1.5, 2.5, 8 billion rubles associated with comprehensive development of territories, infrastructure and industrial development are implemented every year throughout the world and we can offer them to the market but we have to structure them in such a way that they are attractive to the market.
HOST: If we are talking about 3.5 trillion rubles, how much money out of this amount can Vnesheconombank invest using various mechanisms? How are you planning to fund these projects in the near future, I mean those 195 projects that are in a rather acceptable condition?
Alexandr BAZHENOV: Using its set of instruments Vnesheconombank is already participating in funding investment projects in the Far East and our participation share is about 270 billion rubles and earlier we assumed obligations worth 195 billion rubles. And now we understand that 3.5 trillion rubles are a huge amount of funds and one institution can’t provide this amount of financing. We have to create conditions for engaging other investors. In this respect, VEB’s Supervisory Board took a decision that provides for Vnesheconombank to create special conditions for its participation in funding projects in the Far East. A principal condition provides for Vnesheconombank’s participation in funding investment projects in the Far East in the form of subordinated credits provided that 20% of projects’ value is to be funded by private investors. Up to 20% of a project’s value can be funded by Vnesheconombank’s credits that would be subordinated with regard to other credit from commercial sources, maybe from international sources, maybe through using pension funds. Thus, we reduce risks for these other sources of funding.
HOST: So, there is some concession, some privilege for other creditors. In this respect, won’t Vnesheconombank be particularly demanding in selecting projects? That is, VEB will be afraid that this money might be lost and will be reluctant to extend credits because you will be responsible for losses above all.
Alexandr BAZHENOV: First of all, our Bank is a development institution and it is designed to promote appropriate projects. Undoubtedly, we are not designed to lose money but there should be a reasonable balance because for the most part we represent the state. Therefore, we should create mechanisms for managing risks. Having a chance to participate in managing risks we can assume somewhat greater risks than traditional financial institutions. Assuming these risks we do not wait for them to become a reality or not to become a reality. And it’s not a privilege. It’s standard practice of many development institutions and, for example, the International Finance Corporation has two categories of loans, that is, those intended for standard commercial projects and those intended for projects where they assume somewhat greater risks.
HOST: You’ve mentioned foreign investors. And what about Russian money? Are you going to use pension funds to finance these projects? What should be done to ensure the use of these funds?
Alexandr BAZHENOV: A lot of people talk about how these funds should be used to fund infrastructure development, for example, to upgrade BAM. A very important meeting was held in January. Vnesheconombank signed an agreement with many consignors of Russian railways on how to increase throughput capacity of Russian railways. OJSC RZHD’s idea is to issue special government bonds in which both pension funds and international funds can be invested. And these bonds should be redeemed through general economic growth which occurs to some extent because transport makes it possible to develop many various industrial sectors. We can use this pattern with regard to projects in the Far East. The most important thing is that projects should be structured properly so that pension funds can be invested in them. And we can use such mechanisms as concession, state guarantees and Vnesheconombank’s guarantees.
Our participation in projects, our capacity to manage risks will enable us to create such mechanisms.
HOST: Alexandr, we’v got only one minute left and I’d like to ask you the following question – what projects and in what sectors do you think will be most attractive for investors?
Alexandr BAZHENOV: We received 2635 initiatives in the regions. We should adopt a reasonable balanced approach to build a balanced economy. As we can see today, investors are more interested in projects in such sectors as tourism, agriculture and construction materials industry. These are not large-scale projects. Large-scale projects are related to developing mineral resources deposits. Great demand in this sector is not met due to problems related to infrastructure development. So, we believe that our participation in projects should focus on developing transport and power engineering infrastructure and to some extent social infrastructure. These sectors will make it possible to unlock these regions’ potential for economic growth.
HOST: Alexandr thank you very much. I’d like to remind you that our guest today was Vnesheconombank Public Private Partnership Directorate Director Alexandr BAZHENOV.
Vnesheconombank Trust Management Department Director Alexandr Popov’s Interview to TV Channel Russia 24
TV Channel Russia 24
Host Nikolai Korzhenevsky
HOST: We’ll discuss the situation with pension savings funds and pension money as a source of financing. We’ll talk about it with Vnesheconombank Trust Management Department Director Alexandr Popov. Good afternoon Alexandr.
Alexandr POPOV, Vnesheconombank Trust Management Department Director: Good afternoon.
HOST: Many corporations, many borrowers have been saying for many years that long money for them is either expensive or inaccessible. And they also say that pension money should become a source of these long-term funds. When is this going to happen after all?
Alexandr POPOV: It will probably happen when besides Vnesheconombank there appear some other long-term investors. And we believe some restrictions that we have on investing pension money were needed at some point but now we can see that they prevent us from extending long-term credit resources to the real economy.
HOST: What sort of restrictions are they?
Alexandr POPOV: These restrictions above all are applicable to our share in one issue. Under the investment declaration we are allowed to buy no more than 30% of a corporate bonds issue if they are not secured by state guarantees. And another important restriction set forth by the law: we can purchase no more than 20 % of one issuer’s all circulating bonds. And of 30% percent accessible to us now we have almost exhausted this restriction with regard to a third of them.
HOST: Do you think that this restriction proportion should be increased? Don’t you think that the borrower will become too dependent on you as a creditor and maybe the proportion of such borrowers in your portfolio will be too high?
Alexandr POPOV: To my mind, there isn’t much risk here because we do not offer to increase these proportions for successful and marketable short-term issues. But we propose it as some temporary measure for setting into motion and launching a market for long-term investments in Russia.
HOST: What sort of market?
Alexandr POPOV: A market for long-term corporate bonds with a maturity of more than five years.
HOST: What about possible interest rates? And why is this market evolving so slowly so far?
Alexandr POPOV: We are in contact with many issuers discussing the need for issuing infrastructure bonds and classifying them as a special type of bonds. In our option we shouldn’t classify them as a separate type. Many issuers say that as Vnesheconombank now is a single long-term investor on our financial market it is possible to place 30-40% of an issue: there are banks largely with state participation that have long-term liabilities. But it doesn’t seem to be possible to place 70% of an issue under the current conditions.
HOST: Your portfolio is 1 trillion 300 billion rubles if I am not mistaken. Do you have enough instruments in principle?
Alexandr POPOV: We’ve had enough so far. But the amount of funds is sure to rise. And in the most immediate future we might come up against a shortage of long-term instruments. Summing up the results of the last year we could see that we didn’t have enough time to buy new corporate short-term bonds. We don’t have enough time to buy them while they are being redeemed. They are redeemed faster than we can buy new ones. So, we’d like to increase the proportion of new high-yield instruments and buy long-term corporate bonds.
HOST: In this case, do you expect any issues intended for you? Maybe the abovementioned infrastructure bonds or maybe some others?
Alexandr POPOV: We’ve already had the right to buy new instruments for three years. And we think that the situation has changed a little. And issuers’ stand as investors has also changed a little. Issuers stopped treating pension money as an extremely cheap resource and started issuing bonds that are of great interest for us. These are bonds with floating coupon rate tied to inflation. As our goal in the capacity of the state management company is above all to generate yields at an inflation level in order to really protect pension savings funds, an instrument tied to inflation makes it possible for us to achieve such a goal.
HOST: Will these instruments be issued by a sovereign agent or will they be corporate instruments?
Alexandr POPOV: We would be very happy if the Russian Finance Ministry could issue government bonds tied to inflation. But unfortunately this issue hasn’t been on the agenda so far.
HOST: Who is going to be among corporate borrowers? Risks are great after all. Why don’t they lend those corporate borrowers? Because banks don’t understand what is going to happen thirty years from now?
Alexandr POPOV: Now such bonds can be issued by companies, engineering companies or some infrastructure companies whose incomes often in the form received tariffs are tied to inflation. For example, last year the North-West Concession Company issued its bonds. Their yield rate was inflation plus 3%.
HOST: It turns out that all are happy in this situation. But what’s the volume of such market then? How great is these companies’ need for borrowings?
Alexandr POPOV: So far, in the absence of such government bonds tied to inflation the corporate market will be unfortunately limited only to issuers whose incomes are also tied to inflation. Although ROSNANO has made an issue of bonds lately they also issued bonds tied to inflation.
HOST: Would you like to invest more in companies with state participation?
Alexandr POPOV: Our investment declaration’s requirements are requirements for credit quality, this is a credit rating. If an issuer has an appropriate credit rating we can buy its bonds whether it is a state-owned or private company.
HOST: I’d like to ask another question about infrastructure bonds. What’s the amount of funds available for such long-term instruments?
Alexandr POPOV: You know, so far we have invested an insignificant sum of about 60 billion out of our portfolio of 1.3 trillion in the bonds of infrastructure and engineering companies. We can see that with a developed market for long-term instruments, we could easily invest up to 300-400 billion rubles in infrastructure in the coming several years.
HOST: Moreover, as far as I know there is a demand for such credits, especially on the part of electric energy companies, there are a number of interesting players there. There is another market I’d like to talk about. I mean the mortgage market. Vnesheconombank is an active participant in this market and the Bank’s role in its development is evident. What are you planning to do on this market? W hat are your plans for 2012-2013?
Alexandr POPOV: In the first place, Vnesheconombank is implementing a mortgage program worth 150 billion rubles, in which 12 banks and the Housing Mortgage Lending Agency participate. Factually, we are responsible for preferential refinancing of mortgage credits extended by banks.
HOST: What’s the preferential rate?
Alexandr POPOV: Preferential refinancing is 11% (a maximum rate of banks) for end borrowers. This is an effective rate; everything is included in this 11%. This is our program’s requirement. We do not accept other credits in mortgage coverage. So, banks are refinanced at 7%. As far as long-term borrowings are concerned 7% percent is still an attractive rate.
HOST: You’ve mentioned 150 billion rubles. How much of these funds have you already spent?
Alexandr POPOV: Our program is to be completed till the end of 2013. We have already bought out bonds of the program’s participants in the amount of 9 billion rubles. This year we’ll bring this sum to 10-15 billion and the remaining funds will be spent in 2013.
HOST: It will be more than a hundred billion rubles.
Alexandr POPOV: You are right. Of these funds one hundred billion is pension money to be invested on the basis of market profitability alone. There will be no preferential lending here. Preference is ensured by Vnesheconombank’s investing its own funds at a rate of 3%. This makes it possible to bring an average rate to 7%.
HOST: A mortgage credit rate of 11% in rubles is of course not bad. Nevertheless, I’m sure that many Russian would like to buy this product at lower prices. Are you planning to take any steps? What are the obstacles on the way of making mortgage lending less expensive using a large amount of funds?
Alexandr POPOV: Factually, given issues made by participants in the mortgage bond program we’ve got about twenty billion. It’s not much of course. But this market is developing slowly. Undoubtedly, we have problems with legislation. Not everything is perfect because here the fight is taking place between American and European ways of funding mortgage lending.
HOST: After all, American or European models?
Alexandr POPOV: In fact, during the crisis years the Housing Mortgage Lending Agency was basically the only mechanism for funding mortgage credits for regional banks but now we are approaching a European level when banks themselves can issue mortgage bonds both from their own balance and through a mortgage agent.
HOST: And now the main question again. When will additional funds that get into the mortgage system result in reduced rates? What prevents rates from going down?
Alexandr POPOV: The reason for it is the general level of market rates. Mortgage is a credit facility and it is of course secured. But in any case it is a credit facility. And you can’t grant a credit at rates that are substantially lower than market ones. And where can we get funds on preferential terms? We found some. Factually, Vnesheconombank invests all its profits in the amount 50 billion at a rate of 3%. But others do not have such funds. And mortgage credit rates are sure to go down but they will go down together with market rates.
HOST: Here we are coming up against a fundamental problem of inflation.