Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24 (the 12th International Investment Forum Sochi-2013)

28 september 2013 года

HOST: Good evening Vladimir Alexandrovich.

Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening Alexei.

HOST: I’d like to start with a theme that is being discussed here extensively. Naturally, it is being discussed in the context of Prime Minister Dmitry Medvedev’s address at plenary session and before that he had written an article in a central Russian business newspaper. Discussing economic issues in this article he suggested a measure in which Vnesheconombank should participate, that is, to support small and medium-sized enterprises using financial resources of the National Wealth Fund. What sort of scheme is it? What kind of mechanism is it? What are the terms and conditions? Would you tell us about it, please?

Vladimir DMITRIEV: We are really happy that Vnesheconombank is still regarded by the Government as an enforcer of the government’s policy of supporting small and medium-sized enterprises. And in this sense the Prime Minister’s article was not an exception. Dmitry Medvedev has touched on the theme that we are discussing and we are also discussing various approaches to and various models of supporting small and medium-sized enterprises. Vnesheconombank is included in this system on its own and through its subsidiary bank – SME Bank. We have fully implemented a program of supporting small and medium-sized enterprises through a mechanism for funding regional banks which in their turn provide support for SMEs. And this takes place in combination with the preferential funding of small and medium-sized enterprises involved in the innovation sector.

A guarantee mechanism has started to operate: guarantees are extended from the federal budget to Vnesheconombank and it in its turn extends guarantees to SME Bank and then SME Bank puts together a pool of banks that receive our support. And we are entitled to refinance credits through the refinancing system of the Central Bank. A Federal Guarantee Fund is being established now. So, small and medium-sized enterprises are provided with significant funds. And now the Government has proposed to use financial resources of the National Wealth Fund. These funds in the amount of 100 billion rubles are to be extended to Vnesheconombank at an inflation rate plus one percentage point. Vnesheconombank works with major banks above all banks with state participation that have extensive branch networks for supporting above all medium-sized entrepreneurs. This theme was discussed at today’s plenary session and at other forums as well as at a meeting between the Prime Minister and the business community. There are problems associated with the fact that SME Bank does not reach medium-sized enterprises through its support programs. Vnesheconombank has lower limits with regard to funding a project – its value is to be no less than 2 billion rubles and the Bank’s participation is to be no less than one billion rubles. This prevents medium-sized enterprises from receiving preferential funding. We believe that by launching this new program using financial resources of the National Wealth Fund we are sure to reach medium-sized enterprises and provide them with significant financial resources and above all by focusing on their innovation lines of activities.

HOST: The second theme at issue here is a possible additional capitalization of the Bank for an amount of 1.1 trillion rubles. Naturally, we should keep in mind that Vnesheconombank is not a typical commercial bank but a bank with a significant social component, you have already mentioned it. But I’d like you to elucidate this mechanism. Why is this additional capitalization needed?

Vladimir DMITRIEV: Those who’ve been following the theme and Vnesheconombank’s activity attentively sometimes do not really differentiate between Vnesheconombank as a development institution which operates on the basis of a special law “On the Bank for Development” and standard commercial banks and banks where the state represented by the Central Bank or the Federal Property Management Agency is a core shareholder. Vnesheconombank like any other development institution has certain limitations on lines of activity. As our Bank is not a joint stock company we are not entitled to place additional share issues, engage a strategic investor or place shares on open, public markets. Financial contributions of the Russian Federation are the only base for our capitalization.

Moreover, we are not entitled to raise cheap liabilities in the form of legal and natural persons’ deposits. But it is more important that Vnesheconombank as a development institution should be highly instrumental in funding major investment projects and developing the economy. And when we raised a question of the current status and an adequate role of Vnesheconombank in the development of the Russian economy in the future we compared it with such leading national development institutions as Germany’s Bank For Development (KfW), the China Development Bank and the Development Bank of Brazil. These banks’ share in aggregate investments in core capital ranges from 5 and more percent. And our share is less than 2%. So, we say that Vnesheconombank’s influence on our country’s economic development should be increased and our potential is great. We have arrived at the following conclusion: our Bank is in need of support for it to increase funding of major investment projects.

We have to meet terms and conditions determined by our financial declaration and covenants in our credit agreements and upon placing bonds on the markets we have to meet capital adequacy ratio of 10%. From the start of the year it has gone down from18% to a little less than 11%. So, if we are to meet this critical ratio and at the same time expand our loan portfolio and investment activity we are convinced that we need various forms of the state’s support and not only a new financial contribution.

Various measures of the state’s support include guarantee mechanisms, potential commitment of financial resources from the National Wealth Fund and finally applying special approaches to development institutions supported by the state in terms of their financial activity key indicators and above all capital adequacy ratio.

There is no doubt that we rely on the state’s support but this support should not be limited to the Bank’s capitalization through additional financial contributions.

HOST: It has become known recently that financial resources of nongovernmental pension funds will be transferred for management to Vnesheconombank until these nongovernmental pension funds acquire a status that will allow them to operate in a new situation on this market. How is Vnesheconombank going to manage this money? What investment yields can you guarantee?

Vladimir DMITRIEV: There is no link between these two themes. But we are involved in this process. We are aware that these are short-term financial resources that are placed in our Bank on a temporary basis. We’ll hold these funds until nongovernmental pension funds are licensed, transformed into joint stock companies to be able to achieve goals set before them. We’ll place these funds on deposits of reliable banks. There is no doubt that these funds can’t be placed in long-term bonds of our natural monopolies. (By the way we have already invested about 100 billion rubles in the bonds of infrastructure monopolies for them to fund their investment programs).

HOST: Could you be more specific about how you are going to manage this money?

Vladimir DMITRIEV: We believe that a special decision will be taken in this respect. Maybe the investment declaration of our managing company will be brought in line with this new objective. No regulatory documents have been approved in this respect so far. Only a principal decision to place these funds in Vnesheconombank has been taken.

I’d like to stress it once more that it would more correct to say “not in Vnesheconombank” but in the state managing company because there is a Chinese Wall between Vnesheconombank’s balance and funds managed by the state managing company. And the only thing that the state managing company uses is Vnesheconombank’s infrastructure but not its balance.

HOST: As we are in Sochi…We should of course talk about the Olympics. The more so, Vnesheconombank participates in the construction of the Sochi Olympic facilities. It has been mentioned in the course of the Sochi economic forum that we have to think not only about social responsibility but also about commercial aspects. You are in charge of the socially-oriented bank. Do you have to think about social aspect sand to what extent? Let’s talk about it.

Vladimir DMITRIEV: Of course we have. First of all, this is the state’s project and we are happy that private investors participate in it. In terms of its scope the Olympic project is unique in Russia. And it should be noted that while implementing this project the state business and our bank as a development institution did a lot of practice gaining positive experience. We applied brand new banking technologies as well as technologies dealing with relationship between the state, business and such financing institution as Vnesheconombank. There’s no doubt that the projects are complicated and we believe that even now we have to think about our post Olympic legacy. Now business and investors involved in implementing the Olympic projects say that investors should not be left alone face to face with these projects after the Olympics and the authorities understand their anxiety. They should decide together how to jointly manage these projects and how to make investments profitable and efficient. Of course, the worst thing is to bankrupt borrowers. We should find appropriate solutions. But even now I can see that upon implementing this unprecedented Olympic project we are developing an appropriate system of relationship on the basis of public private partnership between authorities represented by the government and tax bodies and business. It would be very difficult to manage these projects in the future - especially sports ones because it will be more difficult to pay them back compared with for example hotel complexes.

It will be also a challenge to manage projects that are to be put on sale after the Olympics. Here I mean housing projects. We have to work out special mortgage lending mechanisms for those who will live here and work at huge hotel or entertainment complexes such as Formula-1, EuroPark and so on.

HOST: Vladimir Alexandrovich thank you very much for finding time and answering our questions. We wish you every success.

Vladimir DMITRIEV: Thank you.


“Exports Support is a Top-Priority Line of Activity for us”

2 september 2013 года

The Russian authorities are fulfilling their promise to create conditions for promoting Russian high-technology products to foreign markets by minimizing risks of financial losses as well as by improving conditions for funding exports on the part of banks. The creation of a comprehensive system of the state’s credit, insurance and guarantee support for Russian industrial exports is nearing completion. A key role in this system is assigned to Vnesheconombank. Director of the Export Financing Department Daniil Algulyan told AviaPort Agency about basic elements, mechanisms and instruments of the system to insure exports against entrepreneurial and political risks as well as about VEB’s role in supporting exports.

-To what extent is an issue of exports support topical for Russia?

-Russia is an integral part of the world economy and is permanently among the ten largest exporter countries. In 2012, the volume of Russian exports reached 18.5 trillion rubles. Exports account for a significant part of GDP, create jobs and increase production output. Promoting Russian companies internationally is a major factor of the country’s development. Despite the impressive growth in overall volumes of exports, we still depend significantly on exporting raw materials. A key challenge to further development of not only exports but also Russia’s whole economy is to urgently increase a proportion of high-technology products and services. This is a very difficult challenge. Nowadays, we are facing fiercer competition from producers from other countries.

At the same time, in many countries they put in place government export support systems. These instruments create additional advantages for these contries’ producers. For example, OECD countries commit in total more than 100 billion dollars a year in the form of government support for export mid and long-term financing. In this situation many Russian companies have to operate on international markets in unequal conditions. We should create a Russian exports support system to change such a situation.

-What VEB’s subsidiary institutions can participate in using mechanisms for supporting exports?

-A universal exports support system is being set up as part of Vnesheconombank Group. It will be comprised of VEB itself (the Export Financing Department) as well as a number of subsidiary institutions: OJSC the Export Insurance Agency of Russia (EXIAR), the largest Russian leasing company OJSC VEB-leasing and Roseximbank – an agent bank for providing government guarantees. It is assumed that each component of the structure would perform its special complementary functions.

EXIAR for example has already provided support for some Russian exporter companies. At the beginning of this year, Russian company RUSELPROM agreed to supply equipment and spare parts for modernizing two Cuban thermal power stations. EXIAR provided insurance coverage against commercial and political risks for this transaction. In its turn, RUSELPROM received funding to supply equipment to at a Russian bank by presenting its insurance agreement with EXIAR as a security for the credit.

Moreover, in spring of 2013, Rostselmash agreed with Kazakh company KazAgroFinance to export several hundred vehicle sets of grain harvesters to be assembled and leased out to local agricultural companies. Russian Rosselkhozbank extended a five-year credit to KazAgroFinance to purchase the grain harvesters. EXIAR insured this credit and it became the first insured long-term credit in Russia’s history for the export of agricultural machinery.

-Vnesheconombank’s subsidiary banks, namely, Prominvestbank, OJS BelVEB are operating in Ukraine and Belarus. We rely on their support in terms of enhancing trade and economic ties with the corresponding partner states. So, almost a full range of export support financial instruments is being formed for Russian supporters. In order to boost the system’s efficiency we are now introducing a one-window principle which will make it possible to significantly speed up procedures for processing applications for funding.

-What export support instruments are being used by Vnesheconombank?

-These are traditional financial products including credits to foreign buyers (export finance) to purchase Russian products, works and services as well as credits to Russian exporters (pre-export finance) to cover expenses on manufacturing products to be further exported.

Vnesheconombank also extends guarantees (due performance guarantees, advance repayment guarantees and others), sureties and other instruments for securing Russian exporters’ obligations to foreign buyers. Vnesheconombank’s wide international cooperation as part of extending export support guarantees allows Russian companies to participate in export projects in countries with high political risks and with objective obstacles to implementing contracts as well as in the countries where Russian commercial banks are not present.

-VEB and Roseximbank are responsible for extending export guarantees. In what way do their corresponding instruments differ? Why is it necessary to receive an export guarantee from VEB and export insurance from EXIAR? What risks do these instruments cover?

-Export guarantee and insurance products offered by Vnesheconombank, Roseximbank and EXIAR are designed to produce a synergetic effect. Vnesheconombank’s guarantees (for example, advance repayment guarantees, tender guarantees and due performance guarantees) are extended to secure Russian exporters’ obligations to foreign buyers. EXIAR’s insurance policies are designed to insure risks of foreign buyers of Russian products from exporters and creditors, for example, from Vnesheconombank. Roseximbank’s key function is to act as the agent bank for government guarantees. So, there are three various financial instruments each of which is important for supporting exports of Russian companies.

To what extent is the Bank geared to use best practices of leading foreign development institutions?

-In the course of setting up an exports support system we thoroughly study and analyze international best practices of both economically developed countries and growth-leading economies. In the last decades, they have put in place efficient exports support models in many leading exporter countries. Many foreign best practices prove to be useful for us. Nevertheless, we should not carbon copy foreign models but form an efficient Russian exports support system. Government exports support is regulated internationally that is why Vnesheconombank takes into account WTO and OECD rules upon developing new products.

-What was the reason for establishing an export financing department ?

-Non-raw materials exports are potential growth point and an important factor of diversifying the Russian economy. So, it’s not surprising that this line of activity became important for our development institution. In 2007, industrial exports support was included in Vnesheconombank’s main lines of activity. We have done a lot in the past years. The Bank participated in implementing major export projects, above all, in power engineering industry, aerospace sector and defense industrial complex. The Bank’s export finance portfolio amounted to 83 billion rubles as of late July 2013. From 2007 to July of 2013, the Bank has extended guarantees worth 164 billion rubles in favor of foreign purchasers of Russian high technology products. Nevertheless, we hope that in the coming years we’ll be able to significantly increase funding volumes.

Our own and foreign business experience shows that export finance is a very specific line of banking acclivity. So, the establishment of a separate export support department is designed to concentrate sectoral, country and financial competence on efficient comprehensive support for Russian exports.

-Could you tell us in more detail about the department’s mission and objectives?

-Vnesheconombank’s new special structural subdivision, namely, the Export Financing Department was established only in May of 2013. Its main functions are above all to extend export credits and guarantees and secure Vnesheconombank’s participation in projects implemented by Russian companies abroad. The Department is also responsible for exports support activities in Vnesheconombank Group. We are developing a range of financial products that are supposed to provide efficient support and level playing field in funding Russian exporters on highly competitive foreign markets.

-One of the Department’s main objectives is to support aviation industry’s exports. What sort of support mechanism is it? How is it going to be applied?

A key instrument is target funding of foreign purchasers of Russian aircraft. We often use credit-leasing schemes as a structural financing instrument.

Vnesheconombank’s important advantage in this sort of projects is its  capability to extend long-term credits as well as its competence and experience in financing exports in various parts of the world. All these factors allow us to be a reliable and long-term partner for Russian exporters.

-Would you tell us about supporting Russian aviation industry’s exports? Are other foreign and Russian banks going to participate in funding supplies of Russian aircraft?

-At present, Vnesheconombank is considering a whole number of applications for funding export supplies of aircraft to Latin American, African and Asian countries. I’m sure that in the near future I’ll be able to tell you about new specific transactions.

In a number of cases we work together with other leading Russian and foreign financing institutions as part of participating in implementing some planned projects.

Providing support for Russian aviation industry’s exports is one of our top-priority lines of activity. A whole number of promising and ambitious projects are being implemented in this sector. We are actively cooperating with Russia’s aviation industry in securing reliable and stable funding of Russian exports and we’ll be happy to expand the cooperation.


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