Vnesheconombank Deputy Chairman – Member of the Board Sergei Lykov’s Interview to Prime News Agency

16 october 2013 года
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Vnesheconombank Deputy Chairman Sergei Lykov told in his interview to Prime Agency how the dynamic growth of the Bank’s loan portfolio influenced Vnesheconombank Group’s indicators in the first half of 2013, as well as in which sectors companies received the largest volume of credits and if VEB’s main borrowers are state corporations.

-How would you assess VEB’s performance for the 1st half of 2013?

-As a whole, I should say that despite the extremely negative situation abroad and known problems in the Russian economy Vnesheconombank Group was able to maintain stable development rates. Its consolidated financial statements, that is, statements with due regard to its subsidiary and affiliated institutions including foreign ones show that assets increased by 204 billion rubles from the start of 2013 or almost by 7%. This is higher than the growth in assets of the entire Russian banking sector that amounted to 6.5% for the same period of time. In our capacity of development institution we’re very happy that our loan portfolio increased by 230 billion rubles or by 15.4% (including in project financing where the growth amounted to 148 billion rubles, almost 24%) while in the banking sector as a whole these indicators in non-finance enterprises and institutions amounted to 5.3% and 13.7% - for natural entities. The proportion of credits to customers in Vnesheconombank Group’s assets increased from 51% to 55% for the first half of 2013.

-What economic sectors does Vnesheconombank regard as the most important in terms of extending credits?

-It’s well-known that the Bank’s main principles and lines of activity are set forth in the federal law “On the Bank for Development” and the Memorandum on its Financial Policies. Vnesheconombank’s subsidiaries are commercial institutions but their activities are closely related to addressing tasks that are set before Vnesheconombank. These tasks include overcoming infrastructure constraints, modernizing and developing non-raw materials economy, stimulating innovations, exports and implementing other projects.

In the first half of this year the Bank for Development played a major role in Vnesheconombank Group’s loan portfolio growth. Its proportion in the total volume of growth was almost 76% but I’d also like to underline excellent performance of such members of the Group as OJSC VEB-Leasing, its portfolio increased by almost 21.53% to 214 billion rubles as well as OJSC Belvnesheconombank, its portfolio increased by 23.3% to 47 billion rubles.

As far as economic sectors are concerned most credits were extended to construction and production sectors including mechanical engineering and defense industrial complex – 846.4 billion rubles (taking into account formed reserves) an increase of more than 23% for the first half of the year. Next in terms of growth rates are transport (18.1%), raw materials industry (19.3%), telecommunications (8%) science and education (almost 41.15%) but unfortunately the volume is still small).

Somehow it is believed that Vnesheconombank’s main borrowers are state-controlled companies. Vnesheconombank Group’s financial statements show that this is not the case. Almost 1552.2 billion rubles (taking reserves into account) were extended to private companies, that is, almost 80% of the whole loan portfolio.

-You’ve mentioned reserves formed against extended credits. What are their volumes and dynamics?

-As a whole in the first half of 2013, credit depreciation reserves increased by 21.1 billion rubles from 193.4 billion rubles to 214.5 billion rubles or by 10.9%. We view this increase as more than normal keeping in mind the dynamic growth rate of our loan portfolio as well as the fact that investment projects account for the greater part of this portfolio. Here I mean projects that are not attractive for commercial and financial sectors. During the first half of the year reserves ratio changed insignificantly from 11.4% to 11.1%.

-How did Vnesheconombank Group manage to ensure such a high growth rate of assets and loan portfolio?

-Vnesheconombank Group is making strenuous efforts to diversify its sources of financial resources. There’s no doubt that the state provides a great deal of support. Owing to subsidies received from the Russian Finance Ministry in the total amount of 77 billion rubles (62 billion rubles - for forming the Russian Direct Investment Fund and 15 billion rubles - for implementing top-priority projects in the Far East and in the Baikal region) the Group’s capital was increased to 599.5 billion rubles. I’d like to say that at the start of the 3d quarter the state made another financial contribution to Vnesheconombank’s capital in the amount of 4.068 billion rubles with Rostelecom’s shares.

VEB raised more funds from the Bank of Russia through using REPO transactions with securities in Vnesheconombank’s portfolio. As a result the debt to the Russian Government and the Bank of Russia increased by 33.1 billion rubles (+3.4%) to 1.015 trillion rubles. The Bank made strenuous efforts to expand volumes of financial resources raised on foreign and domestic capital markets. The amount of Vnesheconombank’s and its subsidiary banks’ and companies’ debt securities increased by 100.1 billion rubles (+25.7% from the start of the year) to 489.1 billion rubles. During this period the amount of funds raised from OECD credit institutions increased by 75.02 billion rubles (+28.0%) to 341.5 billion rubles. As a result the total amount of raised financial resources in the 1st half of 2013 increased by 192 billion rubles (+8.4%) and was 2.469 trillion rubles.

Thus, Vnesheconombank managed to raise 3.2 rubles for each ruble invested in its capital. The raised funds were used for modernizing the economy.

-As Vnesheconombank is a state corporation, that is, a nonprofit institution, generating profits is not an end in itself for it. Does Vnesheconombank continue to operate on a break-even principle?

-If we perform an analysis through comparing data for the first half of 2013 and the first half of 2012 on the basis of average chronological balance indicators we can see that profits went down from 21.6 billion rubles to 0.8 billion rubles. The main reasons are pretty objective: this is additional formation of reserves (and the reason for it is quite obvious – a sharp increase in the amount of investment projects in the Bank’s loan portfolio) and negative dynamics in foreign currency revaluation of balance sheets, the amount of balance decreased by 7 billion rubles for a comparable period of the last year.

And I’d like note that net interest income amounted to 46.7 billion rubles - an increase of 8 billion rubles (+20.8%) from the same period in the last year. Net interest margin remained stable at a level of 3.4%. The main reason for it was the growth of interest incomes to117.6 billion rubles due to the increased volume of the loan portfolio. Expenses also increased by 11.6 billion rubles (+19.5%) to 71 billion rubles. The growth in expenses was influenced by increased volume of raised funds and a certain increase in fund-raising rate from 6% in the first half of 2012 to 6.1% in the first half of 2013. In this respecrt it should be noted that Vnesheconombank’s capacity to raise financial resources is limited compared to major commercial banks as they can raise deposits from legal and natural entities and use balances of these accounts to conduct active transactions.

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That’s the Way it is

2 october 2013 года
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As of today the market for sea and river vessel leasing accounts for an insignificant percentage in the Russian leasing services market. Its share in the new business of leasing companies was a little more than 1.5% in 2012. This is a bit less than in 2011. The amount of new transactions in the water transport segment was about 20 billion rubles last year and it fell insignificantly.

The reason for this state of affairs is a rather complicated financial situation faced both by customers of water vessels and their manufacturers. This segment is rather narrow and specialized. State support measures are not so far in line with the current needs. We have the Program of Developing Leasing of Russian-Made Sea and River Vessels but the scale of its implementation is far from sufficient. The United Shipbuilding Corporation (USC) is the operator of this Program. Under the Program USC extends funds to leasing companies participating in vessel leasing transactions at a refinancing rate of the Central Bank for a period of up to ten years. But a unique feature of vessel leasing is that a payback period is about 20-30 years and this exceeds significantly leasing contracts duration. In practice, they address this problem in the following way. Throughout a whole validity period of a leasing agreement monthly payments affordable for the customer are made so that a purchase payment in the long run  amounts to about a half of a vessel’s value. On expiry of a leasing period a leasing agreement might be restructured or a lessee might raise a bank credit from which a purchase payment is made. Theoretically, after making a purchase payment a vessel which becomes the property of a lessee might be sold under a redemption leasing scheme, that is, a leasing company might repurchase this vessel from a customer and lease it out again to the same lessee.

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Flying Weather

2 october 2013 года
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Kommersant “Leasing”. Annex
№179 (5210)
02.10.2013

The aircraft-leasing market is one of the most capital-intensive and dynamically developing markets. In 2012, the amount of new business in this segment was about 107 billion rubles. It increased by about 22% from a year ago. A specific feature of aviation leasing in Russia is a high concentration of the market. We can name five companies that are systematically involved in aviation leasing: VEB-Leasing, VTB-Leasing, Sberbank Leasing, the State Transport Leasing Company (STLC) and Ilyushin Finance Co. (IFC), with other companies conducting only individual transactions. Competition is developing between the first three companies. As far as STLC and IFC are concerned they occupy more specific niches working with regional aviation. Limitedness of the market is caused by the fact that companies can raise cheap long-term money. For objective reasons a small company can’t raise money more cheaply than a large one, it loses price competition, so, competition is bound to increase between the largest companies. It’s not a secret that now many major banks have excessive liquidity and it’s profitable for them to fund aviation business. Nevertheless, a new major player is unlikely to appear in this market.

A strong tendency in the development of the aviation leasing is the introduction of operating leasing. Even three years ago it was not possible to talk with Russian leasing companies about this sort of leasing. And now leading players are already ready to form a certain share of their portfolio in this segment. Operating leasing as opposed to financial leasing provides for an airline to return aircraft to a leasing company upon expiry of a leasing agreement. The accumulated experience and market realities make it possible for the largest leasing companies to operate using this scheme , the more so, this scheme is in demand by airlines and is suited for selling products of Russia’s aviation industry, the secondary market of which has not been so far established

Changes introduced in Regulation №1212 regulate the practice of extending subsidies for Russian aviation companies to compensate some of their expenses on leasing payments for aircraft leased out to them for domestic regional and local airborne transportation. Due to introduced changes, since early August of 2013, the Regulation has been applicable to domestic aircraft An-148 and Sukhoi SuperJet 100. They received a quota of 30% of funds under the subsidizing program. These changes are expected to increase demand for Russian-made aircraft by Russian airlines and this in its turn will stimulate aircraft makers. Another important change is that unitary state enterprises can also become participants in the leasing subsidizing program and this will increase the number of potential operators of Russian-made aircraft.

But if we assess the changes from a position of a leasing company we can say that not everything is so rosy. First, leasing transactions on aircraft are substantially extended in time that is why financial indicators of a potential lessee and its capacity to fulfill its obligations under a leasing agreement within a whole period of this agreement’s validity period play a key role in taking a decision on leasing out an aircraft. Unfortunately, nowadays there are very few Russian airlines with acceptable indicators. An airline’s readiness to make an advance payment in the amount of 10-20% is sure to have a positive impact on terms and conditions of a leasing transaction but at the same time will not be a decisive factor in making a decision on conducting a transaction with an individual lessee.

As far as foreign-made aircraft are concerned the situation is better because a leasing company can place risk on a leasing subject due to its sufficient liquidity on the secondary market and a possibility to determine its residual value. As far as such new Russian-made aircraft as Sukhoi SuperJet 100 are concerned we can’t apply these mechanisms as they have never been sold on the secondary market due to the small number of manufactured aircraft and the recent launch of their production as this makes it impossible to make projections with regard to their residual value.

Second, subsidies are made available provided that a financial leasing agreement has been concluded and this limits significantly the number of potential customers of SSJ100. As the practice shows airlines prefer to close operating leasing transactions with regard to new Russian-made aircraft. Under operating leasing transactions upon expiry of a leasing period a leasing company retains title to an aircraft and the aircraft is to be returned. In such cases an aircraft manufacturer acts as a guarantor of residual value and can repurchase it upon expiry of a leasing period. This is a negative factor for a manufacturer but as it has to promote its products the manufacturer is ready to take an additional burden. Naturally, in time a secondary market will be put in place and these problems will be resolved but in the current market conditions it would be quite appropriate to make the Regulation applicable to operating leasing too.

Third, both leasing companies and airlines call into question a provision of the Regulation that obliges a company that lays claim to a subsidy to start operating an aircraft no later than six months from the date of leasing agreement. Maybe these terms are acceptable for aircraft that are not new and were in operation before but as far as new aircraft are concerned we should increase this period to at least two years – a period needed to manufacture an aircraft.

Vyacheslav Solovjev, OJSC VEB-Leasing Director General

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Adequate Package

1 october 2013 года
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Text: Elena Shmelava
01.10.2013, 00:40

To enhance the development of PPP projects in our country we must make consistent efforts to promote them into the market.

The main problem of developing PPP projects market in our country is not associated with regulatory difficulties but with the absence of administrations’ project activities in this format believes acting Director General of the Federal Project Finance Center, Director of Vnesheconombank’s PPP Directorate Alexandr Bazhenov. He outlined his point of view to Russian Business Gazeta (RBG).

Do you think that PPP can improve the economic situation in the regions?

PPP is not a panacea and a goal in itself. It’s an instrument with the help of which regions and municipalities can address their objectives more efficiently or more qualitatively or more rapidly. Compared with Great Britain, France and Germany we are about five years behind in terms of institutional development. They were quicker to understand PPP’s role as a systematic instrument for performing the state’s duties to develop regions and cities with engaging private business as a partner. PPP projects’ volume as compared with budgetary government and municipal purchases of products and services accounts for 10-15% on average. In Britain for example it was 20%, now it’s about 10%, the largest proportion of more than 30% is in Italy. Russia has a great potential although PPP projects proportion amounted to 5% in individual years. Only few proposed PPP projects were implemented. At the same time regulations providing for the procedure of regions’ participation in forming and implementing PPP projects were approved in 64 regions. This made it possible to set goals and provide his instrument with necessary resources. But we have to learn to use this instrument. The fact that few PPP initiatives are converted into real results demonstrates that the main problem of developing PPP projects market in our country is not associated with regulatory difficulties but with the absence of administrations’ project activities in this format. PPP is regarded as a magic stick – you just announce a project and wait for private businessmen to come and do everything.

Why does this happen?

-There are two reasons for this. PPP is a very intensive, difficult and risky work. At the local level people run risks when they are putting a PPP initiative into effect. At an initial project stage there is an objective risk that a project won’t reach an implementation stage and this is a risk run by people who occupy high-ranking administrative positions and spend budgetary funds to prepare a project in such a format. They risk being punished in case of failure. And at the state administration level the use of this instrument is not really planned and this demonstrates that few financial resources are centrally invested in preparing PPP projects (except for transport sector) (the recent example is the development of the Far East) – not a penny is budgeted by federal and regional executive authorities for preparing projects and holding appropriate tenders for engaging private investors and for supporting municipal authorities for these purposes. And this  process should be structured and managed.

How do projects come from regions?

-For our purpose we can divide them into two categories: projects for which we can raise private investments only through public tenders and projects that can be implemented as part of comprehensive development with private investors. In our aggregate portfolio a third of applications account for transport infrastructure projects. They include building by-pass highways, transport networks inside regions, bridges and airports. Comprehensive territory development projects account for 16% of our portfolio they include cluster industrial parks, agro-parks, projects of the Investment Fund, special economic zones, comprehensive development of tourism infrastructure. We believe that the PPP projects market will grow through the development of social infrastructure especially in the public health sector. Housing and communal services might become a major and important market forming projects in environment protection and energy efficiency but this sector is rather poorly regulated and capabilities of municipal budgets to assume risks are institutionally limited.

How long does it take to prepare an investment project?

-One-two years to organize a process of project preparation, the period to prepare a project and up to a year for financial closing. All in all from three to five years. During this period of time authorities, market and budgetary conditions might change and a cycle might be delayed. It also takes a lot of time to agree upon changes in budgetary and tariff policy, allocate and register plots of land and ensure property registration. If government and municipal authorities work like a clockwork, a period  from a project conceptual stage to an implementation stage might be reduced to 1.5 years, that is, by two-three times.

What’s the mission and specifics of the Federal Project Finance Center (FPFC)?

-As an operator of Vnesheconombank’s program “Funding Assistance for Urban and Regional Development Projects” FPFC is designed to provide financial support for the most vulnerable stage of investment projects – a concept design stage. We should share risks of forming a project with regional and municipal authorities and be a systemic institution as the Bank for Development. Our mandate covers six sectors within the competence of government authorities: comprehensive development of territories, transport and social infrastructures, energy efficiency, state administration infrastructure. Factually, during the first year of the Program’s implementation our experience in working with regional and urban PPP projects was limited and therefore our capabilities of what risks we could assume were limited too. So, FPFC pursued an extremely conservative policy: it extended loans against security and formed a portfolio of projects to be financed against assignment of rights of claim to constituent entities of the Russian Federation and state corporations. But the main objective was to participate in preparing projects sharing risks with regional and municipal authorities. If a region wants to ensure more efficient, rapid and qualitative economic growth to be able to address social problems than we are supposed to be a welcome partner. For PPP projects to be successful we need expertise and this expertise does not accumulate inside a region. An administration takes a decision on a concession for the largest water channel once in 25 years. This sort of expertise accumulates from region to region within the whole market. So, we must such partners that assume risks associated with feasibility of decisions on addressing issues of regional and urban development. To assume this risk we need a developed market for investors that participate in a project. Now PPP projects categories of investors have formed only in road projects but this is not the case in the housing and communal services and social infrastructure: although many are interested in such projects there are no clear-cut business models that could be replicated from region to region.

There’s a lot of talk about PPP but there are few PPP projects themselves. I’m getting an impression that this mechanism is being imposed from above.

This mechanism is being offered to business but in a bad way. If a PPP project is offered, business can always assess its acceptability in terms of sharing risks and profitability. Business makes money and it has certain target profitability on invested capital.  We rely on our expertise when we form and structure projects, optimize risks, chose an appropriate project funding model. And this plays a decisive role. Without addressing this matter we have a fork of the two wrong roads. If you follow the left path you’ll get a private partner without obligations, without competences and without non-budgetary and non-tariff investments. This is similar to the way concessions are developing – there are more than 800 projects but nobody knows who raised what. If you follow the right path you’ll get PPP in form but without obligations on the part of authorities, that is, imposing a burden of social obligations on business without any compensations and perspectives.

What should you do?

To enhance the development of PPP projects in our country we must make consistent efforts to promote them into the market. If a project is profitable investors will be interested to participate. And we should structure it in the right way for it not to prove to be too expensive. Studies show that in case of launching a stable proposal the cost of a risk of participating in funding projects starts to diminish in time. For example, in China development plans provide for putting 25-30 projects on the market per year in certain sectors. And expected profitability on invested capital is pretty high at the beginning, and then in the ensuing years it starts to go down. So, it’s not a matter of money and cost of resources it’s a matter of government infrastructure development policy duration.

The draft federal law on PPP is not clear-cut. Can it really change the situation?

-You might be right. I have a feeling that all separate parts are quite right but in its entirety it’s difficult to understand how it works. There is no doubt a law on PPP will be able to work if it will be based on a certain economic ideology. This law should be considered together with other initiatives of the Economic Development Ministry and Vnesheconombank in particular those on disseminating a model of payment for accessibility to all potential objects of concession agreements and on forming a budgetary source of this payment or payments under PPP agreement s as part of additional incomes of the budgetary system from comprehensive development of territories through a mechanism of the Investment Fund. Then both PPP (greenfield) and concession (brownfield) will be applicable both to commercial projects (with payments from commercial activities) to projects on ensuring universal access to infrastructure (with payments from the budget given linkage with projects on ensuring economic growth) as well as to pension funds and banks. The quality of this activity should be guaranteed by centralized expert examination of proposals made by regional and municipal authorities for justification of using PPP (concessions) compared with state purchases according to a budgetary efficiency criterion as well as proposals for selecting tender criteria to maximize budgetary effect and for justification that a project should be funded by institutional investors on the terms of sharing risks. Centralization of such expert examination should ensure risk management of the budgetary system’s uncontrolled off-balance obligations, given mass use of PPP. Expenses on such expert examination, its quality and mobile adaptation to new regulatory conditions should be jointly guaranteed by institutional investors as part of non-budgetary development of infrastructure.

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

28 september 2013 года
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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.

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