Trajectory of the Ruble

14 january 2014 года
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RG-Business №930
January 14, 2014
Natalya Baranovskaya

A decision is to be made in January to additionally capitalize Vnesheconombank with 200 billion rubles through using monetary resources of the National Wealth Fund. This will make long money a lot more available for funding capital investments. The Bank’s Chairman Vladimir Dmitriev told the Russian Business Gazette about investment policy priorities of the Bank for Development and Foreign Economic Affairs.

-Vladimir Alexandrovich additional capitalization of Vnesheconombank generates interest both among professionals and a wide range of readers. Is this a matter of enhancing the Bank for Development?

-You are quite right. But let’s start from scratch. In terms of long-term credits volume in relation to its own capital VEB ranks first among Russian banks. VEB raises borrowed funds and organizes co-financing of projects jointly with other investors. This makes it possible to fund investments through the Bank for Development rather than through direct budgetary funding.

But at the start of the last year Vnesheconombank reached lending volumes scheduled under the current Strategy for the start of 2015. The loan portfolio of the Bank for Development (not included the funding of anti-crisis measures and rehabilitation projects) as of January 1, 2013 amounted to 720 billon rubles, with the target indicator being 531 billion rubles. The Bank reached its limit in terms of capital adequacy. Capital adequacy ratio was 10.9% as of July 1, with minimum permissible ratio being 10%.

And we should take into account the fact that VEB differs from many foreign banks for development. There are numerous examples when foreign banks for development were additionally capitalized through using government funds. For example, in 2010 capital of the Brazilian Development Bank BNDES was increased by 2.5 times through using government budgetary funds. In Germany the development bank’s borrowings are based on state guarantees but VEB relies on market funding including borrowings abroad.

And another principal factor. VEB is regularly engaged for supporting projects of national significance and these projects are not standard and typical for the Bank for Development. We get into situations when we have market liabilities and have to deal with non-market assets. Combining these functions led to the need to expand VEB’s funding base. Additional capitalization of the Bank for Development is a task that should be addressed promptly.

-What amounts of money do you mean?

-The Bank’s capital should be increased by hundreds of billions of rubles and this will make it possible to make long money more available for funding capital investments. On the other hand additional capitalization should be accompanied with improving the business model and changes in credit process. The Government is close to making a decision on this issue.

There is a proposal to divide investment projects to be accepted for funding by the Bank into two categories – typical and special projects. Typical projects are in line with our regulatory network, their risk levels and rates of return make it possible to increase loan portfolio without having negative influence on the Bank’s solvency.

Special projects are non-standard projects which are of top-priority importance for Russia’s economy and on the other hand are not in line with requirements for risks and profitability. Decisions on such projects are to be within the competence of the Bank’s Supervisory Board. It is the Bank’s Supervisory Board that will be responsible for approving objectives of VEB’s participation in a given project, limitations on the project management as well as sources of funding and compensation for the bank’s participation in the project.

-Initially, the Government proposed to transfer 500 billion rubles worth of the National Pension Fund’s new pension savings to Vnesheconombank (for temporary management). Was this initiative somehow connected with the plans to additionally capitalize the Bank for Development?

-VEB’s function as the state managing company is independent of its function as the Bank for Development. This function is separated by a Chinese wall from other lines of VEB’s activities.

-The Bank’s Strategy for 2011-2015 provides for supporting various economic sectors and regions, SMEs and national exports. What are the results of the Bank’s activity and what difficulties do you come up against?

-“Even if you have a brilliant strategy, from time to time you have to look at your performance”, Winston Churchill said. It’s true. But I’d like to say a few words about the Strategy.

Our main goal is to boost our national economy’s competitiveness and help to modernize it on an innovative basis. And in order to perform well here we have to create a favorable environment for development.

Annual labor productivity growth in Russia now is only 2-3% and this is a very serious problem. In industrialized economies labor productivity is more than two times higher than in Russia. At the same time, the Russian President has quite recently highlighted a number of regions where labor productivity growth is a lot higher than in Russia on average. The Kaluga region tops this list with 13%. As you can see the region does not live off raw materials. Its excellent performance is a result of favorable business climate and favorable conditions for raising investments and launching advanced production facilities. And our Bank, to be more precise,VEB Group is making its contribution to creating such environment.

For example, since 2008 VEB has been funding the project to develop infrastructure of the Kaluga region’s industrial parks. The Bank’s total participation share in funding the project is 11.2 billion rubles. The project is designed to create conditions for investors to deploy their new production facilities in industrial parks of the Kaluga region including engineering development of industrial sites equipped with all required infrastructure as well as construction of manufacturing and storage facilities and multi modal logistics centers. As a result, 29 new production facilities were built as of today and 16 thousand jobs were created. The total amount of investments in the region’s economy is 143 billion rubles. You must admit that it’s a good result.

Now we are jointly working on the Kaluga region’s comprehensive development. Both VEB Group and the region’s government have prepared a relevant plan. The plan involves VEB and its subsidiaries: VEB Capital, VEB-Leasing, SME Bank GLOBEX and Svyaz-Bank, the Export Insurance Agency of Russia (EXIAR).

I’d like to give you two more examples.

The oil products transshipment terminal at the marine trade port of Ust-Luga is one of the Bank for Development’s largest infrastructure projects. Up to 30 million tons of oil products are to be transported through this terminal per year. In September of 2013, the Bank completed its participation in this project. Payment obligations of the project initiator and borrower – Rosneftbunker to Vnesheconombank were fully fulfilled. Now oil products are transshipped at the terminal.

This project is an obvious example of fruitful cooperation between the state and business in implementing major infrastructure projects. The state represented by Vnesheconombank in fact, not in word provided massive financial support for business. It goes without saying that such support should be provided only for well-structured and well-prepared projects and should be accompanied with frictionless cooperation between federal and regional authorities.

There is one more principal aspect. The port and the adjacent territory are scheduled to be developed comprehensively. A cluster approach is to be applied here with the use of public private partnership instruments. In fact, a new modern city is being built with a 30-thousand population. It will be a city with diversified economy, powerful industrial base and comfortable environment for its residents.

One more example is the first full- cycle automobile factory in the Far East. The project started almost from scratch. Moreover, the market was full of secondhand Japanese cars with steering wheels on the right. But the Bank’s experts viewed this project as a promising one. A decision was made to back Sollers company initiative to build auto production facilities in the Far East. As a result two automobile factories were built in Vladivostok in the form of joint ventures with the participation of Sollers company and the largest Japanese automakers where a line of Japanese and Korean automobiles of different makes and models and configurations are manufactured including Mazda, Toyota, SsangYong. It’s obvious that the factories galvanized allied sectors’ business from automobile show rooms to auto service stations as well as provided jobs for residents of the city. By the way a part of automobiles are sold in Russia’s European territory.

-Vnesheconombank Group has still a lot of work to do in the Far East. To this end the Bank’s subsidiary – the Far East and the Baikal Region Development Fund was established. But lately we have heard various proposals including the Fund’s additional capitalization and a transfer to a new model of its activity. What’s the reason for it?

First, the Far East and the Baikal region are one of our Group’s investment policy priorities. Vnesheconombank entered into agreements on long-term cooperation with the Khabarovsk and Primorsky Territories, with the Amur Sakhalin and Irkutsk regions and with the Republic of Sakha (Yakutia). And VEB’s subsidiaries – engineering, leasing and investment companies and the Export Insurance Agency of Russia are integrated in regional programs. As of December 1, 2013, the total value of projects (completed, being implemented or scheduled to be carried out) exceeded 616 billion rubles. The Bank’s participation amounted to 448 billion rubles. As a result about 21 thousand modern jobs are to be created in the region. Another seven projects for a total amount of 316.8 billion rubles with the Bank’s potential participation worth of 295 billion rubles are going through expert examination.

Second, the total value of projects approved by the Far East and Baikal Region Development Fund’s Board of Directors for comprehensive expert examination is 23 billion rubles. The largest projects are constructing a railway bridge across the Amur River to China, developing the Vladivostok international airport and creating a fishing industrial center on the Shikotan Island.

Third, the number of applications we received with regard to the Far East and the Baikal region is impressive although to put it mildly the quality of many projects’ preparation is quite low. Unfortunately, we don’t have a list of top-priority projects structured for non-budgetary investments in the region to say nothing about approved ones.

There is no doubt that the Far East needs large-scale investments. But the region should be ready for investors to come. Infrastructure (transport, energy, industrial infrastructure) is not an end in itself it is created to engage investors in those sectors that can’t develop without this infrastructure. Everything should operate as an integrated whole.

Although today the Fund has no authority to organize territories comprehensive development projects. In my opinion it makes sense to discuss an issue of giving such authority to the Fund as part of individual resolutions of the Russian Government. This will be a positive step forward.

-They have been talking about structural reforms needed to restart economic growth for a long time. But at the same time it’s clear that structural reforms won’t yield results immediately. What instruments in your opinion can contribute to economic growth as early as next year?

-Russia’s economy needs long money more than ever before and development institutions are so far the main source of this money and in particular Vnesheconombank and its subsidiaries. The Russian Direct Investment Fund (RDIF) proved itself to be an effective mechanism for raising financial resources of the largest foreign funds. When RDIF was being established a number of meetings were held with the management of the world’s largest investment institutions: sovereign funds and direct investment funds which manage funds worth trillions of US dollars. Now we can have a look at some results of the Fund’s activity.

Since its foundation RDIF has invested more than 3.5 billion dollars out which 850 million dollars are owned by the Fund and 2.8 billion dollars were invested by international investors. Thus, for each dollar invested, RDIF raised more than 3 dollars worth of foreign investments. During two years of its operation RDIF raised a total of 9 billion US dollars worth of foreign capital for the Russian economy through establishing long-term strategic partnerships (with China, Abu-Dhabi, Japan, Korea, Kuwait, France and Italy).

Another line of activity is to set up a national industrial exports support system. I’d like to stress that I mean industrial exports rather than oil and gas exports. VEB’s Export Financing Department, EXIAR, VEB-Leasing company and Roseximbank – an agent bank responsible for extending government guarantees are involved in this line of activity. This activity is designed to make it possible for any exporter irrespective of its size and products it exports to gain access to a range of the state’s support products. As of late December of 2013, VEB’s exports funding portfolio was more than 120 billion rubles. In the last year, the amount of export financing increased by almost 2.5 times and the loan portfolio increased by almost 6 times, the guarantee portfolio increased by almost 2.3 times.

Services offered by the Export Insurance Agency of Russia are really needed by our enterprises. A range of sectors is expanding and now it includes agricultural, energy and transport mechanical engineering, metals industry, aircraft construction, automotive industry, instrument building industry, chemical industry. A list of countries is also growing.

I give credit to EXIAR’s management for their work with banks, regulatory authorities and for their efforts to get legislation changed to make it easier to use it for exporters themselves. In fact, an environment for development is being created in the Russian products exports sector. Quite recently EXIAR that worked primarily with large companies has prepared an individual product for small and medium-sized enterprises.

-And how is the guarantee mechanism for supporting SMEs operating? This mechanism was developed by Vnesheconombank in accordance with the Russian President’s decree?

VEB’s Supervisory Board made a decision to assign this job to its subsidiary –SME Bank.

A medium-sized company which meets certain requirements and is short of collateral can turn to SME Bank to obtain banking guarantee. And all SME Bank’s guarantees are secured by Vnesheconombank’s banking guarantee the amount of which is 40 billion rubles. As SME Bank is to guarantee 50% of credits to be extended, guarantee support worth 40 billion rubles would allow commercial banks to extend credits for an amount of 80 billion rubles.

Here I mean companies operating in non-raw materials and non-trade sectors. A project’s value is to range from 100 million to 2 billion rubles. At least 20% is to be company’s own funds. A credit tenure is 2 from 10 years. Cost of guarantees will be in the range of 1.4%-1.8% per annum (for innovation projects - at a lower limit of the cost range).

In August of 2013, SME Bank extended the first guarantee in favor of Renaissance Bank to secure an investment credit for an enterprise in the Moscow region to expand its printing production.

-At the start of the last year, there was a lot of talk about the credit agreement between Vnesheconombank and Germany’s state bank KfW on providing support for innovation projects of small and medium-sized enterprises. Is this money already available for our business?

-You’re talking about the credit agreement worth 110 million dollars for a tenure of 5 years to fund SME companies implementing projects in innovations, modernization of production facilities and energy efficiency.

Projects are funded by SME Bank through its partner banks in the regions. One of the conditions is that a project is to be implemented in the Baltic region – in Saint Petersburg, the Leningrad, Kaliningrad, Pskov and Novgorod regions. In order to implement the credit agreement SME Bank developed a line of credit products under the general brand SME-Baltica. Among the first recipients are light-industry companies that introduce innovative developments related to manufacturing working clothes and individual protective gear.

-Vnesheconombank as the state managing company invests pension savings of “undecideds” in bonds of major infrastructure companies. In view of a decision to nullify the funded portion of “undecideds” pensions in 2014 and transfer the funds to the distrib- utive system what are the prospects for buying out new issues of infrastructure bonds?

Basic parameters of transactions on investing pension savings funds in bonds were approved by VEB’s Supervisory Board. A decision was made that a total volume of infrastructure companies’ bonds to be purchased in 2013 would amount to 280 billion rubles (including bonds of OJSC RZHD in the amount of 150 billion rubles, bonds of OJSC FGC UES in the amount of 100 billion rubles and bonds of OJSC Gazprom in the amount of 30 billion rubles), with a maximum share of the state managing company being 100% of one issue volume.

Today, all the bonds worth 280 billion rubles have been already purchased. Thus, all the decisions on funding infrastructure projects through using pension savings funds have been carried out promptly and to the full. These projects are being implemented by OJSC RZHD, OJSC FGC UES and OJSC Gazprom.

You know well that new laws on the pension system provide for nullifying the funded portion of “undecideds” pensions. This means that pension savings funds won’t be transferred to us for trust management. This will not only limit the state managing company’s investment capabilities but will also substantially increase liquidity risks of the expanded investment portfolio. So, funds from redeeming bonds in this portfolio and coupon payments on them will be used only for fulfilling contractual obligations to the trust management founder – the Russian National Pension Fund.

-Vladimir Alexandrovich let’s get back to the so-called special projects of the Bank for Development , on the Government’s instructions Vnesheconombank is the major creditor of the Sochi Olympics.

-It’s quite obvious that preparations for the Olympics are quite cost and labor intensive. But it’s also obvious that the Krasnodar Territory will bridge a huge technological gap and receive advanced infrastructure that will allow it to be on a par with the world’s recreation centers.

A principal issue (in terms of return of investments) now is the post Olympic use of the Olympic sports facilities. At present, for the most part demand is generated by government organizations and institutions. It is for this reason we and investors of the Olympic projects are working actively with the Russian Government on searching for ways to maximally utilize the Olympic facilities in the period after the Olympics.

On the other hand I know that many athletes who went abroad in the past to prepare for competitions plan to do it in Sochi. And we hope that the Olympics would help to develop mass sports in the region and create a favorable development environment for people, sports, the region and the country.

RBG Information

During a period of 6 years Vnesheconombank has been participating in funding 289 projects worth 3.9 trillion rubles, with its participation share being 2.4 trillion rubles. Out of them the Bank has already fully funded 63 projects worth 233.8 billion rubles, VEB provided 106.3 billion rubles. Today, 168 projects worth 2.4 trillion rubles are being funded, the Bank has already provided 1 trillion rubles to fund them. For the most part these are infrastructure projects and projects that are of strategic significance for Russia. A third of them are innovation projects.

Long-term credits form the basis of the Bank’s loan portfolio. In a number of cases credit tenure periods are 10-15 years. Today, more than 100 projects worth 2.9 trillion rubles are going through expert examination (VEB’s expected participation share is 1.4 trillion rubles). A third of these projects are infrastructure ones.

The number of applications we received with regard to the Far East and the Baikal region is impressive. Although to put it mildly the quality of many projects’ preparation is quite low. So far we don’t have a list of top-priority projects structured for non-budgetary investments in the region.

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Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24

3 december 2013 года
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TV Channel Russia 24
INTERVIEW
02.12.2013, 10:39

HOST: You’ll hear an interview with Vnesheconombank Chairman Vladimir Dmitriev on our channel. My colleague Maria Bondareva asked him about cooperation between Russia and Ukraine in the banking sector on implementing investment projects and about the future of these lines of activity.

Interview

CORR: Good afternoon Vladimir Alexandrovich.

Vladimir DMITRIEV, Vnesheconombank Chairman: Good afternoon.

CORR: Vladimir Alexandrovich, Vladimir Putin has said recently that the amount of Russia’s investments in the Ukrainian economy is about 30 billion dollars. What’s VEB’s share in this sum?

Vladimir DMITRIEV: VEB invested about 500 million dollars in Ukraine’s banking sector. In 2008, we factually rescued one of system-forming banks preventing it from going bankrupt and helped Ukraine to avoid serious implications for its banking business and for banking sector as whole. Now the bank is one of the largest banks in Ukraine. And if we talk about Russia’s presence in Ukraine’s banking sector we should mention Sberbank, Bank VTB, Alfa Bank and of course Vnesheconombank’s Ukrainian subsidiary bank. These banks form the basis of the Ukrainian banking system, at least if we mean non-government banks. Moreover, Vnesheconombank helped a number of Russian investors to purchase one of the largest metals company in Ukraine, namely, the Industrial Union of Donbass. In this case we made an investment of about 8 billion dollars. And it was not only a matter of purchase. Vnesheconombank supported this large metals company and it provided support not only for its products but also for about 40 thousand workers. And here I mean not only the Industrial Union of Donbass but also Zaporozhstal where we are responsible for managing this integrated iron & steel works together with one of the biggest Ukrainian businessmen Renat Akhmetov.

CORR: You’ve told us about your subsidiary bank in Ukraine which is one of the largest banks in the country. Generally speaking, how is the bank doing? What are your plans to upgrade it?

Vladimir DMITRIEV: When we purchased the bank by way of investing pretty large funds we didn’t expect that we would come up against a lot of problems from the previous management and previous owners. We acted on the assumption that the bank’s credit history was favorable and it had a solid loan portfolio. But as credit repayment dates came due we could see that borrowers failed to meet Prominvestbank’s requirements. In fact, we inherited bad loans worth up to a billion dollars. But we have to state that most borrowers are in a position to repay credits but use various mechanisms for evading their obligations. And now we face the need to additionally capitalize the bank and take tough legal action against mala fide borrowers. Nevertheless, the bank is actively operating in various sectors of Ukraine’s economy. And it seeks to bring the amount of credits to enterprises which are tied by integration relations with Russian enterprises to 20%. I believe that this is a realistic target figure.

CORR: What can you tell us about the amount of Ukrainian residents’ enterprises’ and banks’ credits to Russian banks?

Vladimir DMITRIEV: I can say that Russian banks and our Bank are actively involved in retail lending. It is safe to say that the amount of retail credits is constantly on the rise. I know that Sberbank is now implementing a serious program aimed at developing a branch network and retail lending in Ukraine catching up with the largest Ukrainian non-government banks in terms of its scale and potential nearing other Russian banks that have been operating on the Ukrainian market for a long time. I’ve already said about a task we are setting before our Bank as our Bank is a shareholder after all and a state corporation whose mission is to strengthen integration ties with adjoining states and CIS countries. For this reason, other banks also seek to seriously influence various sectors of the Ukrainian economy and above all those that are tied by cooperation relations with Russian enterprises. And it is quite natural because big business has been cooperating traditionally with Russian partners in various sectors and here I mean nuclear power engineering, mechanical engineering, transport and space industries and the military industrial complex. We have partner relations with Russian enterprises in the sectors that are of great importance for Ukraine’s economy.

CORR: This means that VEB is actively involved in funding the Ukrainian economy.

Vladimir DMITRIEV: Yes, it is. We fund Russian enterprises working with their Ukrainian partners and we also fund various sectors of Ukraine’s economy through our subsidiary bank.

CORR: You’ve also said that you maintain contacts with representatives of Ukrainian business. How do they size up heir integration partnership with Russia and friendly relations with it?

Vladimir DMITRIEV: As Russia is Ukraine’s main trade partner it goes without saying that Ukrainian business is interested in enhancing trade and economic ties with Russia. And it is also interested in investing in the Russian economy, so we have a two-way street – on the one hand Russian business invests in the Ukrainian economy and on the other hand a lot of Ukrainian businessmen work actively in Russia. Moreover, given the current situation in Ukraine, a difficult budget and income situations, Russian business hopes that in the course of forthcoming privatization of large-scale Ukrainian enterprises with a serious state participation it will be actively involved in privatization deals building up its investment presence and in fact strengthening integration ties that I have already mentioned.

CORR: I also know that VEB supported strongly Ukrainian enterprises during the crisis.

Vladimir DMITRIEV: You’re quite right. In a certain sense we rescued some sectors of the Ukrainian economy. I’ve already mentioned the metals industry which employs about 40 thousand workers at the Industrial Union of Donbass and the Zaporozhstal integrated iron & steel works. And our investors are still interested in modernizing these enterprises. Suffice it to say that the Alchevsk integrated iron & steel works is in fact the most advanced metals enterprise on the territory of CIS countries. They modernized the steel-making unit and commissioned an electric power station which is a non-waste production facility. It supplies electricity to the city of Alchevsk. It should be also stressed that having financed Russian investors we helped Ukrainian metals enterprises to come out of a very difficult economic situation that was caused in the past by the fact credits for modernization had been taken abroad. None of foreign creditors funded these enterprises. And Vnesheconombank is the only source of financial resources including current assets. There are some bottle necks in this situation caused by the fact that our enterprises have problems in their relations with the tax authorities – non-refunded VAT to our enterprise is about 400 million dollars and this is a minimum balance.

CORR: Is VEB going to compensate for these funds?

Vladimir DMITRIEV: We extend credits to Russian investors on a constant basis, factually substituting these funds which the state is not able to compensate for to our enterprises due to serious problems.

CORR: Let’s sum up our Ukrainian theme and imagine possible scenarios for Ukraine’s future: integration with the EU, absence of integration, association with the EU.

Vladimir DMITRIEV: I’d like to focus on the current situation. The association agreement was not signed. Future developments would of course depend entirely on the Ukrainian authorities’ actions, on their desire and readiness to join the Customs Union. Recent dynamics of business and political contacts shows that by expanding its trade-economic and investment cooperation with Russia Ukraine will benefit significantly from joining the Customs Union. We are holding an active dialogue about our joint infrastructure projects. Specifically, Vnesheconombank is a serious player in this discussion. We started discussing the construction of the Kerch Strait Bridge. This is a very important infrastructure project which will give powerful impetus for the development of a whole number of Ukrainian and Russian economic sectors. Here I mean large-scale infrastructure projects in transport and power engineering sectors. If Ukraine joins the Customs Union, Ukraine is sure to win in terms of energy prices like Belarus. This is clear to everybody. And in terms of power engineering and other economic sectors it’s a real benefit for Ukraine to strengthen its ties with Russia.

CORR: My last question to you deals with the Russian banking sector. We can see such troubled banks as Bank Pushkino and Master Bank. What do you think about the Central Bank’s tougher financial control over Russian banks and is there a risk of a credibility gap developing between people and banks after such situations?

Vladimir DMITRIEV: I’m convinced that the Central Bank does what it is supposed to do. Dishonest people and swindlers have not disappeared yet, the more so in the banking sector. So, the Bank of Russia’s actions are for the god of the banking sector and people rather than some kind of threats. It’s important to have in mind that sometimes people take irrational decisions putting their money in the banks that promise them high interest rates. As the saying goes there is no such thing as a free lunch. This case is a good lesson for those who put their money in unreliable banks and our people should be well-educated in a financial sense to put their money in reliable banks. I’d like to say it once more that the Central Bank doe what it is supposed to do and acts prudently.

CORR: Vladimir Alexandrovich thank you very much for your interview.

Vladimir DMITRIEV: Thank you.

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Today Italy is one of our most important trade partners in Europe – Vladimir Dmitriev

2 december 2013 года
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ITAR-TASS (itar-tass.com),
Moscow,
December 2 2013 14:37

Various events organized by the Russian-Italian Forum-Dialogue within the Framework of Civil Societies took place on November 26, in the course of the Russian-Italian interstate consultations headed by Russian President Vladimir Putin and Italian Prime Minister Enrico Letta. Established in 2004, the Russian-Italian long-term project has become an important instrument of bilateral cooperation. Vnesheconombank Chairman Vladimir Dmitriev told ITAR-TASS about results achieved and prospects for future cooperation. He is the Co-Chairman of the Russian-Italian Forum-Dialogue for the Russian side.

-Vladimir Alexandrovich, Russia and Italy are tied by long-time trade and diplomatic relations. How would you assess the level of cooperation between our countries?

-Today, Italy is one of our most important partners in Europe. In terms of its trade turnover with Russia which amounted to 45.8 billion dollars last year it ranks third after the Netherlands and Germany. Almost 45 years ago Italy was the first country to have concluded a long-term agreement on gas supplies from the USSR. And now Italy is the second largest consumer of Russian gas. The Italian Concern Eni is working closely with Gazprom on the Southern Stream Gas Transport project and it is also cooperating with Rosneft company on the shelves of the Barents and Black seas. Enel concern owns almost 70% stake in OGK-5 company. Finmeccanica concern is a leading partner of Russian companies in the high-technology sector. It implements projects in the aerospace sector, aircraft construction as well as in modernizing railway transport, postal and telecommunications. CJSC HeliVert is operating efficiently. HeliVert is a joint venture of Helicopters of Russia and AgustaWestland. They have already assembled the first six helicopters. JSC Sukhoi Civil Aircraft is cooperating with Alenia Aermacchi in manufacturing the Superjet-100 regional aircraft. The backlog of orders is more than 200 airliners. Today, about 500 Italian companies are operating in Russia and cooperation is expanding actively.

-Could you tell us about Vnesheconombank’s cooperation with its Italian partners?

-I’m happy to note that the Bank participates in many projects I’ve listed. Our partners in these projects are Italy’s financing institutions. We signed an agreement on cooperation with Italy’s credit agency SACE and France’s agency Coface to form an integrated system of funding international sales of Superjet-100 aircraft. The agreement provides for using a credit-leasing scheme for funding export supplies of the Superjet-100 to foreign customers against insurance coverage of SACE and Coface.

“Cooperation between Russia and Italy is advancing in all directions”, said Russian President Vladimir Putin. In my opinion one of the most successful projects in which Vnesheconombank participated is the construction of the Tobolsk-Polymer gas-chemical complex which is the largest one in Europe. The project was implemented with the participation of Intesa Sanpaolo SpA and SACE.

We also entered into agreement with Intesa Sanpaolo SpA and UBI Banca ScpA on providing financial support for small and medium-sized enterprises for an amount of 150 million euros.

Today, VEB Group is comprised of about twenty subsidiaries, namely, banks, investment, leasing, engineering and project companies - the Direct Investment Fund, the Export Credit Agency of Russia, regional development corporations and consulting representative offices in the regions.

This set of institutions allows us to create investment-financing platforms to implement not only individual projects but also programs of comprehensive development of territories and research production clusters.

-What agreements did you sign within the framework of the Russian-Italian Forum-Dialogue?

-In Trieste we signed several agreements with such Italian financing institutions as Mediobanca and export insurance agency SACE as well as a Letter of Intent with company CO.MO.I. GROUP SA on developing a new mechanism for funding Vnesheconombank customers under contracts with Italian suppliers.

-These are not the first agreements between VEB and Italian banks?

-In fact, I’d like to recollect one of them - an agreement on cooperation with Italian banking group UBI Banca on the development of small and medium-sized enterprises. It provided for UBI Banca to extend credit facilities worth up to 50 million euros. For a number of reasons this agreement’s implementation was suspended.

“Cooperation with Russia is a guarantee for success for Italy’s economy”, said Italian Prime Minister Enrico Letta. In order to give a new impetus for cooperation Vnesheconombank offers to discuss the possibility for UBI Banca to enter into capital of an International Fund to Support Entrepreneurship that is being established now. The Fund is being established together with Germany’s KfW Banking Group with the participation of the European Investment Bank. It is designed to support Russian medium-sized enterprises that demonstrate good growth dynamics. Business is to be funded primarily through debt instruments.

The Fund’s is to be comprised of several tranches with different risk and profitability levels. Vnesheconombank is to invest funds in the most risky tranche thus making it possible to protect investors of senior tranches in case of losses. Taking into account the Fund’s conservative policy and strict requirements for investees, it is safe to say that investments in a senior tranche will be almost risk-free.

-In 2014, Italy is to assume the EU presidency. And in this respect does VEB have plans to expand cooperation with its Italian partners?

-We intend to step up our efforts to fill the Forum-Dialogue with real business content.

In particular, we can resume the activity of a regular Russian-Italian Business-Dialogue. It could be held as part of the already functioning conference “The Russian Economic and Financial Forum in Italy”.

Representatives of big business participate actively in a dialogue devoted to issues of economic cooperation between Russia and Italy but representatives of small and medium-sized enterprises are less active. An International Forum devoted to supporting small and medium-sized enterprises is to be held in Moscow on April 23-24, 2014. I think that in the course of this Forum we’ll be able hold a round-table discussion on Russian-Italian efforts to support small and medium-sized enterprises.

Interviewed by Alxei Bukalov, Vera Shcherbakova.

/Corr. ITAR-TASS, Rome/

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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
#Publications
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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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