Petr Fradkov: VEB supports all initiatives within the New Silk Road Project

26 august 2015 года
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TV Channel Russia 24
INTERVIEW
26.08.2015, 06:36

HOST: Vnesheconombank supports all initiatives within the New Silk Road Project. First Vnesheconombank Deputy Chairman – Member of the Board Petr Fradkov told us what projects VEB was interested in.

CORR: Petr Mikhailovich thank you very much for finding the time to give us an interview. Let’s formulate our theme in the following way: “The Silk Way” - an idea which is pushed forward for the most part by China and backed by a whole number of other countries. How do you size up its prospects and how can Russia above all benefit from it?

Petr FRADKOV, First Vnesheconombank Deputy Chairman – Member of the Board: I’m very positive about this project and Vnesheconombank supports all initiatives within this project. We believe that landmark Silk Road projects are sure to be implemented whether it be construction of new infrastructure facilities, port facilities or logistics terminals. This would expand trade and economic sanctions. We can also speak about financial instruments, some non-financial measures of cooperation but we need infrastructure, we need channels to transport goods. Increased trade turnover is an ultimate result we focus on. On the one hand, this would have a positive impact on export surplus, budget revenues and new jobs and on the other hand, this would make it possible to export Russian products to Asian countries’ markets. This is a very important task because it includes exports support, in which Vnesheconombank is involved, boosting our global competitiveness as well as logistics, port facilities, transshipment terminals and storage facilities. In our opinion we have to address this task jointly.

CORR: Quite often Chinese companies receive pretty large shares in our companies. Won’t we become too dependent on the Celestial Empire?

Petr FRADKOV: I believe that it’s too early to speak in such a way because Chinese companies’ participation in the past years has been rather small. By the way, we focused more on cooperation with Western companies. And now it’s too early to say that we are somehow dependent on them. On the contrary, in my opinion this project will balance our interest, our involvement in this value added chain, which is perhaps to a greater extent on our Western partners side. But now, we can say that it would be some good balance in terms of cooperation and partnership in a global sense.

CORR.: You’ve mentioned trade, trade surplus and so on. But now we continue to interact so to speak within a dollar format. That is, the dollar still circulates between our countries. What are the prospects in your opinion for transferring, above all, to the yuan and maybe to the ruble in our payments?

Petr FRADKOV: It is not a new theme. You are absolutely right that this is one of key issues in the Russian-Chinese agenda in terms of strengthening trade ties. I believe that Vnesheconombank is a pioneer in transferring to cooperation in the ruble- yuan couple because we were among the first ones to enter into appropriate credit areements and they are valid. And we are quite experienced in raising among other things, financial resources in yuans and we might raise credit facilities in rubles in the future. So far, there are some limitations. Today, the yuan-ruble market is not large enough on the one hand, and on the other hand, we haven’t developed a mechanism for a fully functional mechanism for hedging currency risks and this is also one of the problems. Now the central banks of Russia and China have entered into a swap agreement. Unfortunately, this is a short-term agreement, it is valid only for a period of up to one year and applies only to trade transactions. We of course speak out in favor of spreading this swap between the national banks to investment transactions, and for longer periods of three or may be five years. In principle, some Chinese partners stand for a ten-year period. This in fact encourages investment cooperation. A volume of transactions also matters because so far this swap is limited to 150 billion yuans – this is not much.

CORR.: If we talk about Russia and China, we immediately start to think about BRICS. Vnesheconombank takes an active part in it. And they say that as early as in spring of 2016 the first projects might be examined. And a team to select these projects is to be formed from VEB’s professionals. What projects are you interested in most of all? How are they going to be selected? Are you interested in New Silk Road projects”.

It’s too early to speak about the New Development Bank’s (the BRICS Bank) operation as a financial institution. For the most part, it is now involved in establishing its internal procedures, so to speak, preparing business processes. But we are already working actively with a team of the New Development Bank. You are absolutely right – our colleagues from Vnesheconombank will participate in this Bank’s operation as employees. And we regard this Bank as our partner. The Bank’s President Mr. Kamath visited us several times. We held various talks with him and we know that his goal is to extend the first credit as early as in 2016. To my mind, now they are structuring their work and identifying main lines of their activity. These of course are going to be infrastructure assets, green economy, and projects associated with socio-economic development. The New Development Bank is a multilateral institution and it should support projects in which more than one country is interested - at least two and maybe more. Co-financing is very important in the BRICS’ Bank operation for national development institutions to participate in its activity. In the course of a recently held BRICS summit in the city of Ufa a Memorandum was signed between the New Development Bank and the BRICS Interbank Consortium. Vnesheconombank is a representative of Russia in this Interbank Consortium. National development banks are natural partners of the New Development Bank. Under this Memorandum, we are working on those projects that we would be ready to hand over to the BRICS Bank. We’ve got such a portfolio of pretty well-prepared and structured projects.

CORR.: As far as other projects are concerned, not long ago VEB and the China Development Bank signed a framework agreement on the joint support for the development of the Far East. The amount of investments is tremendous – 8 billion in dollar equivalent. How are you cooperating with the Chinese side on this issue?

Petr FRADKOV: I’d like to say that the China Development Bank has been our partner for many years. Since 2005, we have been enjoying good relations with CDB and have jointly implemented many projects. And we prepared and entered into an agreement with them on projects in the Far East. The agreement is worth 8 billion in dollar equivalent. It’s quite a different sum in yuans. In terms of receiving funding, we assume that for the most part it would be also in yuans for Chinese investors and companies to be interested in participating in projects in the Far East. I must say that the agreement was signed only in May so we haven’t conducted any transactions yet. Not long ago, we staged a sort of Road show in China. We engaged in it our subsidiary – the Far East Development Fund. There was a significant interest. I assume that even at a forthcoming Far Eastern Economic Forum some sort of documents (initiatives) could be signed on using these monetary resources.

CORR.: They even mentioned such sectors as communications technologies, agro-industrial complex.

Petr FRADKOV: You are absolutely right.

CORR.: That is to say, that this attitude remains.

Petr FRADKOV: These are perhaps the region’s priorities as a whole. We are coordinating our work with development institutions that are interested in developing the Far East. The region’s priorities include defense industrial complex, infrastructure and communications.

CORR.: Rounding up our interview devoted to your Bank’s cooperation with Chinese banks, we can also mention the Export-Import Bank of China. For the first time you raised funds from this bank in the national Chinese currency to finance the project. Could you tell us in more detail about this line of activity?

Petr FRADKOV: This must have been the first pilot project that we implemented jointly with the Eximbank of China. This must be our second vis-à-vis in China. The Eximbank of China is also a state bank with its mandate, its clear logic and interest. The Eximbank of China is designed to enhance cooperation between Chinese companies and the rest of the world, specifically with Russian business. We entered into an agreement with it. So far, I wouldn’t like to reveal details because of a certain list of conditions precedent. This is the first long-term credit agreement in Russia. I’d like to stress that it enables us to use yuans for more than seven years to fund a specific project on developing ore deposits.

CORR.: Summing up our today’s conversation about the new Silk Road Project I’d like to ask you a question: To what extent is it realistic to implement such a global project?

Petr FRADKOV: I believe that this is quite a realistic project, given the common interest in implementing it. To my mind, all the sides are interested in the project.

CORR.: Petr Mikhailovich, thank you very much for your interview.

Petr FRADKOV: Thank you.

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A unique window of opportunity formed for Russian exporters

25 august 2015 года
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Origin: Oleg Panteleev // AviaPort.Ru
Published: 25.08.2015, 08:58

Vnesheconombank is a key player responsible for export funding of both Russian aircraft and spare parts. But the Bank is not going to limit itself to 120 billion rubles committed to this end. Director of the Export Financing Department Daniil Algulyan believes that operational leasing will open up great prospects for and Vnesheconombank is ready to develop cooperation with leasing companies that will offer such a service.



- The Russian economy is going through a difficult period. Is there a possibility now to fund high technology exports?

- Despite the problems, our country’s economy is facing now, we can say that a unique window of opportunity has been formed for Russian exporters to enter new markets and expand their presence on international markets. A fall in the ruble exchange rate is becoming an additional factor of competitiveness. Here I mean above all non-raw materials exports - supplies of manufacturing and high technology sectors products.

When we talk about exports now, we mean competition not only between products themselves but also exporters’ financial proposals. Our task is to prevent Russian exporters from being in an unequal position with regard to their key competitors on international markets. To guarantee this, we need to provide an efficient support for our international supplies. We need a comprehensive support system, which includes a set of financial and non-financial instruments allowing Russian exporters to promote their products to international markets.

- They have been talking for a long time about the need to create a high-technology products export support system. What do we have at our disposal nowadays?

- At present, a whole system of institutions within Vnesheconombank Group has been set up. This system is responsible for providing financial support to promote Russian products abroad. Vnesheconombank is a central part of this system – it extends both credits and guarantees. Moreover, Vnesheconombank focuses above all on large-scale and structurally complicated transactions whereas Roseximbank – a member of Vnesheconombank Group – is responsible for “straight-line” funding of export credits. It also provides services on export and pre-export funding as well as extending required guarantees. The Export Insurance Agency of Russia (EXIAR) is responsible for export insurance.

- A key non-financial support institution is a recently created Russian Export Center which also performs coordination functions and acts as “single” window”.

- Vnesheconombank’s other subsidiaries also assist the Bank for Development in performing its functions to support exports, for example, Russia’s largest leasing company VEB-Leasing. We also actively use our subsidiaries abroad. For example, our subsidiary bank – BelVEB is one of the largest banks in Belarus. So, we can say that a comprehensive export support system has been put in place and is dynamically developing.

- Is there a need for these instruments in the aviation industry?

- As to non-raw materials exports, we work along a whole range of lines. Aviation industry is one of our top priorities. At present, Vnesheconombank’s portfolio of funding Russian aviation and space exports exceeded 120 billion rubles. Of course, our landmark project is Sukhoi Superjet 100. I think it would be right to say that Vnesheconombank is a key partner bank in this aircraft’s exports. In the past years, we have participated in funding the most part of these aircraft. A landmark transaction was to supply the aircraft to Mexico where we act as a lead organizer of a consortium of funding banks.

- How do you size up this transaction? Didn’t the first step prove to be a failure?

- The fact that after an original arrangement for supplying 20 aircraft an arrangement has been made now for supplying 10 more aircraft shows that the transaction was successful. On the other hand, the funding scheme won a wide international recognition and a number of prestigious awards from trade magazines for example from Global Transport Finance.

- A consortium of banks participated in funding the aircraft for Interjet including Western banks and insurance agencies. Are there any risks that it will be impossible to put together a syndicate of banks and partners with regard to other export transactions?

- I would break this question into two parts. Can we use the experience we gained from foreign partner banks with regard to Mexico? Yes, we can. We don’t see any problems in setting up this sort of consortiums to fund other transactions related to supplying Superjet aircraft. A c change in the environment hasn’t influenced the situation very much.

But I would also like to say that putting together this sort of consortiums is a pretty individual matter intended for a specific buyer. So, when we talk about supplying aircraft for each individual company we should keep in mind that a composition of funding banks and institutions might vary pretty substantially. This is associated both with perception of specific counterparties’ risks and with limits which various banks and export credit agencies have with regard to specific borrowers.

An individual set of partners in each of transactions might vary and this is absolutely normal. If you have a look at Boeing and Airbus, you’ll see that supplies are funded by different set of banks. A whole financing industry is operating there. This is the case with Superjet.

- Is it possible to increase the extent of Russian banks’ participation in funding exports?

- It’s quite possible. Our transaction with regard to Superjet in Mexico is not the only one we have conducted in the past years. All transactions as I have already mentioned are of individual nature. In some cases Vnesheconombank acted as the sole creditor. And nowadays, a whole number of transactions are under consideration under which Vnesheconombank is planning to fund supplies on its own. Moreover, credits are also being prepared under which the Bank is planning to act as a member of consortium together with other financing institutions.

- Airlines need not only credits but also other instruments and above all operational leasing. Does Vnesheconombank Group have any relevant proposals in this respect?

- At present, we are working actively on expanding the set of instruments to fund supplies of aircraft. Forming up an effective instrument for operational leasing is one of our key tasks in the coming years. The reason for it is that Russian civil aviation planes are relatively new for international market. For most airlines operational leasing is the most effective method to feel the plane and see its advantages.

- As far as operational leasing is concerned, the lessor needs new competences associated with residual value management. Do you have partners capable of conducting such transactions?

- You were right saying that operational leasing has a number of significant special features if we compare it with financial leasing or with direct selling. In case of operational leasing, one of the main problems is the aircraft’s residual value because tenures of credits for purchasing aircraft for a leasing company might significantly exceed terms of leasing contracts. We are working actively with a whole number of investors and leasing companies in order to develop technical instruments that could allow us to minimize risks upon funding.

Talking about leasing companies, I have already mentioned that VEB-Leasing is a member of Vnesheconombank Group. We have already conducted transactions with this company on supplying aircraft abroad. At the same time, we are open for cooperation with all other leasing companies. We are also working hard with investment funds, other banks and government authorities.

- One of important factors for organizing operational leasing is a duration of a period needed to prepare a transaction…

- When we discuss aviation funding we are aware that each transaction is individual, so we can’t say that there is a standard funding period. On the other hand, our Mexican transaction shows that in terms of decision-making period and extending money we play by market rules and do not yield to our esteemed colleagues from Western countries. So, if we face low risks and deal with a good airline in an easy-to-understand market situation a decision-making period should not become a hindering factor.

- Do you consider projects on providing funding for other types of planes, for example, MS-21, helicopters?

- We hope that the market appearance of MS-21 will result in forming up a new important line of exports. As to other segments of aviation exports, we are actively involved not only in supplying new aircraft but also in funding spare parts for the already existing fleet of Russian and Soviet-made aircraft. From our point of view, this help to create new jobs and develop technological potential of our exporters.

You’ve mentioned helicopters. We believe that this line of activity will become one of our top priorities in aviation funding. Now we are considering several transactions related to helicopters. We hope that they will be closed successfully in the near future.

In general, from our point of view, Russian aviation industry has a tremendous export potential, which significantly exceeds the potential of the Russian domestic market. So, exports supplies will play a key role for the aviation industry’s further development in the coming years.

- A final question is about MAKS. What do you expect of the show?

- For us MAKS is very important and interesting salon where we can see many representatives of companies related to aviation in terms of manufacturing, funding, servicing and sales. So, this is a key event of the year for us. Both Vnesheconombank and companies comprising Vnesheconombank Group tend to sign quite many agreements in the course of the salon.

We expect important and interesting talks with leasing companies and aircraft makers because nowadays we are working on a number of interesting transactions on the supply of Russian aircraft. We hope that MAKS will help us to make significant headway on the projects. I’m sure that this salon will result in signing a number of agreements in the coming several months.

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Long, centrally issued, earmarked

13 july 2015 года
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Expert №29 (952)
AlexandrIvanter


Deputy Chairman, chief economist
Member of Vnesheconombank Management Board Andrei Klepach

The Central Bank should be more active in using non-traditional refinancing methods to buy out project bonds of banks and development institutions issued against specific investment projects and then block unlawful diversion of funds through using regulatory methods

Exactly a year ago, Andrei Klepachleft his post of Deputy Economic Development Minister. In total, he worked for the Economic Development Ministryten years and earned a reputation of one of the best in the country applied macroeconomists. Prior to this, he was a research scientist: after graduating from the Economics Department of MGU in 1981, he worked for ten years at the Political Economics Department of his alma mater and defended his thesis. Then he worked at the Institute of National Economic Forecasting and Nongovernmental Analytical Development Center.

His intelligent manners, soft voice, observant eyes - all features of a scientist- are still with him. But they shouldn’t mislead you. As far as principles and convictions are concerned, he is a tough and straightforward person. In discussions and in bureaucratic apparatus battles on key issues of economic policy of at least the past ten years Klepach has been a firm proponent of stepping up the state’s role in economy and reviewing the dominant paradigm of fiscal and monetary restraints.

Although in his capacity of the Deputy Chairman, the chief economist and the member of Vnesheconombank Management Board Andrei Klepach keeps on analyzing and forecasting economic situation, was caused by Andrei Klepach got somewhat more freedom in evaluating economic policy of the Central Bank and the Government and this was an additional impetus for conductingthis interview. While working in his new position for several months and immersinghimself in the inner workings of the bank for development he still can take a fresh look at things as an outsider.So, his opinion about some sensitive issues of VEB’s operation are also very interesting. But we started talking about the current economic situation.

-Andrei Nikolayevich, a monthly monitoring of Russian GDP you are responsible for at VEB shows a deeper economic downturn and a change in economic profile. Could you comment in agreater detail?

-If average year on year oil price is about 60, a fall in GDP will be about minus 3.5-3.8 percent.

As to the downturn’s profile, we can see thatit is less sharp than during the last crisis seven years ago but it will take us longer to overcome it if we do not take incentive measures. It shows many differences from the 2008-2009 crisis. The previous crisis was a part of the world’s crisis but the current one is developing against the backdropof accelerated growth of the global economy, atleast its key economic zones with the exception of China. The current crisis in our country was caused by a number of circustances.Above all, it was a sharp and deep fall in oil prices plus the effect of sanctions that cut off access to main foreign capital markets and increased capital outflow. Demand contraction is stronger today. Reduction of stocks played a crucial role in the previous crisis. In the current crisis, there isn’t such excessive accumulation of stocks and their reduction is caused to a large extent by reduction in imports.

In other respects many differences can be also seen. As to consumer demand dynamics and retailing we are experiencing a much more serious setback than at the time of the previous crisis. As awhole on a year on year basis retail business may drop by 8.5-9 percent. And it is clear why. As opposed to the situation in 2008-2009, real personal incomes fell dramatically. They didn’t let it happen thenby raising pensions and wages of budget workers.

-The increased social spending in 2008-2009 was in fact the main anti-crisis measure. It maintained social stability in the country. And liberal economists are happy about such a measure because social spending is less susceptible to corruption. Why doesn’t the state resort to this time-tested method? Don’t we have financial resources or is this a principal political decision?

— Wages in the budget sector kept on rising even after the previous crisis was over in the course of implementing the May 2012 presidential decrees. It is to a large extent a long-term social, strategically relevant maneuver.We may have gone too far. Wages increased faster than our capabilities.Now, we are rolling backhere. Decisions haven’t been taken yet but the Finance Ministry argues for minimizing wage indexation in the 2016-2018 federal budget. In real terms incomes of budget workers and pensioners have already diminished in the pastyear and they will diminish significantly in the current year and it will take several years to compensate for this downturn. Is this reasonable?The fact is that budget workers and pensioners form a substantial part of consumer demand. I think we have to find an optimum balance. It’s also very important that rise in labor productivityshould not lag behind rise in wages but it’s next to impossible to make it happen, if a structural maneuver in favor of budget workers continues.

So far, a significant rise in wages in the budget sector in 2009-2014 did not result in a relevant increase in volumes and quality of services provided in public healthcare and education systems. But given reduced incomes, most people cannot transfer to paid medicine and education. In fact, people have to economize on their healthand their family members’ level of education.

-And how do matters stand in the investment sector?

-The situation with investments today is more complicated and sharper than in the previous crisis. According to our estimates, investments infixed capital in 2015 will shrink by about 15 percent, earlier we expected even a larger reduction of 19 percent. The contraction in consumer demand and retailing occurred for the most part in the first quarter and in April, in the future, taking into account a seasonal factor,a secontraction discontinues and in the third quarter, we are most likely to see insignificant growth (but on year on year basis there will be a negative growth).

A situation with investments is exactly the opposite. The first quarter is not informative here. Major investments are made at year-end and only at that time,we’ll be able to see an extent of investment gap. Government investments contract much more strongly than private ones. This is true of both federal budget andregional ones.

Exports and defense industry support industrial sector

-The industrial sector showed a good dynamics until March-April. In contrast to a sharp drop in industrial output in the second half of 2008, industrial output remained in plateau for several months taking into accounta seasonal factor. Against the backdrop of crisis enclaves in construction materials manufacturing and transport mechanical engineering we saw an import substitution growth in food processing sector, smelting and chemical industries. And in May, data showed that the situation had worsened in the industrial sector. What is going on there?

-The situation in the industrial sector is still substantially better than in 2008-2009, above all due to export sectors (the ruble’s devaluation played a positive role despite still low prices for crude oil and raw materials. And today, Russia’s defense industrial complex supports the dynamics of mechanical engineering and entire industrial output. And this year as a whole our economy will be supported by agriculture: I hope it will show growth, harvest prospects are good. Moreover, government measures for subsidizing agricultural producers’ costs both interest and to a lesser degree investment ones.

At the same time, downturn in capital investments severely affects producers of smelting products, machines and equipment, construction materials. Moreover, in a number of industrial sectors and above all in automotive and railcar manufacturing industrieswe can see a clear-cut structural rather than a market condition crisis. The railcar market is glutted and auto cars are not sold out against the backdrop of a sharp fall in family incomes and even a nominal contraction in consumer credit.

A dramatic situation withconsumer credit is a serious brake not only on the consumer market but also on the investment one. According to our andSMASF’s (the Center for Macroeconomic Analysis and Short-Term Forecasting) estimates in a number of industrial sectors enterprises spend up to a half of their profits and even more on servicing their debts. In fact, industrial sectors are working for banks to survive. Under these conditions, there is a need for not purely market-based support measures. Vnesheconombank’s role is very important here. Our Bank’s proportion in national corporate lending is 7 percent and in long-term lending – 13 percent. In contrast to commercial banks, VEB didn’t raise credit rates so sharply in winter under ongoing agreements and keeps on lending to enterprises at ratessubstantially lower that mid-market ones, in fact, at a loss.

We have to think how to recoup these losses because foreign capital markets are closed for VEB under the conditions of sanctions. In this situation the state has to additionally capitalize VEB and cover its losses. And it has to do it not for the sake of Bank itself but for VEB to continue performing its long-term stabilizing role in the investment process. So far VEB has received 30 billion rubles but an issue of how they should be used to cover losses hasn’t been resolved.

A principal decision was taken to invest financial resources of the National Wealth Fund worth 300 billion rubles through VEB. But it’s very important to select projects and launch their support as soon as possible. It’s very important that the next should not be lost for investments. It’s extremely difficult to close the investment gap. There is a need or projects that would create jobs and demand inside the country and would focus on import substitution rather than on importation of technologies.

The Central Bank is a source of long money

-In the current year, investment resources gap in the economy will reach 1400 billion rubles and capital outflow will amount to 90-100 billion dollars. What could close this gap?

-We’ll have to resort to a much wider use of the National Wealth Fund’s financial resources if we are not to get stuck in this investment pause for another several years.Essentially, neither the National Wealth Fund nor budgetary resources are capable of resolving an issue of supplying long money in the economy. I think that the Central Bank should be more active in using non-traditional methods of refinancing investment projects. A move that the Central Bank made as part of project finance mechanism is not in line with the need both in terms of the procedure that is now too complicated and in terms of transactions limits: 50 and even 100 billion rubles areinsignificant amounts in a macroeconomic sense.And the mechanism used under resolution on project finance number 1044 is of bureaucratic rather than banking nature.

I think it would be more appropriate if the Bank of Russia buys at a preferential rate, bonds issued by VEB, other banks and development institutions in order to fund investment projects. At the same time, the Central Bank will have to use monitoring and supervision instruments toblock unlawful diversion of funds for this small number of banks for example by committing these funds to the foreign exchange market. Moreover, at least as far as VEB and Rosselkhozbank is concerned. The Central Bank couldregulate a marginal rate for end-use borrowers and set indicative ceilings for desirableincrements of loan portfolio. The need for such preferential funding is at least 500-700 billion rubles per year.

-From the Central Bank management point of view, you are suggesting an absolute sedition. You are proposing to change the paradigm of money supply in the country and launch a rubble emission with managedinflationary risks.Are you well aware of it”

-If we want to achieve a real breakthrough in the economic dynamicswe should do these particular things, rather than reassuring ourselves by talking about improving investment climate and judicial system. We need all this but now we have to deal with a situation of shock, crisis and sanctions. We need a pretty powerfultherapeutic intervention and not a surgical one so far in order to reverse the situation with investments.

To my mind, there is also another problem, which is underestimated by the state. Today, we have to additionally capitalize not only the banking sector but also many system-forming sectors in the real economy. They came out of the 2009 crisis still limping along and many of them sustained new losses and accumulated new debts. Here I mean aviation industry, engine building and space industry. Market-based recovery is not possible, given the current banking interest rates of 14-17% per annum. A decision was takenthat the state would provide JSC United Aircraft Corporation with 100 billion rubles. But all this money will go to banks. In the coming years civil aviation industry will generate losses until such key projects as SSJ100 and MS-21 become profitable. But it would be short-sighted to stopor freeze these projects because we’ll lose this sector and will be left with debts alone. So, we should continue investing money with a view to a loan repayment horizon of seven-ten years. We could do through Vnesheconombank using financial resources of the National Wealth Fund. The money is sure to return- this is not a black hole.

VEB is a foreman of industrial policy

-In 2014, VEB posted a shocking consolidated loss of 250 billion rubles.The main reasons are allocations to reserves under the Bank’s Olympic and Ukrainian projects, negative revaluation of bonds. We’re getting an impression that the Bank ruptured itself under the burden ofmany money-losing political projects. Two years ago started to make efforts to develop procedures for working with special projects including a procedure to compensate for the Bank’s losses by the state under such projects. You even discussed the introduction of quotas to fix a maximum annual amount of VEB’s administered projects. How is this work going on?

-Now special projects account for about a third of VEB’s loan portfolio. These are projects with increased risks, repayment and service problems. But it doesn’t mean that other projects without such a formal status are not problematic. It’s difficult to draw a clear-cut line here. In VEB’s development strategy up to the year 2020, we proceed from the premise that strategically our loan portfolio will grow as a result of funding more market-oriented projects rather than special ones. Repayability of loans is a necessary requirement for special projects.

-I believe that for VEB to be able to focus on long-term priorities in its credit policy and significantly reduce the amount of work received from the state on special projects there is a need for a fundamental managerial reform. Today,the Chairman of Vnesheconombank is appointed by the President on the recommendation of the Prime Ministerand the Prime Minister himself becomes ex officio Chairman of the Bank’s Supervisory Board. It’s a very rigid structure, which in fact transforms VEB into a financial SPV of the government without veto power by definition. Maybe, VEB needs to raise a degree of its operational independence. Not of course to a level of the Central Bank. What do you think on this account?

-If we look at foreign development banks business experience, their organizational-managerial connection with the government is not so strong than in the case with Vnesheconombank and they are less dependent.But as far as lines of lending are concerned their national governments order development banks what to do in a much more rigid way. Vnesheconombank current memorandum is rather diluted and it allows to finance almost everything. So, it’s more important for VEB to focus more on selecting lines of lending in accordance with government industrial policy priorities and get involved more actively in implementing and even developing government programs as wellas funding strategic projects under these programs rather than reform its managerial model.

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Vnesheconombank Chairman V.A. Dmitriev Interview to TV Channel Russia 24

10 july 2015 года
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TV Channel Russia24
INTERVIEW
10.07.2015, 10:55

HOST: In Ufathey are listening to the summit’s participants andcommentaries on the sidelineswhichare also important. Nailya Asker-Zadeis on air with us. Good afternoon Nailya. It’s almost one o’clock p.m.in Ufa. What talks have already taken place and what’s left on the agenda?

CORR.: Good afternoon Ekaterina. Now, we’ll discuss today’s agenda with Vnesheconombank Chairman Vladimir Dmitriev. Good afternoon Vladimir Alexandrovich.

Vladimir DMITRIEV, Vnesheconombank Chairman: God afternoon.

CORR: This year you are the Chairman of the SCO Interbank Consortium and you are alsoa member of the BRICS Business Council. What are the main priorities of the SCO and the BRICS counties’ financial interaction?

Vladimir DMITRIEV: As part of the SCO Interbank Consortium and the BRICS Interbank Cooperation Mechanism, being the chair of these institutions Vnesheconombank sets itself a main task of boosting efficiency of development banks’ interaction and if we mean the BRICS, interaction with the BRICS New Development Bank in order to be able to get down to implementing specific projects to be funded by the New Development Bank as soon as possible.

CORR: Yesterday, Vnesheconombank and the New Development Bank signed a Memorandum of Intent. What opportunities does the Memorandum opens up for you?

Vladimir DMITRIEV: Yesterday and the day before yesterday when we worked with our colleagues from the BRICS development banks andthe new management of the New Development Bank we set ourselves a task of getting down to implementing specific investment projects as soon as possible. An in this respect, the Memorandum signed by all the BRICS development banks is designed to launch a mechanism for funding specific projects by the New Development Bank by spring next year. This is our main task in terms of interacting with the New Development Bank.

CORR: Do you think that it is a good thing that the Asian Bank of Infrastructure Investments, the Silk Road Development Fund and the New Development Bank have common geography and specializationor maybe vice versa and they will compete against one another?

Vladimir DMITRIEV: We believe that initiatives on creating a very powerful infrastructure system between Asia and Europe are complementary and will help to enhance economies of our countries. And in this sense, we agreed to set up a special structure within the SCO Interbank Consortium that would interact closely with institutions being created in the Eurasian area. They include the Silk Road Fund, the Asian Bank of Infrastructure Investments as well as the New Development Fund. This synergy will be highly instrumental in upgrading our countries’ economies.

CORR: How will Russia benefit from participating in these projects?

Vladimir DMITRIEV:Russia is sure to benefit from participating in these projects and if we mean the Silk Road, it’s not just a road in two directions, it opens up a way for integrating neighboring regions into the Eurasian area. And private business, we are naturally cooperating with,shows considerable interest in building large-scale facilities together with us and development banks and here I mean logistics centers, agricultural products processing facilities, hotels and innovation centers. This project will be instrumental in developing major production facilities, creating new jobs and expanding our countries’ economies.

CORR: Russiaand China signed a statement on cooperation to build a unified energy system and the Silk Road Economic Belt. How does VEB benefit from implementing these projects?

Vladimir DMITRIEV: As a bank for development, Vnesheconombank fits fully into agreements reached by the leaders of our states because one of Vnesheconombank’s main missions as a bank for development is to overcome economic growth infrastructure restrictions. We believe that Vnesheconombank itself and its subsidiaries such as the Federal Project Finance Center, the Russian Direct Investment Fund, VEB-Leasing and VEB-Engineering could be fully engaged in achieving the goals our countries’ leaders set before themselves. This s a mandate for us to work more efficiently to achieve goals set before our institutions. In this respect, holding the presidency of the SCO Interbank Consortium and the BRICS Interbank Cooperation Mechanism, Vnesheconombankis fully committed to engage our partner banksfrom among of the SCO and the BRICS development banks.

COOR: Vladimir Alexandrovich thank you very much.

Vladimir DMITRIEV: Thank you.

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VEB’s Deputy Chairman: the BRICS bank could become a payments center in national currencies

9 july 2015 года
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Now the New Development Bank’s mandate does not provide for it to make payments said Deputy Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ Sergei Vasiliev.But he believes that it is quite natural if the New Development Bank will be responsible for making payments in national currencies.


MSCOW, July7 – RIA Novosti/Prime. In his interview to RIA NovostiDeputyChairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ Sergei Vasilievsaid thatmember countries of the BRICS New Development Bank could in the future transform it into a payments center in national currencies.

“Now the New Development Bank’s mandate does not provide for it to make payments said Deputy Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ Sergei Vasiliev. But I believe that it is quite natural if the New Development Bank will be responsible for making payments in national currencies”, said VEB’s Deputy Chairman.

Deputy Foreign Minister of India on Economic Affairs Sujata Mehta informed last week that the BRICS countries were working on transferring to national currencies upon conducting trade inside the association.

According to VEB’s Deputy Chairman until the New Development Bank hasbeen established,it’s difficult to say about what specific projects it is going to fund. At the same time,Vasiliev did not rule outthat “the Bank would fund projects aimed at economic integration of the BRICS countries or infrastructure projects or infrastructure projects associated with mutual trade of the BRICS countries”.

The first meeting of the New Development Ban k’s board of governors is to be held on Tuesday in Ufa. At this session, a decision is to be made on launching this new financing institution headed by Brazil, Russia, India, China and RSA, said Vasiliev. “This is an organizational meeting where a decision to start operations is to be made and the Bank’s managerial staff and regulatory documents are to to be approved an.

MEMBER COUNTRIES

An agreement on the establishment of the New Development Bank was signed in July of 2014 in Brazil.Initially, there were plans that it would be referred to as the BRICS Development Bank but later on member countries decided against this name for other countries to be able to enter into the Bank’s capital. The New Development Bankis expected to become one of the largest development institutions to fundinfrastructure projects in the BRICS countries -an alternative to the World Bank and the IMF. The first President of the Bank is to be India’s representative and it is to be headquartered in Shanghai. The amount of paid up capital is to be 10 billion dollars (each of five countries is to contribute 2 billion dollars) asrequired, in the future it can be increased by 40 billion dollars. A maximum possible amount of authorized capital is set at a lev el of 100 billion dollars.

According to VEB’s Deputy Chairman, any country can join the New Development Bank including Greece, which expressed hope that it could become member of this new financing institution. “But the BRICS countries will always have a majority stake”, explained Vasiliev.

INTERNATIONAL PROJECT FINANCE CENTER

A session of the SCO Interbank Consortium (Russia, China, Kazakhstan, Tajikistan, Kirgizia and Uzbekistan) will also be held in Ufa this week. Vnesheconombank as a presiding bank in the SCO this year initiated an idea to establish an International Project Finance Center.

According to VEB’s Deputy Chairman, upon considering major national and international projects VEB and its partners constantly encounter a problem that borrowers do not always make pre-project preparation of investment proposals in a thorough and qualitative way. Naturally, this reduces their chances to receive financing for implementing their projects.

“In our opinion, the establishment of an International Project Finance Center would make it possible to remove this obstacle. We have to admit that a greater number of these proposals are rough and it takes time (sometimes at least a year or two)to finalize them”, stressed Vasiliev.

According to him, we can use expertise of SCO countries pre-project preparation institutions. The Federal Project Finance Center set up by VEB is such an institution. It works with borrowers and helps them to structure projects.

Vasiliev said that the said proposal was backed by almost all countries. VEB’s proposal is being studied now.

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