Prime Minister Mikhail Mishustin Praises VEB.RF’s Efforts to Promote National Currencies Used Across SCO
During a meeting of the Council of Heads of Government (Prime Ministers) of the Shanghai Cooperation Organisation, Russian Prime Minister Mikhail Mishustin noted the importance of “developing alternative payment methods, independent of the dollar”. “We believe it’s a good idea to expand the use of mutual payments in national currencies,” he said. “It is necessary to reach agreement on this issue and then start negotiating the creation of financial mechanisms for SCO projects.” As a reminder, VEB.RF’s year-long presidency of the Interbank Consortium of the Shanghai Cooperation Organisation (SCO IBC) resulted in the SCO IBC Council giving its approval to the Joint Approaches to the wider use of national currencies.
Speaking to the Council of Heads of Government (Prime Ministers), VEB.RF Chairman Igor Shuvalov said that the document approved by the SCO IBC “includes approaches such as providing mutual access to liquidity in national currencies, developing hedging instruments for currency risks, developing the capital markets of the SCO countries, facilitating the wider use of national currencies in foreign trade”. According to him, the document will help the SCO member states to set up a more resilient system of trade, economic and investment ties.
Another important outcome of VEB.RF’s presidency was the Road Map adopted to cope with the repercussions of the pandemic. “Its implementation will help to create new growth points, give impetus to trade and investment. We intend to share our experience of support for companies. Our plans include creating a base of potential joint projects, developing mechanisms for long-term lending to infrastructure, and promoting green financing,” he said.
Igor Shuvalov also spoke in favour of expanding the SCO integration processes and exchanging best practices between the Shanghai Cooperation Organisation and the Eurasian Economic Union. “In the context of rebooting the post-pandemic economy, businesses in our countries could be more actively involved with integration projects across Eurasia,” he said. “I think these formats have enormous potential for complementing each other. The development banks can become a bridge to transfer best practices of integration projects.” Igor Shuvalov said that he was confident that this would help the SCO member states to adopt “a more transparent, inclusive, green and sustainable model of development”.
VEB.RF Completes Its Surety Bond Programme Helping Over 5 Million People to Keep Their Jobs and Income
- Surety bonds totalled 500 billion roubles
- The project was part of the Russian Government’s rescue scheme
- Businesses were given more than 250,000 loans
Under the first programme, VEB.RF issued surety bonds totalling 100 billion roubles to 15 commercial banks for zero-interest loans intended to help businesses to meet the immediate needs related to supporting and retaining their employees. VEB.RF’s surety bonds cover 30,688 loans given by commercial banks for more than 85 billion roubles.
The second package is a huge amount of 400 billion roubles in surety bonds issued by VEB.RF to commercial banks for 2% interest loans designed to help businesses to resume their operation. Under the lending programme launched on 1 June, businesses received 221,478 low-interest loans totalling about 415 billion roubles; 85% of each loan amount, including compound interest, is covered by VEB.RF’s surety bond. Overall, the programme covered 40 commercial—chiefly regional—banks.
“VEB.RF is actively involved with the government’s job retention scheme, including support for small and medium-sized enterprises. Our task was to promptly support commercial banks that gave loans to businesses. We created a unique guarantee product that made it possible to implement the government’s rescue scheme in the shortest possible time. And the VEB.RF team was able to meet the challenge. The low-interest loans with VEB.RF’s surety bonds helped businesses to retain over 5 million employees,” VEB.RF Chairman Igor Shuvalov said.
VEB.RF published its interim condensed consolidated IFRS financial statements as at September 30, 2020
VEB.RF published its interim condensed consolidated financial statements under International Financial Reporting Standards as at September 30, 2020.
«VEB.RF serves as a financial and lending institution, Russia’s only institution having such a complicated profile. We support large-scale projects that are most important for Russia’s economy development. VEB.RF fully meets the IFRS criteria designed to enhance transparency and deemed appropriate in the light of VEB.RF’s transformation.
Backed by the Russian Government, VEB.RF dynamically implements nationally significant projects in infrastructure, high-technology industries, exports and urban development, and is actively involved in programmes supporting business during the COVID-19 pandemic. VEB.RF issued about RUB 500 billion worth of guarantees to commercial banks for entrepreneur loans, thus allowing hundreds of enterprises to maintain millions of jobs and revive business.
Notably, our agenda extends far beyond overcoming the economic consequences of the pandemic. VEB.RF increases investment in development in partnership with commercial banks. In the reporting period, VEB.RF demonstrated an increase in the loan portfolio, operating income and equity. The VEB.RF Group generated profit in Q3 2020. The reported nine-month loss is attributable to loan and guarantee provisioning including as part of support for businesses during the pandemic, and VEB.RF’s continuing work with its ‘old’ loan portfolio.
The capital adequacy ratio above 12% and a comfortable level of liquidity allow us to actively promote our development agenda. VEB.RF is continuing its transformation and making up a new break-even portfolio amounting to at least RUB 3 trillion subject to successful implementation of VEB.RF’s business model.” VEB.RF Chief Financial Officer Andrey Moskovskikh said.
9M 2020 VEB.RF Group’s key financials according to IFRS are as follows:
- The Group’s assets as compared to the beginning of the year increased by 6.6% (RUB +209.0 bn) and as at September 30, 2020 reached RUB 3,399.8 bn. The increase in the loan and leasing portfolio, as well as in investment financial assets, stipulated the assets dynamics.
- As compared to the end of 2019 total loans less allowance for impairment and net investments in leases went up by 6.3% (RUB +80.5 bn) to reach RUB 1,364.8 bn. The total loan and leasing portfolio accounted for 40.1% of the Group’s total assets.
- The amount of loans granted by VEB.RF in 9M 2020 reached RUB 160.9 bn. The investment priority sectors included industry, infrastructure and urban economy, as well as export support. Among the projects for which financing started in the third quarter are the following projects: construction of the Sukhodol coal export terminal in the Far East, financing of rail buses delivery to the Sakhalin region, etc.
- In 9M 2020 allowance for expected credit loss amounted to RUB 26.2 bn, including the provision of RUB 11.4 bn for guarantees provided in favour of credit institutions within anti-crisis measures of the Russian government.
- In the reporting period the amount of cash and cash equivalents went down by 30.8% (RUB -187.1 bn) to RUB 420.9 bn due to increased project lending. Liquidity is maintained at a comfortable level: cash and cash equivalents account for over 12% of total assets as at September 30, 2020.
- As at September 30, 2020 the Group’s liabilities year-to-date went up by 1.3% (RUB +36.5 bn) to RUB 2,802.2 bn. Foreign currency revaluation affected the increase in liabilities. At the same time amounts due to the Russian government and the Bank of Russia went down by 12.3% (RUB -94.7 bn) because of the derecognition of obligations under deposit agreements with the Bank of Russia. The decrease in debt securities issued was largely due to the redemption in July 2020 of the Eurobond issue with a nominal value of USD 1.6 bn.
- Operating income for 9M 2020 totaled RUB 146.1 bn, exceeding that for the same period of 2019 by 34.2%. In the operating income structure, net interest income amounted to RUB 6.3 bn, net commission income reached RUB 11.1 bn, and non-interest income was RUB 128.7 bn. Interest income decline was caused, inter alia, by the Bank of Russia key rate cut and by the specifics of interest rate calculation on impaired loans in accordance with IFRS.
- For the nine-month period the Group reported a loss of RUB 29.7 bn. The negative financial result was mostly driven by the loss on initial recognition of guarantees issued in favour of banks to secure their loans, provided to companies to support the Russian economy during the COVID-19 pandemic, and by the creation of provisions including those for the guarantees mentioned above. However the Group recognized the profit of RUB 17.4 bn in the third quarter.
- Weakening of the Russian rouble also affected the indicators and the Group’s result for 9M 2020.
- In 9M 2020 the Group’s equity went up by RUB 172.5 bn (+40.6%) to reach RUB 597.6 bn as at September 30, 2020. Equity increase was, inter alia, due to the following asset contributions:
- in May 2020 the Russian Ministry of Finance contributed the rights of claim of the Bank of Russia to VEB.RF under agreement to place funds on deposits with VEB.RF as an asset contribution of the Russian Federation to VEB.RF’s authorized capital in accordance with Article 1.4 of Federal Law No. 49-FZ On the Transfer of Part of Income Gained by the Central Bank of the Russian Federation from the Sale of Ordinary Shares of Public Joint-Stock Company Sberbank of Russia of 18 March 2020. Upon receipt of the asset contribution and derecognition of obligations under deposit agreements, VEB.RF recognized an increase in the authorized capital in the amount of RUB 350.4 bn as a transaction with the owner with an increase in uncovered loss in the amount of RUB 142.6 bn;
- in the reporting period VEB.RF received a subsidy of RUB 19.3 bn as an asset contribution of the Russian Federation in order to make a contribution to the share capital of JSC Far East and Arctic Development Fund for the implementation of priority investment projects. The whole amount of the subsidy was recognized within additional paid-in capital;
- additional paid-in capital was increased with the subsidy of RUB 2.4 bn as an asset contribution of the Russian Federation for the purchase of shares in Russian Export Center JSC in order to increase share capital of EXIAR JSC under the federal project “Systemic Measures to Develop International Cooperation and Export” of the national project “International Cooperation and Export”.
- VEB.RF’s capital adequacy ratio (according to RAS) was 12.9% as at 01.10.2020 (13.6% as at 01.01.2020).
- Comfortable equity level and state support measures allow VEB.RF to perform the leading development institution’s functions and be actively engaged in programmes of national significance for the Russian economy.
VEB.RF Chairman Shares His Vision of Future Healthcare with WHO Commission
Formed by the WHO Pan-European Commission, the Working Group on Health, Sustainable Development and the Economy held the first meeting on 25 November. VEB.RF Chairman Igor Shuvalov took part in the event.
He noted that the economic downturn caused by the pandemic made it difficult to sharply increase public spending on health and that it was necessary to focus on improving the efficiency of current budgets. “The key areas that will enable us to do it are the integration of traditional medicine and advanced technology, such as artificial intelligence, as well as public-private partnerships in healthcare,” he said.
Igor Shuvalov exemplified an effective model for public-private partnerships in medicine with a scheme similar to VEB.RF’s impact investing projects. “For instance, the government can place an order for the development of some medication, and a private company agrees to fill the order. If the key goal is achieved and if the new medication is effective, the government reimburses the company for some of its expenses associated with developing the medication,” he explained. “As a result, an effective company will receive support from both the market and the government.”
According to Igor Shuvalov, mitigating the consequences of the pandemic requires a comprehensive effect, which cannot be achieved unless the government and businesses join forces with each other. “The most important thing for us is the well-being of our people. Only when the government’s measures to support ailing industries, ease the tax burden and improve legislation come with businesses’ efforts to set up new enterprises and consequently create new jobs, we can achieve a real effect for the economy and therefore for the well-being of our people,” he added.
Moody’s Assesses Prospects for VEB.RF After Reform of Development Institutions
Moody’s Investors Service has found that the Russian Government’s measures to reform development institutions will increase the strategic importance of VEB.RF.
Moody’s released a report (available to RBC) on the implications of the reform announced this week for development institutions. The reform includes setting up a large investment unit to pull together some organisations under the umbrella of VEB.RF.
“VEB.RF’s decision-making power and strategic importance, while already prominent, will increase following the implementation of the government’s plan,” Moody’s reported. According to the rating agency, the proposed governmental measures underline VEB.RF’s “high degree of integration with the Russian government”, and VEB.RF will be provided with expanded and more integrated tools to achieve its strategic goals of developing export, infrastructure and innovation.
As assessed by Moody’s, the plan to distribute the liquidated institutions’ powers to federal authorities and VEB.RF will eliminate the numerous overlapping functions of the Government and different development institutions and expand the scope of VEB.RF’s activities.
The reform announced by Russian Prime Minister Mikhail Mishustin on Monday aims to set up an investment unit under the umbrella of VEB.RF to pull together RSMB Corporation, Russian Export Center, EXIAR and RUSNANO as well as four foundations, namely Skolkovo, FASIE, the Fund for Infrastructure and Educational Programs and the Industry Development Fund.