Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Information Channel Vesti
TV Channel Vesti-24
HOST: Good morning, Vladimir Alexandrovich. The year is coming to an end. VEB has done a great job rescuing the Russian economy. What results can you sum up?
Vladimir DMITRIEV, Vnesheconombank Chairman: Summing up the results of the outgoing year it is safe to say that Vnesheconombank has fulfilled its obligations and plans in almost all lines of its activity. I make no secret that this year we have received significant financial resources from the state and our capital has been increased to more than 360 billion rubles. But we have also been building up our own funds dramatically and by the year-end we have increased them by almost 2.5 times to 445 billion rubles. This is a massive increase.
In terms of our performance efficiency and profitability indicators Vnesheconombank is also among the leaders of the Russian banking market. In the last nine months our profit has grown to more than 24 billion rubles from the same period last year when we posted a loss of 2 billion rubles. In terms of profitability we are now among the leading Russian banks. And by the profitability indicator we were undoubtedly in the lead in the past 9 months.
So, a great amount of work we have done in the context of taking crisis management measures, building up our own portfolio and undertaking our core activity allowed us to confidently achieve positive indicators this year. Here I also mean relative indicators of our performance efficiency, that is, return on capital and return on assets, which are also reflected in positive values.
HOST: It’s no secret that VEB’s action, to be more precise, the talk about VEB’s transactions on the stock market is troubling all investors. Some sort of see a hand of VEB in every market movement. What’s the state of affairs in this sector, what’s VEB’s strategy in this line of its activity? Are you going to sell everything or keep a part of shares for yourselves?
Vladimir DMITRIEV: I make no secret that some believed that VEB’s work on the stock market could seem to be its non-core activity. I even know some financiers who found out to their surprise that VEB had its own treasury. But for many decades VEB has been active in operating both on the Russian and international stock market trading floors and its treasury acting even as a market player in terms of certain instruments is pursuing an active policy on the securities market. The highest class professionals work there, and it was for this reason on the one hand, the state chose VEB as its basic instrument for supporting the financial system in the stock market’s most difficult crisis period and on the other it allowed us to operate on the stock market in such a way as to actually perform a task we were charged with and at the same time generate additional income. And take my word for it that our employees did their job quite professionally by our own estimates and by estimates of analysts and experts.
As to 175 billion rubles that were placed on deposit with our Bank and were used for maintaining liquidity and sustainability of the stock market, they were returned in full including interest income received by the National Wealth Fund to the Finance Ministry.
You know a decision was made that all incomes minus payments on the deposit received by Vnesheconombank from investing them in the stock market would remain with the Bank and would be used to finance top-priority projects in the mortgage lending sector and would be invested in certain instruments by a decision of the Supervisory Board. So, at present just like in the last year we are not considering selling immediately those securities in which we invested financial resources of the National Wealth Fund. We are going to act the way we have done so far, that is, operating on the stock market appropriately, generating incomes and maintaining its liquidity sustainability.
HOST: After completing transactions with the funds of the National Wealth Fund, are you going to operate actively on the stock market? You said you had been involved in this business before and this information is really very interesting. I’m getting an impression that VEB was asked specially to perform this function in the difficult times. Basically, this is an important source of income for you, am I right?
Vladimir DMITRIEV: It’s one of income sources. Moreover, before VEB was transformed into a development institution and started to be active in financing major long-term capital-intensive projects, Vnesheconombank’s main source of income was its operation on the stock market and yields from securities – both shares and bonds. Now income is divided roughly into halves, namely, yield from securities and interest and comission income. This was possible through increasing significantly our loan portfolio, which by owner’s transactions is in excess of 200 billion rubles. Of course, we are going to continue to operate on the stock market. I’d like to stress it once more that 175 billion rubles taken on deposit from the treasury were returned to the Finance Ministry and now we are conducting transactions with our own funds and we are going to use them reasonably for selling and purchasing stock market instruments as well as for maintaining sustainability of the stock market as a whole and certain securities in which we invested our funds.
HOST: As far as your activity on financial markets is concerned your bank is a trust management company responsible for managing pension savings funds. How would you describe the situation in this line of your activity, what income could would-be pensioners receive putting their money under your Bank’s management?
Vladimir DMITRIEV: In fact, by the total amount of would-be pensioners’ funds under management, our Bank is the main trust management company. There are about 450 billion rubles under our management. We expect this figure to be brought to 690 billion rubles next year. These are considerable resources which, given amendments introduced into applicable legislation, would allow us to generate high yields from investing them as opposed to those generated by us until this November. At present, we can invest pension funds within our extended investment portfolio in corporate securities and in mortgage-backed bonds, in debt instruments of international financial institutions. The investments that were already made in securities since November 1 of this year allow us to expect profitability indicators to exceed inflation in the first quarter of 2010, which has not been the case so far. And in fact, the conservative investment portfolio accounts for a negligible share of the portfolio that can be invested within the extended investment declaration. Government securities account for less 1 percent, to be more exact, 0.15% in the investment portfolio.
HOST: Such companies as Rusal received a lot of money. At the moment, Rusal is going to conduct IPO and it was authorized to do it. As far as I know you would like to purchase a certain stake in the company. Are you still planning to do it or are you going to change your plans?
Vladimir DMITRIEV: In this respect, our plans have not changed; they have been approved by our Supervisory Board. First, under the Supervisory Board’s decision we rolled over the credit worth 4.5 billion dollars extended to Rusal last year. The Supervisory Board made a decision on the possibility of Vnesheconombank’s participation in Rusal’s IPO on the Hong Kong Stock Exchange. We believe that this participation is strategic for us in terms of maintaining this company’s liquidity and raising substantial financial resources for it. And Rusal plans to raise from 2 to 2.5 billion dollars. These funds will be used to partly repay debts to foreign creditors and of course to ease the company’s debt burden. This is very important for us as our Bank is the largest individual creditor of Rusal. And for this reason a decision was made on Vnesheconombank’s participation in Rusal’s IPO.
HOST: A Post Bank is scheduled to be established on the Basis of Svyaz-Bank, a large bank, a sort of alternative to Sberbank (The Savings Bank). Is this a realistic possibility in the current situation? And how much money will it take?
Vladimir DMITRIEV: Here we proceed from several principal premises that make this idea quite feasible. First, Svyaz-Bank cooperates traditionally and with the Post of Russia on a regular basis. Svyaz-Bank is not only a bank with the great number of its own branches - there are more than 50 of them but most importantly, the bank relies and can rely on the Post of Russia’s branch network of about 42 thousand post offices across the country.
HOST: Twice as many as Sberbank has.
Vladimir DMITRIEV: It’s twice as many as Sberbank’s bank departments. For example, only five percent of the country’s population has plastic cards. In our country the unacceptably low number of people uses banking services. So, relying on the Post of Russia’s extensive network we should develop retail universal banking products which include utility bills, lending, providing support for small and medium-sized enterprises, pension payments. By the way, about 15 million pensioners receive their pension payments through Svyaz-Bank. In principle, this is great potential for using and boosting the already existing cooperation between Svyaz-Bank and the Post of Russia to establish a Post Bank. The Supervisory Board charged us, Svyaz-Bank and line ministries and departments with developing a coherent concept of Svyaz-Bank further development and the creation of a Post Bank by next spring.
HOST: What other plans does Vnesheconombank have in addition to its current and previous efforts made in the difficult times to rescue Russian enterprises? Didn’t you forget about you core activity. VEB was established to develop the economy. What other plans do you have for the next year?
Vladimir DMITRIEV: We find it important and we made consistent efforts in this respect, we find it important to restore engineering business competences. Our practical experience shows that we have to do it because in a number of sectors these competences were lost. If we have a look at the projects we are implementing we can see that many of them, I wouldn’t say most of them, but many of them are implemented on the basis of foreign technological equipment and on the basis of foreign companies’ expertise. Moreover, by supervising the targeted use of the funds extended by us in our routine activity we arrived at a conclusion that we need to exercise stringent professional technological, financial control here. Engineering companies are capable of doing all this, they consolidate projects, bring them into operation and in some cases manage projects and exercise control over the compliance with process procedures as well as over the targeted use of funds.
HOST: And now my last question Vladimir Alexandrovich. The Bank can become a joint stock company. How soon can it happen and how will it influence the Bank’s activity?
Vladimir DMITRIEV: The idea of transforming Vnesheconombank into a joint stock company does not scare us. In this case I mean only Vnesheconombank. First, some foreign development institutions went along an evolutionary path to becoming joint stock companies. Among them for example, is the China State Development Bank. During a period of ten years the bank accumulated assets worth 500 billion dollars becoming a major bank capable of addressing issues of development in the format of a joint stock company. We can see that Vnesheconombank keeps on receiving many new tasks. Sometimes they are of extraordinary nature and the crisis demonstrated that it is through such development institutions that the state can fulfill extraordinary tasks that have to be addressed in an individual way.
For example, let’s consider a single borrower’s limit. For a number of borrowers this limit in our Bank exceeds 80 percent. But these were well-thought-out, individual decisions that were taken by the Government backed by our partners and creditors. There are some imbalances in our regulatory framework and balance that won’t allow us to transform our non-profit institution and state corporation into a joint stock company.
To tell you the truth, recent comments by specialists and government officials who are linked to Vnesheconombank do not leave any doubts that an issue of transforming Vnesheconombank into a joint stock company will be addressed extremely cautiously applying a do-no-harm principle and common sense because our partners and creditors are very sensitive to any such decisions and even to a talk on this account. Suffice it to say that a number of deals Vnesheconombank arranged for our corporate customers were frozen for the time being until an issue of Vnesheconombank’s transformation into a stock joint company has been finally resolved. At present, it’s quite evident that nobody will be in a hurry to transform Vnesheconombank into a joint stock company.
In this respect, I would like to remind you of the words said by Arkady Dvorkovich at the international conference timed to coincide with the 85th anniversary of the Bank. He said that Vnesheconombank were not among those companies to be transformed into joint stock companies in the near future.
I’d like to say it once more that the Government instructed us to prepare our proposals by March 1. We’ll do our best to formulate our proposals with regard to transforming Vnesheconombank into a joint stock company in the most objective way. We are not going to challenge this idea. And I’d like to assure you that my conversations with government officials that are related to Vnesheconombank’s future and are not indifferent to it make me believe that no hasty decisions with regard to transforming Vnesheconombank into a joint stock company will be taken.
HOST: Thank you Vladimir Alexandrovich, for finding time for us. Good luck to you next year!
The following decisions were taken at Vnesheconombank’s Supervisory Board meeting on December 17, 2009:
Vnesheconombank’s Supervisory Board approved the strategy of OJSC Svyaz-Bank’s development. The strategy provides for establishing a Russian Federation Post Bank with the participation of the Post of Russia and a partner bank. The Board decided to form a working group comprised of representatives of interested ministries, the Bank of Russia, the Post of Russia and Vnesheconombank to prepare a complex of events to set up a Post Bank.
The Board made a decision providing for Vnesheconombank to extend a subordinated loan worth 16 billion rubles to OJSC Svyaz-Bank under Federal Law № 173 “On Additional Measures for Supporting the Financial System of the Russian Federation”.
The Supervisory Board acknowledged the report on Vnesheconombank’s activity on extending subordinated loans to Russian lending institutions under Federal Law № 173 “On Additional Measures for Supporting the Financial System of the Russian Federation”. This program is acknowledged as having been completed.
Vnesheconombank’s Supervisory Board agreed upon purchasing the OJSC United Aircraft Corporation’ shares by Vnesheconombank for an amount of up to 21 billion rubles.
The Supervisory Board approved Vnesheconombank’s participation in financing the project aimed at reconstructing and modernizing the Khabarovsk Oil Refinery. The project’s total value is 1.3 billion US dollars. The Project is to be financed through using Vnesheconombank’s credit resources and shareholders’ own funds. Vnesheconombank’s credit is to be fully refinanced by the Spanish Export Insurance Agency CESCE.
The Board made required decisions providing for Vnesheconombank jointly with SNC-Lavalin to create a specialized engineering company VEB-Engineering (LLC) to monitor investment projects of national significance implemented by Vnesheconombank.
The Board made required decisions to establish a specialized VEB Capital Company (LLC) designed to effectively manage Vnesheconombank’s assets.
Origin: Press Office of Vnesheconombank
Contact person: Ekaterina Karasina
Phone: +7 (495) 608-46-93, Fax: +7 (499) 975-21-34