On Holding Round Table Discussion “Insurance of Export Credits In Russia and Abroad: Prospects and Problems of Development”
A Round Table Discussion “Insurance of Export Credits in Russia and Abroad: Prospects and Problems of Development was held in Moscow on December 8. The Round Table Discussion was organized by the Ratings Agency Expert RA in cooperation with State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’.
The Round Table Discussion participants discussed issues of government policy on developing foreign economic activities infrastructure, stimulating export transactions, specifics of foreign export credit agencies’ activities in Russia and abroad focusing on assessing political risks associated with export transactions.
Management Board Member – Vnesheconombank Deputy Chairman Petr Fradkov said in his speech: “Export credit insurance mechanisms development is hampered by inadequate regulatory and legal network. One of the most acute problems is the absence in applicable legislation of regulations providing for the state to guarantee Vnesheconomank’s liabilities under export credit insurance agreements. In order to get export credit insurance mechanisms to function we find it worthwhile to establish an Export Credit and Investment Insurance Agency.
Representatives from federal executive authorities, banking and insurance sector, legal firms as well as foreign export credit agencies took part in the Round Table Discussion.
Since the Federal Law ‘On the Bank for Development’ was enacted in May 2007, State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ was assigned to insure export credits against commercial and political risks. In February 2008, the Russian Government adopted a Resolution “On the Procedure for Insuring Export Credits against Commercial and Political Risks by State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’. In June of this year, Vnesheconombank’s Management Board adopted Provisional Rules for Insuring Export Credits, which stipulate the procedure and terms of insuring by the Bank mid and long-term export credits against commercial and political risks, Standard Agreement on Insuring Export Credits.
Origin: Press Office of Vnesheconombank
Contact person: Ekaterina Karasina
Phone: +7 (495) 608-46-83, Fax: +7 (499) 975-21-34
On Approving CJSC Ernst and Young Vneshaudit as Auditor of Vnesheconombank’s Annual Financial Statements for 2008
The Supervisory Board of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ approved CJSC Ernst and Young Vneshaudit as auditor of Vnesheconombank’s annual financial statements for 2008.
The minutes of the Supervisory Board meeting dated 11.11.2008 N 17 were signed by Supervisory Board Chairman - Russian Prime Minister Vladimir Putin.
Origin: Press Office of Vnesheconombank
Contact person: Ekaterina Karasina
Phone: +7 (495) 608-46-93, Fax: +7 (499) 975-21-34
Vnesheconombank Chairman Vladimir Dmitriev’s Briefing on the Results of Vnesheconombank Supervisory Board Meeting
Vladimir DMITRIEV, Vnesheconombank Chairman:
In the context of the Bank’s current activity as a development institution I would like, above all, to say that this is the third Supervisory Board meeting where we consider issues of refinancing foreign debts of Russian companies and banks.
Summing up our recent activity we can say that the Supervisory Board made decisions on refinancing in the amount about 10 billion dollars, to be more precise, 9 billion 800 million dollars, out of which 7.5 billion dollars have been already allocated for refinancing Russian companies’ foreign debt obligations.
In the near future, we expect funds to be transferred to finance a number of approved transactions. All in all, we have received applications for refinancing in the amount exceeding 76 billion dollars, to be more specific, even 78 billion dollars. Out of them, 28 billion are requested by banks and 50 billion dollars - by companies.
Decisions offered for consideration by the Supervisory Board are based on the procedure and accords approved by the Supervisory Board and specified in the Procedure for Refinancing Russian Organizations’ Foreign Debts. These decisions and proposals go through appropriate corporate decision-making bodies. They include the Investment Transactions Development Committee, the Credit Committee and the Bank’s Management Board. We work in close contact with core ministries and departments. And in this respect, today’s Supervisory Board meeting, against the backdrop of new applications submitted to Vnesheconombank, was an important stage in making required adequate decisions because, among other things, we dealt with applications received from natural monopolies. And the Supervisory Board decided to consider these applications in the context of implementing investment programs by the largest state-run companies. These programs are being examined now and decisions that will be eventually taken on refinancing should be based on the need for carrying out investment programs by state-run companies in line with decisions to be made by the Government.
Moreover, the Supervisory Board refused to accept some applications because they were not formally in line with the procedure for consideration of applications. Here I mean those companies that borrowed from foreign banks’ Russian subsidiaries or the companies that borrowed without security or with security the loss of which does not entail serious risks associated with national economic security, regional security, loss of strategic assets by the Russian Federation.
The current Supervisory Board and its decisions are important in a sense that an issue of refinancing foreign debt obligations of one of the largest Russian banks, namely, Bank-VTB was considered for the first time. And as far as the State’s support for commercial banks is concerned it’s important to underline the unanimous opinion of Supervisory Board members that we should refinance debt obligations of both companies and banks. We should refinance those debt obligations that are associated with lending real sectors of the Russian economy, the development of banking business aimed at achieving current and strategic economic objectives and supporting corporate customers in such top-priority sectors as defense industrial complex, agriculture, construction complex, a number of other sectors, small and medium-sized business and other top-priority lines of activity.
The same approach was recognized as the only correct and justified one upon considering extending subordinated loans. This theme was also discussed at today’s Supervisory Board meeting. The Supervisory Board approved applications submitted by Alfa –Bank, Nomos-Bank and the Khanty-Mansi Bank. These banks are involved in both providing retail-banking services and servicing corporate customers and play an important role at a regional level. In particular, I mean the Khanty-Mansi Bank. And here the Supervisory Board adopts quite a strict and justified approach related to the need to use state financial resources in the form of subordinated loans extended to corporate customers for them to operate in specific sectors of the real economy in line with priorities set by the Government.
At its latest meeting, the Supervisory Board also considered an issue of Vnesheconombank’s participation in rescuing Bank Globex and Svyaz-Bank. The Supervisory Board backed Vnesheconombank’s proposal for pursuing particular lines of activity with regard to each of these banks in order to take additional measures for securing their financial sustainability and further development in the interests of State Corporation ‘Bank For Development and Foreign Economic Affairs as well as in the interests of those customers, those corporate borrowers, those natural entities who are served by these banks. We know that Svyaz-Bank is a system-forming bank as 15 million pensioners receive their pensions through this bank. The Bank has its branches in 49 constituent entities of the Russian Federation as well as 5 thousand outlets selling the Bank’s services. Actually, half a million employees of the Post of Russia receive their salaries through Svyaz-Bank and the Bank works with such companies as Telecom, Svyazinvest and others. That is why the approved plan envisages further developing the services sector and providing both borrowed funds and modern banking services to corporate customers, as well as offering retail banking services. The same applies to Bank Globex. The Bank whose balance sheet as is the case with Svyaz-Bank would be cleaned up thus allowing this bank to perform functions of an auxiliary or supporting structure for achieving objectives set before State Corporation ‘Bank for Development and Foreign Economic Affairs.
We agreed with the Supervisory Board that by mid next year we’d formulate and submit a comprehensive operational concept of all Vnesheconombank’s subsidiary banks activity. These banks are the Russian Development Bank, Russian Export-Import Bank, Svyaz-Bank, Bank Globex.
The prospect for consolidation is obvious; at least, for a part of these banks and here I mean consolidation of their businesses and establishment of a single major banking structure with due regard to the Post of Russia’s core activities. Bank Globex, Svyaz-Bank and the Russian Development Bank have gained considerable experience in working with major corporate customers, with natural entities. They are experienced enough in implementing wage schemes, managing pension savings funds and in supporting small and medium-sized business which is Vnesheconombank’s top-priority objective. We are going to pursue this objective not only relying on well-proven formulas cooperating with the Russian Development Bank, which in its turn is working with regional banks, but also working directly through our new subsidiary banks that have an extensive branch network. Of course, we are going to pursue this objective working directly with regional banks. That all means that we are establishing a major, core business-oriented group of banks designed to work directly and in close contact with small and medium-sized businesses through regional banks. We are putting in place a system of guarantees and a system of cooperation with regional institutions responsible for the operation of small and medium-sized businesses and guaranteeing repayment of credits extended to finance small and medium-sized business.
Thus, summing up the decisions taken I would like to emphasize the fact Vnesheconombank’s proposals were approved.
And finally, I would like to say that we submitted for consideration an issue of increasing Vnesheconombank’s charter capital with no decision on this issue having been taken. This is a very important issue because the Bank’s activity on extending subordinated loans, refinancing foreign debt obligations of Russian companies and banks, rescuing banks, diversifying the management of the National Wealth Fund, using part of resources, here I mean 175 billion rubles allocated to the Bank for operating on the Russian stock market automatically reduces Vnesheconombank’s capital base both in case of extending subordinated loans and revaluating securities and funds allocated by the Finance Ministry from the National Wealth Fund are recorded on the Bank’s balance sheet and therefore negative revaluation decreases the Bank’s capital. Building up reserves for refinancing foreign debt obligations also narrows Vnesheconombank’s capital base. And if we are to speed up Vnesheconombank’s activity as a development institution, Vnesheconombank’s capital is bound to be increased. It’s a matter of capital size. It should be adequate. In this respect, the government may take a different decision – in particular, a decision on guarantees. For example, in KfW, a German Development Bank, our peer, part of its obligations is secured by state guarantees.
- What amount of funds is expected to be allocated to refinance Bank VTB’s debt and on what terms? Could you specify the amounts of subordinated credits approved by the Bank’s Supervisory Board to be extended to Alfa-Bank, Nomos-Bank and Khanty-Mansi Bank?
Vladimir DMITRIEV: The Supervisory Board approved a proposal for allocating 950 million US dollars to Bank VTB but VTB is ready to co-finance 25% of this amount.
The Supervisory Board also approved extending credits to banks that are among the largest thirty banks: to Alf-Bank in the amount of 10.2 billion rubles, Nomos-Bank – 4.9 billion rubles, the Khanty-Mansi Bank – 2 billion rubles.
- One more point on the Bank’s capital increase. What amount do you expect to receive?
Vladimir DMITRIEV: I am not ready to give exact figures because they are to be agreed upon with the Finance Ministry, the Ministry of Economic Development and the Central Bank as well. But I mentioned the factors that worsen our Bank’s balance sheet indicators. I became increasingly confident that our approach had been heard and Vnesheconombank really needs the stated amounts to address the tasks it is currently fulfilling. Problems are piling up, become more complicated and comprehensive and require tremendous efforts. It’s clear to everybody. Nevertheless, we believe that the Bank must and can continue its core activity as a development institution. By the way, an increase in the Bank’s capital is required not only for major projects which were announced but also for working with small and medium-sized business. We plan that 30 billion rubles in additional capital would be allocated to small and medium-sized business and these 30 billion rubles will be included into the total amount of the Bank’s capitalization. We expect to receive several hundreds of billions of rubles.
- Vladimir Alexandrovich, you outlined a program of rehabilitating the two banks, namely, Bank Globex and Svyaz-Bank. Do you need additional money to rehabilitate them?
Vladimir DMITRIEV: In our opinion, the financial resources we received from the Central Bank are sufficient to rehabilitate the banks and get them to operate normally.
- Don’t you need any additional funds?
Vladimir DMITRIEV: This issue is under consideration, but today’s decisions were based on the amount of resources, which has already been allocated to Vnesheconombank.
- You’ve said that these additional resources will be somehow used to render assistance to the Post of Russia. Could you explain in more detail how you are going to use them?
Vladimir DMITRIEV: So far I can’t say anything because today’s decision states Vnesheconombank’s readiness to prepare a comprehensive Plan of Business Consolidation and a program to develop our subsidiary banks by mid next year. And here I mean not only Bank Globex and Svyaz-Bank. One of scenarios is to establish a structure similar to the German Post Bank. This concept is now being developed at the Post of Russia. We have already studied the concept and think it is worthwhile. But I’d like to reiterate that we are supposed to prepare a comprehensive plan by mid next year so that we can study various scenarios and among other things learn from international business experience. And I’d like to emphasize that the current situation in the banking community makes it necessary for us to consolidate business and enhance capital base.
- So, you haven’t made up your mind yet which banks will be incorporated into this new post holding or a post bank?
Vladimir DMITRIEV: From our point of view, Roseximbank is a specialized financial institution responsible for implementing a system of guarantees to promote Russian industrial exports. But as far as three other banks - the Russian Development Bank, Bank Globex and Svyaz-Bank - are concerned we believe that they should be consolidated and a financial structure should b be established on their basis.
- Is this going to be Vnesheconombank’s subsidiary?
Vladimir DMITRIEV: If we decide to establish this sort of financial structure, it’s going to be Vnesheconombank’s subsidiary for a certain period of time. Then it’s up to the Supervisory Board to decide whether we should attract strategic investor or transform them into joint stock companies. These are possible options. But above all should secure sustainable development and operation of Svyaz-Bank and Bank Globex and should not negatively impact to these banks’ current activities.
- Thus, their main line of activity would the Post of Russia and small business.
Vladimir DMITRIEV: There is no doubt about it.
- Thank you. And one more thing. You said that you would reconsider some of investment projects you had already approved?
Vladimir DMITRIEV: Among other things we may…
- You’ll quit some projects?
Vladimir DMITRIEV: I do not rule out the possibility of reconsidering decisions on those projects, which have been approved but not accepted for financing. So, in the most immediate future, actually, in the coming two weeks (our experts have already agreed upon many things with line ministries) we have to examine our loan portfolio in the most serious way for making final decisions and for the Supervisory Board to approve them with regard to projects already approved and, more so, accepted for financing but with regard to which no corporate decisions have made.
- This applies to projects, which were approved by your Bank as a Bank for Development rather than a “Rescuer Bank”.
Vladimir DMITRIEV: You are quite right. And as to our rescue efforts, there is no other way out - we have to rescue.
-Thank you. It is too early to say what projects you are going to quit, isn’t it?
Vladimir DMITRIEV: Yes, it is.
- Thank you.
Commenting on the results of the meeting, Vnesheconombank Chairman Vladimir Dmitriev said at a press briefing that Russia banks and companies submitted to VEB applications worth 78 billion dollars for refinancing foreign debts. According to him, 9.8 billions in applications were made available and out of them 7.5 billion dollars have been already transferred to banks and companies for refinancing their debts. “In the near future, we expect funds to be transferred for conducting a number of transactions, which were approved”, said V. Dmitriev.
V. Dmitriev also said that Vnesheconombank’s Supervisory Board had resolved to consider applications for refinancing from state monopolies provided that they carried on implementing investment programs. “Vnesheconombank’s Supervisory Board made a decision to consider natural monopolies’ applications for refinancing provided that they carry on implementing their investment programs”, he stressed.
Moreover, V. Dmitriev said that Vnesheconombank’s Supervisory Board recommended to provide state financing to Alfa-bank, NOMOS-bank, Khanty-Mansi bank. As he put it, “these banks both provide retail banking services and service corporate customers which play a significant regional role.
“VEB is planning to submit a concept for development of its subsidiaries such as the Russian Development Bank, Roseximbank, Svyaz-bank and Bank Globex by mid 2009”, said V. Dmitriev.
In accordance with Russian Government Resolution dated November 6, 2008 N 805 “On Introducing Changes to Requirements for Financial Assets in which money of the Reserve Fund can be Invested” the Russian Finance Ministry started to invest money of the Reserve Fund in International Monetary Fund debt instruments (hereinafter – the IMF). IMF debt instruments are monetary funds in special drawing rights recorded by it in connection with forming and adjusting Russia’s reserve position with the IMF. As a result of the said transactions, as of December 1, 2008, Russia’s reserve position with the IMF increased by 446.88 SDR (17.94 billion rubles)
As of December 1, 2008 the aggregate amount of the Reserve Fund was 3661.37 billion rubles, which is equivalent to 132.63 billion US dollars. As of December 1, 2008 amounts of balances in separate accounts to record funds of the Reserve Fund were:
0.02 billion rubles;
63.99 billion US dollars;
43.81 billion euros;
7.31 pounds sterling;
The aggregate calculated income from placing funds of the Reserve Fund recalculated in dollars for a period from January 30, 2008 to November 30, 2008 was 5.19 billion US dollars, which is equivalent to 143.40 billion rubles. Calculated amounts of interest income from placing funds of the Reserve Fund into separate accounts in foreign exchange were (in currency of account and ruble equivalent) 1.95 billion US dollars (53.83 billion rubles); 1.93 billion egos (68.86 billion rubles); 0.49 billion pounds sterling (20.71 billion rubles). The exchange rate difference from recalculating balances of accounts to record funds of the Reserve Fund in foreign currency for a period from January 30, 2008 to November 30, 2008, was a positive value of 142.89 billion rubles.
In accordance with Resolution N 766, as of December 1, 2008, 365.00 billion rubles were transferred from the account to record funds of the National Wealth Fund to be deposited with Vnesheconombank and out of this amount:
225 billon rubles re deposited for a period up to December 31, 2019, with an interest rate of 7% per annum including 100.00 billion rubles in November 2008;
140.00 billion rubles to be deposited for a period up October 21, 2013, with an interest rate of 7% per annum including 95 billion rubles in November.
Under the Russian Government Resolution dated December 17, 2007, N 892 “ On Making Settlements and Transferring Funds to Form and Use Oil and Gas Revenues of the Federal Budget, Oil and Gas Transfer, Funds of the Reserve Fund and the National Wealth Fund”, in November 2008, oil and gas revenues of the federal budget for October 2008 in the amount of 411.78 billion rubles were used to form the National Wealth Fund in full.
Under Russian Government Resolution dated January19, 2008, N 18 “On the Procedure for Managing Funds of the National Wealth Fund” in November 2008, a part of oil and gas revenues of the federal budget for October 2008 in the amount of 100.00 billion rubles was converted into foreign currency. All conversion transactions in funds of the National Wealth Fund were conducted in conformity with the currency structure approved earlier and didn’t have any impact on the conditions of the foreign exchange market.
As of December 1, 2008, the aggregate amount of the National Wealth Fund was 2108.46 billion rubles, which is equivalent to 76.38 billion US dollars. As of December 1, 2008 amounts of balances were:
1) in separate accounts to record funds of the National Wealth Fund with the Bank of Russia:
474.90 billion rubles;
22.05 billion US dollars;
15.35 billion euros;
2.62 pounds sterling;
2) on deposits with Vnesheconombank
365.00 billion rubles.
The aggregate calculated income from placing funds of the National Wealth Fund recalculated in dollars for a period from January 30, 2008 to November 30, 2008 amounted to 1.42 billion dollars, which is equivalent to 39.26 billion rubles. Calculated amounts of interest income from placing funds of the National Wealth Fund into separate accounts in foreign currency were (in currency of account and ruble equivalent): 0.51 billion US dollars (14.09 billion rubles); 0.54 billion euros (19.43 billion rubles); 0.13 billion pounds sterling (5.74 billion rubles). The exchange rate difference from recalculating balances of accounts to record funds of the National Wealth Fund in foreign currency for a period from January 30, 2008 to November 30, 2008 was a positive value of 38.53 billion rubles.
Indicators of aggregate amounts of the Reserve Fund and the National Wealth Fund as well as of calculated incomes from placing funds of the Reserve Fund and the National Wealth Fund were calculated on the basis of official exchange rates of foreign currencies set by the Bank of Russia as of the date prior to the reporting date and of cross rates calculated on the basis of the said exchange rates.
Detailed statistics on transactions in funds of the Reserve Fund and the National Wealth Fund is posted on the Internet site of the Russian Finance Ministry in the following sections: “Reserve Fund and the National Wealth Fund in appropriate subsections in Russian and English, the statistics is updated on a regular basis.