N 187, October 2008
VEB told about Svyaz-Bank’s future
Vnesheconombank is buying Svyaz-Bank for a symbolic sum of 5 thousand rubles, the Federal Antimonopoly Service has already approved the acquisition and the Central Bank placed a deposit of 2.5 billion dollars with Vnesheconombank for Svyaz-Bank to discharge its current liabilities. Yesterday the heads f the two banks spoke about Svyaz-Bank’s bright future.
Svyaz-Bank’s financial standing was seriously damaged by two factors – the bank’s overindulgence in repo transactions and “unbalanced balance sheet”, that is, short liabilities and long assets said VEB Chairman Vladimir Dmitriev at a specially called briefing yesterday. And he hinted that Svyaz-Bank’s management may have created this sort of situation deliberately. “Long assets were formed at a time when Svyaz-Bank’s management was set to leave the bank before Sberbank’s former top managers came to the bank. Factually, the bank’s liquidity was moved into long credits, - explained VEB’s Chairman. We together with a team from Sberbank are taking all necessary measures to analyze Svyaz-Bank’s treasury and credit transactions including those on the interbank market and on the exchange Repo market”. As of October 1, the amount of Svyaz-Bank’s loan liabilities according to its President – Board Director Alexandr Zhitnik was 90 billion rubles, these liabilities are mostly corporate credits. As he put it, the share of problem credits in the bank’s portfolio is 20 – 25%.
“A number of Svyaz-Bank’s problems are not associated with financial supervision. It’s evident hat we will need professional assistance, which is not related to banking activity”, - said Mr. Dmitriev adding that they will turn to law enforcement authorities for help. The banker said that the situation with Svyaz-Bank was similar to the one when a good fiddle had been placed in the wrong hands.
Together with Svyaz-Bank, VEB received its outstanding obligations to creditors, deposit holders an on the interbank market. In order to fulfill these obligations the bank needed 59 billion rubles, which it didn’t have. “The scale of Svyaz-Bank trouble was estimated at 60 billion rubles and these were the bank’s current liabilities which it couldn’t discharge without Bank of Russia’s and VEB’s assistance”, - explained Mr. Dmitriev. 45 billion rubles of the said amount were committed to Svyaz-Bank in the form of interbank credits and the remaining funds were provided for the bank to discharge its liabilities on the exchange Repo market.
In order to address Svyaz-Bank’s current problems the Bank of Russia will place a deposit of 2.5 billion dollars with VEB for a period of one year with a possibility of prolongation at LIBOR+1%. Thus Svyaz-Bank’s operation will be restored, continuous cash flow to all the bank’s customers including pensioner will be secured, payments under the Post of Russia wage projects will also be made uninterruptedly, said VEB’s Chairman. “Acting a core shareholder we can safely say that from this time onwards all Svyaz-Bank’s obligations will be fulfilled in full as we can use financial resources provided to us”, - said Vladimir Dmitriev. And the benefit is expected to be mutual. According to him, joint operation of the two banks under VEB’s auspices is of great interest, but nobody ruled out the possibility of establishing a Post Bank on the basis of Svyaz-Bank. “We spoke about prospects for cooperating with the Post of Russia with its head Andrei Kazmin”. Given this cooperation, VEB will get rid of non-core asset and the Post of Russia together with the bank will obtain a license for conducting banking transactions of what Mr. Kazmin dreamt about so much.
So far, private depositors and corporate customers have been assured that they will have no problems. But to tell you the truth, there is concern that on the backdrop of the complicated situation as a whole, the bank’s many customers both natural and legal persons would request the bank to transfer their deposits to more stable and more understandable banks”, - said Mr. Dmitriev. And there are already examples of that. According to Mr. Zhitnik deposit outflow from Svyaz-Bank is not significant, but businessman Alisher Usmanov has partially withdrawn his deposit.
Vnesheconombank Chairman V.A Dmitriev speaks live on the Vesti-24 TV channel during the Sochi Forum
Vladimir Dmitriev: Russia is learning good lessons from the world’s crisis
Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ Vladimir Dmitriev believes that falls of markets are a common cyclic phenomenon. The growing budget surplus, high energy prices, the third world largest gold and foreign exchange reserves and the stable socio- economic situation allow Russia to come out of the global financial crisis with minimum losses, said he in his interview with Vesti.
- Good afternoon, Vladimir Alexandrovich.
- Good afternoon.
- The Bank for Development was specially established to implement long-term projects of national importance. The projects accumulated both budgetary money and private investors’ funds. Do you think that investments are now in short supply on the backdrop of the world’s financial crisis?
I wouldn’t say that the situation on the world’s financial markets affects the Bank for Development’s activity as a key financial institution in implementing nationally meaningful investment projects. This Monday we held a regular meeting of the Supervisory Board headed by the Russian Prime Minister. At the meeting we approved several projects in the total amount of about 100 billion rubles. Some of these projects are linked to innovative production development, infrastructure development and specific sectors with innovative production facilities. Here I would like to mention projects in the aviation industry. They include a project aimed at upgrading VSMPO Avisma’s production facilities with the use of advanced technologies and innovative materials as well as a major innovative project worth about a billion dollars in Tatarstan aimed at building a new integrated complex in the city of Mendeleevsk and a high-tech facility to manufacture mineral fertilizers so badly needed by Russia’s agriculture. So our Bank is not hard pressed for financial resources. We are feeling pretty safe. And if we look at the situation in the Russian financial and banking sector as a whole there are no reasons to say that the situation in this sector is uncontrollable. We should of course say here that our financial and money authorities intervened promptly and did their best to correct the situation on the stock market.
Yet, the Russian Government released huge funds to stabilize the country’s financial system. Analysts say that only the so-called first echelon banks would benefit greatly from this financial assistance. But medium and small banks wouldn’t receive any money and would find themselves in a very unstable position. What can you say in this respect?
I don’t think that they are right. First, financial assistance was rendered to major, above all, state-run banks not to improve their own situation but relying on their infrastructure, provide support to those banks, which are in trouble and help stock market players. As far as the second and third echelon banks and regional banks are concerned they rely above all on domestic financial resources. And they are less involved in international financial transactions. That is why I think that the situation is controllable and the current behavior of the stock and interbank market is proof to it.
Vladimir Alexandrovich, all the politicians and economists acknowledge that in general Russia is better protected from the world’s financial crisis than others, by the way we heard this today at the Investment Forum. What economic factors and indicators make Russia stronger today?
I think that it makes sense to compare the current situation with the crisis situation of 1998.It is by comparing the 1998 fundamental indicators with the current ones that we clearly realize that today’s economic indicators are a lot better than those of 1998. And the situation in Russia is better than in the crisis-ridden countries like the US and some Western European countries. Russia enjoys a growing budget surplus, steady high energy prices and the third world largest gold and foreign exchange reserves. The socio-economic situation in the country is stable as a whole. Russia enjoys sustained economic growth, increased industrial output and as a result its GDP grows. Some key Russian industries show that reliance on increasing domestic demand stabilizes the economy and makes it less vulnerable to crises that are now afflicting the United States and a number of Western European countries.
In what way would the fall of stock markets impact the investment climate in the world and in Russia? To what extent did the crisis damage confidence between creditors and borrowers?
I would not like to exaggerate the influence the crisis situation exerted on confidence between creditors and borrowers. This is a common cyclic phenomenon typical of stock and money markets. These cyclic market fluctuations are inevitable in the countries integrated in the global economic system. I think that if economies are stable and prepared to withstand this sort of crises and even if they are afflicted by them they are well-equipped to smooth peak tensions which tend to plague economies less prepared to withstand such crises. We should not entertain illusions and overlook the fact that Russia is integrated in the world economy. And the fact that Russian government, money and financial authorities are making strenuous efforts to create early warning systems shows that we are learning good lessons from this situation in which our partners from international financial institutions tend to find themselves.
Public private partnership is expanding rapidly and many hope to receive money. Would you specify the procedure for selecting projects?
Here I would like to share our Bank’s experience with you. We have an effective system of selecting, preparing and submitting projects to our Bank’s corporate management bodies. They include the management credit committee and our Bank’s Supervisory Board. This system is in line with the world’s best standards. And we know that various projects financed with foreign credits against the Russian government’s guarantees were doomed to failure because they were not examined properly. Projects are properly examined not only by our and regional experts but also by interested ministries and agencies, which see to it that projects are economically viable for their initiators, contribute to socio-economic development through creating new jobs, and enable macroeconomic growth of regions.
And now another question on the same theme. What major projects is the Bank for Development financing now? And what contracts might be signed in Sochi during the Investment Forum?
I would like to say it once more that this week our Supervisory Board made a decision to finance projects in the amount of about 100 billion dollars. Most projects are innovative and are aimed at developing and upgrading infrastructure. Now our Bank’s loan portfolio amounts to 200 billion rubles. We expect it to reach 850 billion rubles by 2012. By the year 2012, 30 percent of projects approved by the Bank’s corporate management bodies are to be based on public private partnership principles. We are sure that we’ll achieve these goals.
Origin: Vesti.ru, Vesti-24 TV Channel