Vnesheconombank Chairman Vladimir Dmitriev’s Briefing on the Results of Vnesheconombank Supervisory Board Meeting
TV Channel Vesti-24
Host: Till the year-end, Vnesheconombank is to finance small and medium-sized businesses for an amount of at least 30 billion rubles. Prime Minister Vladimir Putin has said about it today at a meeting of VEB’s Supervisory Board. At the moment, Vnesheconombank Chairman Vladimir Dmitriev is starting his briefing at the White House. Our channel is going live.
Vladimir Dmitriev: Today we held a regular meeting of VEB’s Supervisory Board. At the meeting we discussed a wide range of issues dealing with the Bank’s business activity and some basic principles of managing certain lines of the Bank’s activity. In the first place, the meeting heard the report by the Chairman of Vnesheconombank on the work performed, the current status of the loan portfolio, the Bank’s performance for the previous year and Vnesheconombank’s liquidity standing. By basic indicators of loan portfolio, we achieved target figures. The figures provided for by Vnesheconombank’s development strategy for a period of 2008-2012, are 270 billion rubles. In the last year, our loan portfolio increased by 102 billion rubles and the profit for the last year exceeded target figures. It is about 9.5 billion rubles. Of course, balance sheet ratios are not in line with target ones in our strategy for obvious reasons. And one of the reasons is the Bank’s participation in a whole range of measures to cope with the crisis, above all, provided for by Law 173, that is, the Bank’s participation in refinancing Russian companies’ and banks’ foreign debts, extending subordinated credits and managing a portion of funds of the National Wealth Fund, here I mean our operation on the stock market. We have also discussed issues of supporting small and medium-sized business. Those who have been following our Bank’s activity apparently know that last year, the Supervisory Board approved a provisional procedure for working with small and medium-sized businesses. The procedure was provisional because the Russian Development Bank was the main operator of the program. And at a time when the provisional procedure was approved, the Russian Development Bank’s capital was not formally contributed to Vnesheconombank’s capital. Once the Russian Development Bank’s capital was contributed to Vnesheconombank’s capital and after we assessed our capabilities to implement this program we worked out a procedure that was agreed upon with all interested ministries and departments and, above all with the Ministry of Economic Development and the Finance Ministry. We agreed upon this program with main economic entities and organizations, which promote interests of small and medium-sized business and these, above all, are “Opora” and Delovaya Rossia. VEB’s Supervisory Board has approved this procedure today. We also stated that 9 billion rubles had been allocated to support small and medium-sized business through regional banks with which the Russian Development Bank has appropriate agency agreements. But it is safe to say that this figure is a lot higher if we mean Vnesheconombank’s banking group, which incorporates Svyaz-Bank and Globex Bank. And we are interested in carrying on supporting small and medium-sized business and step up this activity through Vnesheconombank’s subsidiary banks. We also agreed to allocate up to 30 billion rubles to support small and medium-sized business this year. We were tasked with increasing dramatically the share of small and medium-sized businesses financed through our program and operating in the real sector of the economy, in innovation sectors and in various industries. And in this respect, I would like to remind you that yesterday Vnesheconombank signed and agreement with the largest national development institution, namely, Germany’s Banking Group KfW on providing 200 million euros to regional banks this year to support small and medium-sized businesses operating in innovation and, above all, energy-saving technologies sector and also in those sectors that reduce green house effect. We have also discussed and approved basic principles of Vnesheconombank’s participation in financing the construction of Olympic facilities. According to Russian Prime Minister and Chairman of our Supervisory Board Vladimir Putin, Vnesheconombank is becoming one of the Government’s main financial instruments for funding Olympic facilities. But the financing procedure agreed upon and approved today provides, of course, for participation of interested investors in the following proportion: 30 - investors’ funds, 70 – Vnesheconombank’s borrowed funds. This is not, of course, patronage and sponsorship; this is participation in certain stakes of the state and private business. We obtained the Government’s authorization for financing Olympic facilities upon appropriate condition precedents. We have also dealt with other projects associated with Olympic infrastructure and funding specific Olympic sports facilities. These are decisions taken earlier on “Roza Khutor” and “Gornaya Karusel.” The meeting of VEB’s Supervisory Board has also backed Vnesheconombank’s proposal to extend a subordinated loan to Gazprombank. The Supervisory Board recommended to continue extending subordinated loans to other banks, with much emphasis on ensuring that funds allocated by the state and intended for augmenting Russian banks’ capital base are used to finance top-priority sectors. They include agriculture, small and medium-sized business, defense-industrial complex and a number of other lines of our banks’ investment and credit activities. In this respect, strict requirements have been set out; they stipulate that for a period of at least half a year prior to extending a subordinated loan, credits extended to top-priority sectors in banks’ loan portfolio should be no less than the amount of subordinated loan to be extended, and later on, during an entire tenor of subordinated loan, funds in the amount of no less than the sum of subordinated credit, should be used to finance top-priority industries. To this end, Vnesheconombank like the Central Bank will dispatch its authorized representatives (commissioners) to commercial banks to exercise control over how banks fulfill their obligations to finance top-priority sectors.
Today we have also discussed an issue of Vnesheconombank’s participation in rescuing Hungary’s airline Malev. In this respect, we have taken appropriate decisions and their implementation depends on the Hungarian side’s readiness for symmetrical participation in rescuing Malev Company. We entered into the project earlier by financing the purchase of Malev Company by Airbridge Company. And naturally, we can’t be indifferent to the future of this Company. If the Company cooperates with Russian air carriers it will be able to increase its passenger traffic significantly and improve its financial standing substantially.
These are almost all basic issues we have discussed today at our Supervisory Board meeting. If you have any questions I would be pleased to answer them.
Sergei Bondarenko, Information Agency Interfax. Vladimir Alexandrovich, would you tell us please if the Supervisory Board has approved today a subordinated loan to Gazprombank alone, what’s the amount of the loan? To my best knowledge, they asked for 15 billion. Has the Supervisory Board considered any other proposals for extending subordinated loans, what are their amounts? Could you specify the banks that applied for subordinated loans and the amounts of these credits? Thank you.
Vladimir Dmitriev: We have discussed today not only Gazprombank but also a number of other banks that submitted documents of various degrees of preparedness to Vnesheconombank. We have taken a decision over Gazprombank. In fact, a credit extended by Vnesheconombank from the funds of the National Wealth Fund amounts to 15 billion rubles, given that its shareholder Gazprom is to provide a similar amount of funds to increase the bank’s capital. I can’t name any other banks that we have discussed because we haven’t taken any decisions over them. But I believe that in the most immediate future, we’ll discuss other banks as well with due regard to criteria I’ve already mentioned, and appropriate decisions are sure to be taken.
Igor Karachin, TV Channel “Rossia”. Vladimir Alexandrovich, in his speech the Prime Minister said that one of the most important objectives, and you are fulfilling it, was to extend various credits not only to major borrowers but also to small and medium-sized businesses. Could you, without going into particulars, say about the way the situation is developing in these lines of activity? Maybe, you could tell us how many small and medium- sized businesses receive financial support from your Bank in the regions? Is there any average amount of a credit, are there any microcredits extended by your Bank? What are the leaders in obtaining such credits by federal districts, could you name specific districts, for example the Central Federal District or maybe the Far Eastern Federal District that are the leaders in obtaining such credits? Thank you.
Vladimir Dmitriev: Actually, the dynamics of extending credits to small and medium-sized business demonstrates clearly that the program implemented through the Russian Development Bank is in high demand and can be significantly expanded through adding new industries and new regions. But in the first place, it should be noted that we would be able to increase the amount of credit resources to be extended from 9 billion to 30 billion rubles as early as this year and we have no doubts that this target figure will be reached. This is our first task and the second task assigned to us is to place much emphasis on real sectors of the Russian economy, on innovation business. I’d like to say that the dynamics of implementing the program aimed at supporting small and medium-sized business through the Russian Development Bank for a period of four years was quite positive. Four years ago about 60 percent of the loan portfolio accounted for trade and service sector and only 17-18 percent accounted for the real sector of the Russian economy, currently the proportion is as follows: 60 percent accounts for industrial sector, that is, construction industry, transport, and the remaining part - for service sector and trade. At the moment, trade accounts for the 17-18 percent that accounted earlier for the real sector of the economy. It should be also noted that we are not the only institution responsible for supporting small and medium-sized business with a significant portion of our loan portfolio accounting for small and medium businesses. Nevertheless, some experts believe that this program could operate a lot more efficiently if commercial banks were responsible for implementing it without establishing such a multi-tier system of financing. But in our opinion, we have to take into account two key considerations. Fist, commercial banks whose main objective is to generate profits are, of course interested in high interest rates and short payback periods. And it is for this reason, most of credit resources provided to small and medium-sized business account for the trade sector. And it is for this reason, commercial banks’ loan rates are prohibitively high and unacceptable for small business which give high priority to innovations, high technologies and industrial sectors. All interest rates in excess of 20% are perhaps within the capabilities of only highly profitable businesses in the trade sector. It is extremely difficult to exercise control over a great number of banks in terms of their activities sectorial priorities. But the program justifies itself because the Russian Development Bank is responsible for exercising control not only over the proper, purpose-oriented use of credit resources with due regard to sectorial priorities but also over interest rates. And on average, an interest rate for end borrowers through the program of supporting small and medium-sized business is about 16 percent. Of course, if our Bank’s capital is increased, we’ll continue, with due regard to minimum margin needed to cover administrative costs, to finance, lend regional banks and institutions responsible for developing small and medium-sized business at minimal interest rates.
As far as regions are concerned, the Central Federal District, Tatarstan and the Volga region are the leaders in obtaining subordinated loans. But we are becoming increasingly aware that we should move beyond the Urals and enhance our positions in Siberia and the Far East. We believe that it is crucially important to work in close contact with various sectors and companies to create new jobs in small and medium-sized business and here I mean job creation for those people, who for obvious reasons such as downsizing, lack of orders, output contraction, lose their jobs. In this regard, we are working with our steel workers, automobile industry, Russian railways, that is, with those sectors that were hardest hit by the crisis and suffered huge job losses.
Rossiiskaya Gazeta. Vladimir Alexandrovich, we have found out that yields from investing pension savings funds under VEB’s management reached last year a negative value of minus 0.46 percent per annum. This means that for the first time over a period of four years VEB lost some part of pension savings funds. Would you comment on these data please and how is VEB going to manage pension funds to make them generate incomes?
Vladimir Dmitriev: Nevertheless, I would like to draw your attention to the following fact: despite the said figures, Vnesheconombank is one of the leaders among almost 60 trust management companies. By yield rates, we are in third place. Only one company showed positive profitability. All the remaining companies and an overwhelming majority of private trust management companies showed negative profitability and it was a lot lower than that of Vnesheconombank. And in my opinion, it would be wrong to ask us when we are ever going to make pension savings funds generate yields, given the current situation and those instruments, in which VEB is allowed to invest funds under its current investment declaration, and given the current conditions on the stock market. I would like to stress that we showed positive profitability for nine months of the last year and again it was a lot better than most private trust management companies showed. We hope that after amendments to Federal Law 101,which sets forth our investment declaration, have been passed, we’ll be able to diversify our portfolio and invest pension funds in the bonds of our highly reliable issuers, deposit free funds and invest them in mortgage-backed bonds not secured by the state. We think that a rational combination of these instruments and professionalism of our experts would enable us, and I’d like to stress it again, to be as before among leading trust management companies responsible for managing pension savings funds.
Alina Glushakova, RIA Novosti: Have you agreed upon the mechanism for financing Olympic facilities? What sort of mechanism is it going to be? What about loan rates? And one more question: Yesterday Alexei Kudrin said that VEB had suspended programs to refinance foreign debts. Have you suspended these programs? Or have you made a sort of pause?
Vladimir Dmitriev: As far as Olympic facilities are concerned, and here I mean their non-profit component, we have agreed upon approaches in general and, as I have already mentioned, a proportion of private investors’ participation share and that of Vnesheconombank is to be 30/70 respectively. As to interest rates, they will be based on a refinancing rate set by the Central Bank increased by a margin of no more than one and a half percent. This means that Vnesheconombank plans to operate at a minimum interest margin that may or may not cover administrative costs and protect the borrower and a project as whole against risks. I would like to stress that as a rule commercial banks plan to operate at a margin of no less than 3 percent to cover administrative costs. Higher margin rates pose risks. Therefore, as you can see, a refinancing rate of one and a half percent is more than a serious privilege for the investor participating in financing the construction of Olympic facilities, which are not associated with their commercial component. As far as refinancing of foreign debts is concerned, actually, we have suspended transactions in refinancing foreign debts; we have at least stopped accepting new applications because the measures taken at the end of the last year were taken, so to say, on an ad hoc basis, as the Bank’s customers, who received refinancing, borrowed from foreign financial institutions against collaterals, the loss of which posed a threat of losing strategic assets. These were strategic assets both in terms of their sectorial significance and in terms of their significance to the economy and socio-ecological situation in individual regions. And we didn’t have any other instruments. Now we can see that Russian banks have excess foreign exchange liquidity estimated at no less than 25 billion dollars and this means that companies interested in refinancing their foreign debts can apply to commercial banks; and commercial banks would assess risks, take appropriate collaterals and help companies to settle their relations with creditors. And we can also see that a number of companies including those who were denied refinancing by Vnesheconombank somehow manage to find ways of settling their relations with foreign creditors. They either find institutions that repay their debts or as a rule agree with creditors to restructure their debts. We stopped refinancing foreign debts in order to preserve foreign exchange and gold reserves but we can start refinancing them in the case that a number of Russian banks, which meet criteria for refinancing their foreign debts, won’t be able to settle their debts in any other ways. In particular, many banks might simply fail to be in line with one-borrower limit and for this reason they won’t be able to apply to commercial banks for receiving refinancing. At the same time, they won’t be able to settle their relations with creditors either. So, in each specific case, our Supervisory Board will take individual decisions. So far, we can see no reasons to dramatize the situation. Moreover, it is already well-known that in order to absorb the said excess foreign exchange liquidity we‘ll issue foreign-currency-denominated bonds, and yields from these bonds will be used to compensate for resources we received from the Central Bank, from its foreign exchange and gold reserves and these yields might also be used to restart the program of refinancing through Vnesheconombank.
Vnesheconombank’s Supervisory Board approved the introduction of changes to the Procedure for Implementing Measures by Vnesheconombank provided for by articles 1 and 2 of Federal Law N 173-FZ “On Additional Measures for Supporting the Financial System of the Russian Federation”.
The new revision of the Procedure has a number of changes concerning mandatory and additional requirements to the borrower (credit institution). In particular, obligations of only those Russian credit institutions are to be refinanced whose own funds amount to no less than 15 billion rubles and whose credit rating is not lower than the established level (B- under S&P rating scale) and against which the Bank of Russia imposed no sanctions as of the date of submitting an application for refinancing. Additional requirements to borrowers from among credit institutions are to submit aggregate data on their loan and guarantee portfolio for the year 2008 with regard to credits and guarantees extended to industries of the real sector of the Russian economy as well as Strategies for Lending the real Sector of the Economy and Population of the Russian Federation for a Period of 2009-2011.
Moreover, the Procedure now includes requirements to the terms of credit transactions provided that the borrower is a credit institution. They stipulate that the Bank shall receive a letter of recommendation from the Central Bank with a positive conclusion that the Bank can conduct a Credit Transaction and that the borrower shall guarantee that representatives of the Central Bank and/or authorized government bodies are incorporated into the borrower’s management bodies and that Russian owners’ share in the borrower’s capital is not lower than 50%+1 share during a credit transaction period and that the borrower shall provide acceptable security.
The Supervisory Board also approved Vnesheconombank’s participation in refinancing foreign debt obligations worth 1.5 billion US dollars of a company in the mining and smelting complex whose operation is of great socio-economic importance for the Russian Federation.
Origin: Press Office of Vnesheconombank
Contact person: Ekaterina Karasina
Phone: +7 (495) 608-46-93, Fax: +7 (499) 975-21134