Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24 (the 12th International Investment Forum Sochi-2013)

HOST: Good evening Vladimir Alexandrovich.

Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening Alexei.

HOST: I’d like to start with a theme that is being discussed here extensively. Naturally, it is being discussed in the context of Prime Minister Dmitry Medvedev’s address at plenary session and before that he had written an article in a central Russian business newspaper. Discussing economic issues in this article he suggested a measure in which Vnesheconombank should participate, that is, to support small and medium-sized enterprises using financial resources of the National Wealth Fund. What sort of scheme is it? What kind of mechanism is it? What are the terms and conditions? Would you tell us about it, please?

Vladimir DMITRIEV: We are really happy that Vnesheconombank is still regarded by the Government as an enforcer of the government’s policy of supporting small and medium-sized enterprises. And in this sense the Prime Minister’s article was not an exception. Dmitry Medvedev has touched on the theme that we are discussing and we are also discussing various approaches to and various models of supporting small and medium-sized enterprises. Vnesheconombank is included in this system on its own and through its subsidiary bank – SME Bank. We have fully implemented a program of supporting small and medium-sized enterprises through a mechanism for funding regional banks which in their turn provide support for SMEs. And this takes place in combination with the preferential funding of small and medium-sized enterprises involved in the innovation sector.

A guarantee mechanism has started to operate: guarantees are extended from the federal budget to Vnesheconombank and it in its turn extends guarantees to SME Bank and then SME Bank puts together a pool of banks that receive our support. And we are entitled to refinance credits through the refinancing system of the Central Bank. A Federal Guarantee Fund is being established now. So, small and medium-sized enterprises are provided with significant funds. And now the Government has proposed to use financial resources of the National Wealth Fund. These funds in the amount of 100 billion rubles are to be extended to Vnesheconombank at an inflation rate plus one percentage point. Vnesheconombank works with major banks above all banks with state participation that have extensive branch networks for supporting above all medium-sized entrepreneurs. This theme was discussed at today’s plenary session and at other forums as well as at a meeting between the Prime Minister and the business community. There are problems associated with the fact that SME Bank does not reach medium-sized enterprises through its support programs. Vnesheconombank has lower limits with regard to funding a project – its value is to be no less than 2 billion rubles and the Bank’s participation is to be no less than one billion rubles. This prevents medium-sized enterprises from receiving preferential funding. We believe that by launching this new program using financial resources of the National Wealth Fund we are sure to reach medium-sized enterprises and provide them with significant financial resources and above all by focusing on their innovation lines of activities.

HOST: The second theme at issue here is a possible additional capitalization of the Bank for an amount of 1.1 trillion rubles. Naturally, we should keep in mind that Vnesheconombank is not a typical commercial bank but a bank with a significant social component, you have already mentioned it. But I’d like you to elucidate this mechanism. Why is this additional capitalization needed?

Vladimir DMITRIEV: Those who’ve been following the theme and Vnesheconombank’s activity attentively sometimes do not really differentiate between Vnesheconombank as a development institution which operates on the basis of a special law “On the Bank for Development” and standard commercial banks and banks where the state represented by the Central Bank or the Federal Property Management Agency is a core shareholder. Vnesheconombank like any other development institution has certain limitations on lines of activity. As our Bank is not a joint stock company we are not entitled to place additional share issues, engage a strategic investor or place shares on open, public markets. Financial contributions of the Russian Federation are the only base for our capitalization.

Moreover, we are not entitled to raise cheap liabilities in the form of legal and natural persons’ deposits. But it is more important that Vnesheconombank as a development institution should be highly instrumental in funding major investment projects and developing the economy. And when we raised a question of the current status and an adequate role of Vnesheconombank in the development of the Russian economy in the future we compared it with such leading national development institutions as Germany’s Bank For Development (KfW), the China Development Bank and the Development Bank of Brazil. These banks’ share in aggregate investments in core capital ranges from 5 and more percent. And our share is less than 2%. So, we say that Vnesheconombank’s influence on our country’s economic development should be increased and our potential is great. We have arrived at the following conclusion: our Bank is in need of support for it to increase funding of major investment projects.

We have to meet terms and conditions determined by our financial declaration and covenants in our credit agreements and upon placing bonds on the markets we have to meet capital adequacy ratio of 10%. From the start of the year it has gone down from18% to a little less than 11%. So, if we are to meet this critical ratio and at the same time expand our loan portfolio and investment activity we are convinced that we need various forms of the state’s support and not only a new financial contribution.

Various measures of the state’s support include guarantee mechanisms, potential commitment of financial resources from the National Wealth Fund and finally applying special approaches to development institutions supported by the state in terms of their financial activity key indicators and above all capital adequacy ratio.

There is no doubt that we rely on the state’s support but this support should not be limited to the Bank’s capitalization through additional financial contributions.

HOST: It has become known recently that financial resources of nongovernmental pension funds will be transferred for management to Vnesheconombank until these nongovernmental pension funds acquire a status that will allow them to operate in a new situation on this market. How is Vnesheconombank going to manage this money? What investment yields can you guarantee?

Vladimir DMITRIEV: There is no link between these two themes. But we are involved in this process. We are aware that these are short-term financial resources that are placed in our Bank on a temporary basis. We’ll hold these funds until nongovernmental pension funds are licensed, transformed into joint stock companies to be able to achieve goals set before them. We’ll place these funds on deposits of reliable banks. There is no doubt that these funds can’t be placed in long-term bonds of our natural monopolies. (By the way we have already invested about 100 billion rubles in the bonds of infrastructure monopolies for them to fund their investment programs).

HOST: Could you be more specific about how you are going to manage this money?

Vladimir DMITRIEV: We believe that a special decision will be taken in this respect. Maybe the investment declaration of our managing company will be brought in line with this new objective. No regulatory documents have been approved in this respect so far. Only a principal decision to place these funds in Vnesheconombank has been taken.

I’d like to stress it once more that it would more correct to say “not in Vnesheconombank” but in the state managing company because there is a Chinese Wall between Vnesheconombank’s balance and funds managed by the state managing company. And the only thing that the state managing company uses is Vnesheconombank’s infrastructure but not its balance.

HOST: As we are in Sochi…We should of course talk about the Olympics. The more so, Vnesheconombank participates in the construction of the Sochi Olympic facilities. It has been mentioned in the course of the Sochi economic forum that we have to think not only about social responsibility but also about commercial aspects. You are in charge of the socially-oriented bank. Do you have to think about social aspect sand to what extent? Let’s talk about it.

Vladimir DMITRIEV: Of course we have. First of all, this is the state’s project and we are happy that private investors participate in it. In terms of its scope the Olympic project is unique in Russia. And it should be noted that while implementing this project the state business and our bank as a development institution did a lot of practice gaining positive experience. We applied brand new banking technologies as well as technologies dealing with relationship between the state, business and such financing institution as Vnesheconombank. There’s no doubt that the projects are complicated and we believe that even now we have to think about our post Olympic legacy. Now business and investors involved in implementing the Olympic projects say that investors should not be left alone face to face with these projects after the Olympics and the authorities understand their anxiety. They should decide together how to jointly manage these projects and how to make investments profitable and efficient. Of course, the worst thing is to bankrupt borrowers. We should find appropriate solutions. But even now I can see that upon implementing this unprecedented Olympic project we are developing an appropriate system of relationship on the basis of public private partnership between authorities represented by the government and tax bodies and business. It would be very difficult to manage these projects in the future - especially sports ones because it will be more difficult to pay them back compared with for example hotel complexes.

It will be also a challenge to manage projects that are to be put on sale after the Olympics. Here I mean housing projects. We have to work out special mortgage lending mechanisms for those who will live here and work at huge hotel or entertainment complexes such as Formula-1, EuroPark and so on.

HOST: Vladimir Alexandrovich thank you very much for finding time and answering our questions. We wish you every success.

Vladimir DMITRIEV: Thank you.