M.E.Oseyevsky`s interview to the "Region Plus" magazine
Deputy Chairman of VTB, Mikhail Oseyevsky: “VTB intends to lend actively to projects contributing to intensifying the trade turnover between Azerbaijan and Russia.”
Author: Nurlana GULIYEVA, Baku
Since operating in the Azerbaijani market, the Russian banking giant, VTB, objectively sees its place in the national economy not only as a financial institution, but also a platform for the development of trade and economic interaction between the both countries. Obviously, both governments are committed to actively develop non-oil and gas segment of economy and VTB (Azerbaijan) plans to support primarily the real business. The bank intends to reach an agreement with the National Fund for Entrepreneurship Support (NFES) of Azerbaijan on the allocation of concessional loans to business.
On the other hand, cooperation with VTB (Azerbaijan) is also a very cost-effective solution for entrepreneurs, as the bank belongs to an international financial group VTB, which means that the Azerbaijani branch of the group will have an access to a broad network of services in the CIS countries, Georgia, Cyprus, Austria, France, Germany, China and India. In general, the international network of VTB has more than 30 banks and financial companies in more than 20 countries around the world, and the Azerbaijani bank has access to the same products and services that the group is successfully implementing in different financial sectors.
We discussed these and other advantages of cooperation with VTB with the Deputy Chairman of VTB, the Chairman of Supervisory Council of VTB (Azerbaijan), Mikhail OSEYEVSKY:
- The Chairman of VTB (Azerbaijan) has repeatedly stated that the bank intends to become a major partner of the Russian and Azerbaijani businessmen. However, given that the economies of both countries are experiencing problems, some decline is observed in the bilateral trade turnover. What are the main problems for the management of VTB (Azerbaijan) in such circumstances?
- Today, the primary objective of VTB (Azerbaijan) is to establish partnership with Azerbaijani business to support its foreign economic activity, as well as to provide a wide range of risk-free banking products.
In recent years, the bank has successfully developed in the retail market, was a lender for consumptive needs of the customers. We continue to work in this direction, and even plan to issue mortgage loans to the population thanks to the Azerbaijan Mortgage Fund. Together with our partners from ATA Holding, we have decided to concentrate more on legal entities. First of all, this means medium-size businesses, which implement projects either completely at their own expense, or with the participation of local capital. We also work with major companies and government of Azerbaijan, but the main accent is on the companies engaged in small and medium-size businesses. After reaching an agreement with NFES next year, we will have long Manat resources, and as a bank with a large customer database, we will be able to use them fairly quickly. Also, an important area of our work remains the crediting of Azerbaijani companies in Russian rubles. These companies operate in Russia, are part of the Russian economy, and currently the loan interests in Roubles are more attractive than those in Manats.
- Which sectors of the economy do you consider the most promising for crediting given the level of the Azerbaijani-Russian relations?
- All quality products that can be produced in Azerbaijan will be in demand: food, agricultural products, construction materials, clothing, and footwear. But the main area, of course, is agriculture. Given the current level of oil prices, import substitution programs both in Russia and Azerbaijan are highly relevant. For example, we see that for the past two years, amidst the decrease in oil prices, the agricultural investments have become a big hit in Russia. Even VTB, not specializing in lending agricultural sector, increased its portfolio twice.
Today, the agricultural sector is highly profitable. I can say that for the last two years, the volume of Russian exports of grain products exceeded revenues from arms sales. The sale of grain brings $16-17 billion to Russia, which has become one of the largest exporters in the world. Obviously, this segment can and should develop well in Azerbaijan. Azerbaijan has a number of objective advantages that can be realized with the development of the agrarian sector.
Another interesting area for us is the transport and logistics areas. This segment is interesting due to the movement of goods from East to West and vice versa. It requires substantial investment in the infrastructure, the system of railways, ports and roads. In addition, for the successful development of this segment, it is necessary to ensure the construction of modern warehouses on the borders with Russia and Iran. So, the industry seems attractive to us.
In short, VTB is ready to make every effort to increment the trade turnover between our countries.
- How do you evaluate the overall business environment in Azerbaijan? What problems need to be addressed first?
- VTB has the same problem both in Russia and Azerbaijan in lending the businesses: lack of transparency and openness. A robust economy is a task that the state must ensure. Objective information will help us in decision-making. Getting “out of the shadows” is also profitable for the businesses, as the bank is considering officially confirmed incomes in assessing the creditworthiness of the client. There will be time when a businessman realizes that being “clear” is a very profitable business. This will lead to the development of documentary business. No longer loans will be credited at commercial rates but at guarantees, letters of credit, factoring and so on. Companies will be able to reduce their interest expense, including due to getting “out of the shadows”.
- Today Azerbaijan's banking sector is going through a difficult time due to the devaluation and the dollarization of the economy. What measures does VTB (Azerbaijan) take to preserve the stability of the market?
- Our management is actively engaged in the localization of problems arouse in connection with the devaluation, including the return of the problem loans, restructuring them. This is a hard and an unpleasant work, but, nevertheless, we believe it is very important and necessary for the improvement of our financial results. The second task is to attract new customers and to implement new business strategy. We have some good results, and we want to enter the profitable operation in 2018. It depends on how the economic programs are implemented.
Currently, the total capital of VTB Bank (Azerbaijan) meets the requirements of the regulator and exceeds 50 million Manats. This summer, on the basis of an agreement with the Chamber of Financial Market Supervision of Azerbaijan, we made additional capital injections in VTB (Azerbaijan) in the amount of more than 110 million Manats, which were implemented in the form of a special structure deposit. In agreement with the Chamber, we plan to ensure additional emission of shares by the end of 2017.
As regards the extreme dollarization of the economy, this is a problem not only for Azerbaijan but for the majority of post-Soviet countries. Russia also faces a similar problem. Of course, the process of transformation of Manat to the main tool of payment will take some time. We are waiting for the announcements on monetary policy from the Central Bank of Azerbaijan and the government’s road maps in order to understand exactly what measures can be taken in this direction. We, like most our colleagues in the Azerbaijani banking sector, have the credit portfolio distributed mainly in dollars. We would be happy to transfer it to the national currency, but today the banking sector is experiencing a deficit of Manats. We are looking for some alternatives to lend our customers. One of the options could be lending in Roubles. We offers everyone doing business in Russia, to seize this opportunity. This approach is ongoing in other CIS countries. At present, we offer loans at 13-15% interest rates. As rates of inflation in Russia drop, these rates will also drop. This approach will help to avoid currency risks, as both the commitments and the revenues of such companies are often in Roubles. In addition, we are now launching factoring in Azerbaijan.
Another challenge for us is investment lending that requires adequate resources. We expect that because of government programs, we will see institutions that will be able to fully or partially provide such funding. However, the companies that are already operating in the Russian market, we can provide investment loans for a period of 5-7 years.
In short, I believe that VTB continues contributing to Azerbaijan’s banking sector.
VTB (Azerbaijan) increased loan portfolio size for small and medium business
Loan portfolio size of VTB (Azerbaijan) for small and medium-sized business lending has made AZN 73,1 mln. as at July 2014, having increased more than 3 times indicators of the analogical period of last year.
During the first six months of 2014 the volume of loans granted by bank to representatives of small and medium-sized businesses is AZN 29,3 mln. It should be mentioned that at the end of second quarter of last year the volume of business lending was AZN 12,7 mln.
Head of Small and Medium-Sized Business Department of VTB Bank (Azerbaijan) Bakhruz Jamalov: “Taking into consideration the trends of market development we are taking an active part in the development of small and medium-sized enterprises in the country. We plan significant increase in commercial loan portfolio to the end of the year. It should be noticed in 2012 we entered into the market with 2 million of value of loans portfolio and reached significant results in spite of SME credit market is considerably competitive”.