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The Central Bank will add capital to banks through government bonds

Shareholders of VTB and Sberbank should receive dividends based on the results of 2008, Deputy Prime Minister and Finance Minister Alexei Kudrin, who is chairman of the VTB supervisory board, said yesterday. First Deputy Chairman of the Central Bank Alexey Ulyukaev proposes to keep the amount of payments to Sberbank shareholders at the same level - 10% of net profit - and reduce dividends to owners of VTB shares (last year they received 50% of net profit).

Previously, the government spoke about the need to cancel dividends and leave all net profits in state-owned companies, thus improving their financial condition during the crisis. Now this idea seems to have been abandoned. Both state banks have a large number of minority shareholders - Russian citizens who are already unhappy that their shares have depreciated. And you can help credit institutions through other tools. Yesterday, Mr. Ulyukaev announced plans to increase the capitalization of banks by introducing government securities into their authorized capital. And to increase the liquidity of credit institutions, the Ministry of Finance will again begin placing budget funds in bank accounts in April.

Decisions on the distribution of profits will be made at meetings of bank shareholders, which will be held in May-June. So far, the supervisory boards of VTB and Sberbank have not discussed the issue of dividends. Earlier, VTB CFO Nikolai Tsekhomsky said that the bank does not plan to pay large dividends. According to him, with low capital adequacy, the majority shareholder - the state, which owns 77.5% of the shares - will be against paying large dividends.

Next year, shareholders may be left without dividends at all, since banks will not make a profit. According to the director of the department of banking regulation and supervision of the Central Bank, Alexei Simanovsky, at the end of the year, overdue debt will amount to 10%. “At this level of delinquency, it will be necessary to create reserves of approximately 1.5 trillion rubles. If banks have to create such reserves, there will be no profit,” he believes.

Mr. Ulyukaev has not previously ruled out that many banks will receive negative capital due to an increase in overdue payments. That is why the regulator is now considering various options on how to help credit institutions increase capital. For example, this can be done through government securities, in particular OFZ. As Mr. Ulyukaev said yesterday, using such a tool, it is possible to solve two problems at the same time: firstly, to increase capital and fulfill the Central Bank’s requirements for its adequacy, and secondly, to replenish liquidity by refinancing with the Central Bank against the security of these securities.

The Ministry of Finance is offering banks another way to increase liquidity - from April the state will resume auctions for the placement of temporarily free budget funds. Thus, the Ministry of Finance solved the problem with liquidity last year; there was a special demand for state money at the height of the crisis. Not long ago it was decided to return to this practice, but banks should not count on much. “Right now we have a budget deficit at the cash register, and we don’t have large resources,” Mr. Kudrin said yesterday. “This instrument worked well last year, and if the rates turn out to be acceptable for banks, then the auctions will be a success,” says Renaissance Capital analyst Nikolai Podguzov. It is not yet known what kind of profitability the Ministry of Finance will offer to market participants. We also note that by placing these funds, the state will have an additional opportunity to earn money, which is especially important now, in conditions of a budget deficit. In 2009, the federal budget deficit will amount to 7.4% of GDP. According to Mr. Kudrin, most of the deficit will be covered from the Reserve Fund and the National Welfare Fund (about 7% of GDP), and a smaller part (1%) through borrowing. The volume of placement of government securities this year will be 529 billion rubles, the volume of repayments will be 100 billion rubles. Thus, in 2009 the volume of placements will be doubled. “This will happen every year, it is inevitable when the Reserve Fund is depleted,” the head of the Ministry of Finance emphasized. “These securities will be in demand by the market if the yield is 13-14% per annum or if it is possible to obtain refinancing from the Central Bank at lower rates,” Mr. Podguzov believes. Otherwise, the securities may be placed among state-owned companies, as happens in the absence of interest from market players.

Natalia ROMANOVA