Vladimir Putin promised Andrei Kostin to reduce the rate on VEB’s subordinated loan

Prime Minister Vladimir Putin, despite the government’s recent refusal to reduce rates for banks on subordinated loans issued under state support, promised VTB to reduce the cost of these funds by 1.5%. Experts consider the decision in favor of only one bank unacceptable and expect further reductions in rates for other players.

Yesterday there was a working meeting between Vladimir Putin and Andrei Kostin, during which, in particular, the results of VTB’s work for the first quarter of this year and interest rates on loans were discussed. Mr. Kostin appealed to the Prime Minister with a request to reduce the interest rate on VEB’s subordinated loan of 200 billion rubles, which was issued for 11 years at 8% per annum. “Of course, when the Central Bank refinancing rate is reduced to 8% (see material on page * - Kommersant ), this is a slightly different situation, and this money becomes quite expensive,” Mr. Kostin noted. “There are opportunities today to return it in full We don’t. Therefore, we, of course, would like the rate to be slightly reduced, maybe by 1.5%." According to the head of VTB, the bank can begin to return these funds, gradually replacing them with money from the market. However, the bank will need “one to two years” to do this. “Suppose, if we return the money, we will have to borrow more on foreign markets in order to compensate for long-term resources,” explained Mr. Kostin. “And here then we need, at least, not to introduce any restrictions so that we can freely collect those from the market facilities". Mr. Putin went to the VTB meeting. “Well then, this doesn’t make sense for macroeconomics,” said the Prime Minister. “Then it’s better to lower the rate for you.”

Last week, Deputy Prime Minister and Finance Minister Alexei Kudrin said that the government decided not to reduce the rate on deposits of the national wealth fund at VEB, the funds of which were used to issue subordinated loans to banks during the acute phase of the crisis. Instead, the Ministry of Finance agreed with the Central Bank on the possibility of early repayment of subordinated loans for banks wishing to do so. Earlier, the head of the State Duma Finance Committee, Vladislav Reznik, introduced a bill that provided for a reduction in lending rates (from 9.5% to 7.25% and from 8% to 6.25% per annum for various types of loans) (see Kommersant on April 21 ).

Of the 18 banks that received subordinated loans, only Sberbank announced its readiness to repay the subordinated loan ahead of schedule. He has already sent a corresponding letter to the Chairman of the Central Bank, Sergei Ignatiev. Bank St. Petersburg told Kommersant yesterday that they do not plan to repay the loan early. The Bank of Moscow and Alfa Bank do not comment on this issue. “The current market situation provides the required three percent margin for banks on subordinated loans - this is precisely the level of profitability on loans to the real sector that was recommended by the government,” Nomos Bank, which is also the recipient of the loan, said yesterday. “Now this situation suits both clients and banks However, if market rates decline further, the cost of subordinated debt will be burdensome to us."

Experts believe that after the unprecedented rate reduction for VTB, the government should provide such conditions to other banks. “The program was launched for everyone, so it is difficult to make an exception for one VTB and it is necessary to reduce the rate for other banks,” believes senior economist at Alfa Bank Natalia Orlova. Chairman of the Board of Directors of MDM Bank Oleg Vyugin also believes that such decisions cannot be made on a personal basis. However, in his opinion, the decision to reduce the interest rate on loans to all banks would be non-market; in this sense, the option of early repayment proposed by Alexei Kudrin would be more correct.

Analysts note that VTB, unlike Sberbank, cannot repay the loan because the bank’s funding costs are higher. “Firstly, VTB’s passive base is more dependent on external markets and the bank faces more repayments on external debt,” notes Troika Dialog analyst Olga Veselova. “This year VTB must repay $2.3 billion of public debt, in 2011 - $4.1 billion." In addition, VTB has a lower share of individual deposits in the total structure of liabilities than its main competitor. “The share of individual deposits at VTB is 15% of all liabilities, at Sberbank it is 60%,” explains Ms. Veselova.

Analysts believe that the 1.5% rate reduction is a kind of support for VTB from the state. “Serving a loan annually costs VTB 16 billion rubles,” estimates the head of the analytical department of JP Morgan in Russia, Alex Kantarovich. “If the loan rate is 6.5%, then the bank’s annual savings should amount to 3 billion rubles.”

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