"Shareholders are being forward-thinking"

The new head of the Black Sea Trade and Development Bank Andrey Kondakov about diplomacy, crisis and new projects

Today, the leadership of the Black Sea Trade and Development Bank is changing: Russian Andrei Kondakov will replace Turk Hayrettin Kaplan as president of the bank. Mr. Kondakov's candidacy was presented last year by Prime Minister Vladimir Putin and then approved by the shareholders of the BSTDB, a financial development institution established in 1999 by the countries of the Black Sea basin. However, although the appointment was known in advance, it does not look ordinary: until now, Russians have not held top positions in international financial institutions, and their presence in other leadership positions looks pale. In an interview with Vremya Novostey, Andrei KONDAKOV tells how his experience working in the Russian Foreign Ministry is useful to him as a banker and how the Black Sea Bank is resisting the global crisis.

- Your appointment is a rare case when an international financial organization is headed by a Russian. At the same time, it is clear that the BSTDB partners may fear that Russia, having received this position, will suppress them with its weight. How do you feel when you take on the position of head of this bank?

-- Indeed, with the exception of banking structures within the CIS, Russia has not yet had the opportunity to delegate its representatives to senior management positions in international financial institutions. I think that such a precedent-setting decision by the bank’s shareholders is evidence of recognition of the growing authority of our country in the global financial architecture, its constructive position on key issues of the international monetary and financial agenda. Of course, Russia’s active policy in the Black Sea region, aimed at deepening economic cooperation and integration within its framework, also played a role.

As for Russia's weight in the BSTDB, in other words, its share in its share capital, this share, amounting to 16.5%, is identical to Greek and Turkish. So there is no talk of any suppression or subjugation. The Bank was created to promote economic interaction in this difficult region, and throughout the ten years of its existence it has been implementing precisely this main statutory task.

Therefore, when you take on the position of head of such an organization, you feel a sense of enormous responsibility for an international financial institution that represents the interests of eleven shareholders. Over the past years, the bank has gone through a period of formation and has taken a strong position among international and bilateral financial institutions involved in financing the development of the Black Sea region. I see my task as continuing and strengthening these positive trends, increasing the bank’s loan portfolio, promoting its diversification, achieving a further increase in the BSTDB’s credit rating, and intensifying its interaction with other major financial players in the Black Sea region.

—You came to the BSTDB from diplomatic work. How strong do you think the diplomatic element is in the work of this financial institution, in the promotion of economic interaction that you mentioned? In addition, among the founders of the BSTDB there are states with which Russia currently has very cool relations. How does this affect cooperation within the bank?

— Oddly enough, the diplomatic element in the work of such a multinational institution is very strong. Indeed, how to link into a single whole the often divergent priorities of EU members (Bulgaria, Greece, Romania), candidates for EU accession (Albania, Turkey), countries participating in the European Neighborhood Policy (Armenia, Azerbaijan, Georgia, Moldova, Ukraine), and Russia developing a strategic partnership with Brussels? And this is just one dimension - in the EU coordinate system. How to bring the interests of large and small shareholders to a common denominator? How to ensure reasonable geographical diversification of the loan portfolio? Or, what is even more difficult, how to achieve normal, non-politicized interaction within the bank of individual states, the official relations between which at this stage, to put it mildly, are not very warm? Such problems have to be solved every day, and previous experience of diplomatic work in the financial and economic area serves as a very useful help here.

I am pleased to note that the bank’s shareholders are well aware of the importance of implementing the common tasks facing the BSTDB and refrain from politicizing its work. This allows us to work together to further strengthen the bank’s position and intensify its activities in the field of financing projects that promote bilateral and multilateral trade, economic and investment cooperation in the Black Sea region. There are more and more of these in our portfolio. Examples include financing the modernization of airports that provide direct flights between the countries of the region, the trans-Balkan gas pipeline, and numerous operations that strengthen trade and investment flows between BSTDB members. We are also participating together with the BSEC and other interested structures in the development of projects for the construction of the Black Sea ring highway, uniting the countries of the Black Sea region, and the development of ferry services between the ports of the Black Sea.

As for the influence of cool official relations between individual shareholders on the work of the bank, I can say that the shareholders show foresight, understanding that the task of this institution is to finance promising projects, and not to sort out political relations.

-- Russia, Türkiye and Greece have the largest shares in the BSTDB. How does this compare to the projects the bank finances in these countries? Russia, for example, has a large portfolio of projects in the bank, and yet, in your opinion, does our country sufficiently use the potential of the BSTDB?

-- At the moment, Turkey has the largest portfolio of projects in the bank. Before that, he was with Russia for several years, and before that with Ukraine. The situation in this area is very fluid and may change again in the near future. In general, it must be said that there is no direct relationship between countries’ shares in the bank and the volume of projects financed in them. All shareholders have the same country limits, none of which have yet been selected. As for many small shareholders (Albania, Armenia, Azerbaijan, Georgia, Moldova), their total share in the bank’s capital is 9.5%, while the share in the loan portfolio is 19.7%. And this is a completely normal phenomenon that should be encouraged. This is why development institutions exist.

- It is clear that the bank mainly carries out operations with Russia in the financial sector. Is this a deliberate policy?

— In the Russian portfolio, some time ago there was indeed a certain bias towards operations in the financial sector, which, by the way, I don’t see anything wrong with. The fact is that the lion's share of our transactions with Russian financial institutions is aimed not at helping them, but at supporting the development of small and medium-sized businesses, mortgages, leasing, trade finance, etc. In this case, these institutions themselves act not as the final recipients of loans, but as our financial intermediaries.

In any case, the share of the financial sector in the Russian BSTDB portfolio has been declining recently. In accordance with the bank's new long-term strategy, our priority attention is now directed to the development of the real sector of the economy of member countries, including infrastructure projects. As recent examples, I can cite the recently signed agreements on financing the modernization of the airport in Pulkovo, the construction of warehouse and office complexes in Mineralnye Vody and Kaluga. Previously, we financed such well-known companies as Severstal and ALROSA, helped RUSAL enter the Armenian market, supported the development of the Seventh Continent trading network, provided loans to the telecommunications company Teleset from Kazan, and issued a loan to the Kalina company, which produces cosmetics . So, I think the bank’s potential in the Russian direction is clearly in demand.

— How did the crisis affect the bank’s loan portfolio and its policies? What tasks do you, as the head of the BSTDB, see before you in relation to the bank itself, does it need any anti-crisis measures?

- The crisis, of course, affected the bank’s activities and forced us to adapt to the changed conditions. First of all, we made changes to the medium-term strategy and business plan, refocusing them mainly not so much on increasing the loan portfolio (it doubled in 2006-2008), but on maintaining its quality, strengthening control over the implementation of signed credit agreements. These measures were fully justified. We completed the last two years with good net profit, while many other international financial institutions recorded losses. We also managed to avoid the emergence of new problem loans. A clear indication of the bank's stable position is the fact that the BSTDB, in times of crisis and against the backdrop of lowering the ratings of a number of countries - the bank's main shareholders, retained its credit rating (Baa1 from Moody's). So there is no need to talk about any special anti-crisis measures in relation to the bank. Moreover, some time ago the shareholders made an important decision to double the subscribed capital of the bank, and we have already begun to receive corresponding contributions.

In the coming years, we expect to further strengthen the bank’s position in the region, its more active turn towards lending to the public sector and municipalities, projects in the field of infrastructure and energy, especially renewable energy, environmental protection using new energy-saving technologies, etc. We also want to increase participation in the share capital of our partners. We will work energetically to further increase the credit rating of the BSTDB. Further, we mean to intensify our borrowing program on external financial markets. After all, a bank that “sits” only on shareholders’ money and does not attract funds from outside cannot be called good. Finally, we intend to develop closer cooperation with leading international financial institutions, including through co-financing of new regional projects.

— You mentioned that during the crisis you managed to avoid new problem loans. Does this mean that the bank already had problematic transactions?

— In the entire history of the BSTDB, we have only had two problem loans, which is negligible for such an institution with a billion-dollar loan portfolio. Both cases actually refer to the pre-crisis period. The first one - with a Bulgarian client - was resolved quite quickly through the sale of an asset. The second one - with a Turkish company that began to experience financial difficulties - has been in our portfolio since 2005. In accordance with international standards, appropriate funds have been reserved for it, and we continue to search with the client for ways to repay it.

-- Greece, one of the founders and clients of the bank and its “residence”, as is known, is faced with a severe budget crisis. How did this affect the country’s cooperation with the BSTDB? How are existing projects implemented? Are any projects being discussed to stimulate the normalization of the situation in Greece?

-- It should be noted that before the current budget crisis, Greece's share in the bank's loan portfolio was relatively small (3-4%) and was limited to a few projects. This is due to completely objective reasons. As an economically developed country in the region and an old member of the EU, Greece did not need our bank to assist its economic development to such an extent. In addition, until recently, this country had the highest credit rating of all BSTDB shareholders, which provided it with access to relatively cheap financing both within the country and on the international capital market.

Now the situation has changed significantly, and the demand for the bank’s credit resources from the Greek business community has increased significantly. As you know, the word “crisis” in Chinese is described by two characters - one means “danger”, the other means “opportunity”. In our current credit policy in the Greek direction, we focus specifically on the new opportunities opening up for the bank.

In just a few days, at the next board of directors, we will consider two projects for lending to Greek companies for a total amount of 40 million euros. One of them operates in the field of construction, the other in the development of software solutions in the field of marketing and advertising for mobile operators. Interestingly, these companies operate not only in Greece, but also in a number of other countries - the founders of our bank. A project is also being developed to support the capitalization of subsidiary banks of one of the major financial institutions of Greece in our countries. We are exploring opportunities to participate as a co-founder in two investment funds for Greece, as well as lend to a number of projects for the development of alternative energy sources. Overall, I think our Greek portfolio will increase significantly in the near future.

Andrey Kondakov is a career diplomat. Since 2002, he headed the department of international economic cooperation at the Russian Foreign Ministry and in this capacity held the position of foreign policy su-sherpa - assistant to the special representative of the Russian President in the G8. In 2007, he was appointed to the BSTDB as vice president.

The Black Sea Trade and Development Bank, headquartered in Thessaloniki (Greece), was founded in 1999 by 11 countries of the Black Sea Economic Cooperation Organization - Azerbaijan, Albania, Armenia, Bulgaria, Greece, Georgia, Moldova, Russia, Romania, Turkey and Ukraine. The project portfolio has since reached 202 operations totaling $2.7 billion in various sectors of the economy - infrastructure, energy, transport, telecommunications, financial sector, etc.

Interviewed by Andrey DENISOV