Dmitry Pankin gives an interview to Money and Credit Journal
Q.: Mr Pankin, Eurasian Development Bank marks its tenth anniversary in 2016. What are, in your opinion, the most important results of EDB's work – its achievements and problems as of an international development institution? What is the focus of its efforts at the moment?
A.: EDB aims to create conditions for sustainable economic development and deeper integration between the EDB member states: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. The bank works in several directions: it invests, helps to maintain financial stability by managing the funds of the Eurasian Fund for Stabilisation and Development (EFSD), and supports integration with research. The bank's investment activities are best described by the following figures: its investment portfolio, if to count more than 120 projects fulfilled over ten years, totals US $4.6 billion. At present, EDB finances 64 investment projects in its six member states. (Ed.: data as of 1 April 2016).
After ten years of operation, it's safe to say that Eurasian Development Bank has become an acknowledged and active participant in Eurasian integration.
As for the problems, the main difficulty is the shrinking investment portfolio. This process began in 2013 and, unfortunately, continues. The reason is not only the economic crisis, but also the bank's insufficient activity in the previous period. Another serious problem is the bank's losses in 2015. The new team, which came to the bank in the beginning of the last year, found a number of non-performing loans and, for this reason, provisions had to be increased significantly. As a result, we had a planned loss in 2015.
This year we expect to have profit and are re-arranging the project cycle.
EDB is not a commercial bank and we do not pursue high profits. However we cannot afford losses.
Q.: You said before that you planned to alter the bank's strategy considerably in 2016. Are these changes known already?
A.: We discussed the new strategy at the bank's council with the shareholders, received their opinions and prepared a final version that was considered by the EDB Strategy Committee. We plan to have the document approved at the next meeting of the EDB council in May.
It would be premature to provide details, but I can say that the focus will be on projects with an integration effect, i.e. those that have at least two EDB member states in the production chain.
Q.: At present, the bank's member states are six countries and the crisis has obviously affected not only Russia. How has the bank's strategy changed in this connection? What projects did you have to abandon? How have the bank's lending principles changed?
A.: The first thing I should note is that economic sanctions have not affected us directly. For this reason, we are ready to finance projects that meet our eligibility criteria. Our current treasury portfolio approximates US $1.2 billion. We can also raise funds in the external markets and issue eurobonds. We have enough available money for the moment.
The second thing is that the bank does not abandon any of its liabilities. However, the new team has inherited many projects that had not been worked on properly. As a result, we now have to literally squeeze our money back from some of the projects. We do reach agreements when it is possible. However, when we are not heard we go to court and win.
The third thing is that we cannot disregard that all the EDB member states are in different economic and political situations. This is the reason why our investment portfolio is not homogeneous. At present, Kazakhstan accounts for the largest share in the investment portfolio, almost 40%. Russia's share is almost 31%, Belarus almost 25%, Armenia 1.4%, Tajikistan 0.4%, and Kyrgyzstan 0.3%.
It should be kept in mind that EDB is a "two-pocket" structure. One pocket is the bank's money and the other is the money of the Eurasian Fund for Stabilisation and Development (EFSD), which is managed by the bank.
In Armenia, Kyrgyzstan, Tajikistan, and Belarus the bank works primarily through the fund: we have extended a total of US $515 million to Armenia, US $285 million to Kyrgyzstan, and US $110 million to Tajikistan. The situation in these countries is peculiar in that it is not easy to find an investment project with risks acceptable to the bank. So, we need state guarantees.
Q.: The economic ties between Russia, Belarus and Kazakhstan are traditionally strong. Does the bank plan to expand its operations in other EDB member states: Armenia, Kyrgyzstan and Tajikistan?
A.: One of the bank's main tasks is to increase quality investment portfolios in the member states. So, we analyse the situation in all the six member countries with equal attention, without giving priority to any of them.
Q.: Does the bank plan to expand its membership? Does it plan to enhance cooperation with other Eurasian countries such as Azerbaijan, Uzbekistan, Turkey, China, Iran, Vietnam, and European countries?
A.: EDB is open for new members. However, our goal is not to unite geographical Eurasia under the brand of EDB, but to promote trade and economic ties in it.
We had talks with China, Vietnam, and Iran, but there has been no solution yet. As for Uzbekistan, our countries have strong economic ties, but the Uzbek side is not ready to integrate with the EEU and does not intend to join EDB.
Q.: Do the bank's shareholders pursue import substitution and factor this principle in when devising EDB's policies?
A.: It's not import substitution that matters, but the creation of products, which would be successful both in the country and beyond.
Our task is to support projects with value added chains, taking into account their export potential, among other things. It is important that products are not simply made in Russia and then sold in Kazakhstan. It is necessary that they are made as a result of cooperation, for example, between Russia, Kazakhstan and Belarus.
Q.: What would you say about the bank's cooperation with other development banks: the Asian Development Bank, the EBRD, the New Development Bank BRICS, and interaction with the Interstate Bank?
A.: On the one hand, the emergence of new strong players such as the Asian Infrastructure Investment Bank and the New Development Bank BRICS has boosted competition for projects. On the other hand, the withdrawal from Russia of the traditional players such as the EBRD and the EIB has opened a new niche for projects.
EDB will strive to enhance partnership with international financial institutions in order to attract co-investors in joint programmes and mitigate credit and investment risks through joint lending.
We signed a US $3 billion agreement on the joint financing of projects in Kazakhstan, Armenia, Kyrgyzstan and Tajikistan until 2021 with the Asian Development Bank. EDB will provide US $1 billion and the ADB US $2 billion. We also signed a protocol on additional financing for the North-South road in Armenia. EDB is ready to provide US $320 million and the ADB intends to finance the feasibility study. We are now discussing technical details.
We have also established contact with the BRICS bank. I believe that by the end of the year we'll see certain results of our negotiations.
We made a number of proposals on joint participation in project financing to the AIIB. Among the large ones is the China–Western Europe transcontinental transport corridor (running through Kazakhstan, Russia, and Belarus).
Q.: To conclude our conversation, let me ask a more general question: what should be done in the first place for Russia to overcome the crisis and ensure economic growth?
A.: It is important to avoid trying to change growth indicators in the nearest future by any means. More attention should be paid to the quality of growth and its greater sustainability.
Source: Money and Credit (journal, Russia)
A.: EDB aims to create conditions for sustainable economic development and deeper integration between the EDB member states: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. The bank works in several directions: it invests, helps to maintain financial stability by managing the funds of the Eurasian Fund for Stabilisation and Development (EFSD), and supports integration with research. The bank's investment activities are best described by the following figures: its investment portfolio, if to count more than 120 projects fulfilled over ten years, totals US $4.6 billion. At present, EDB finances 64 investment projects in its six member states. (Ed.: data as of 1 April 2016).
After ten years of operation, it's safe to say that Eurasian Development Bank has become an acknowledged and active participant in Eurasian integration.
As for the problems, the main difficulty is the shrinking investment portfolio. This process began in 2013 and, unfortunately, continues. The reason is not only the economic crisis, but also the bank's insufficient activity in the previous period. Another serious problem is the bank's losses in 2015. The new team, which came to the bank in the beginning of the last year, found a number of non-performing loans and, for this reason, provisions had to be increased significantly. As a result, we had a planned loss in 2015.
This year we expect to have profit and are re-arranging the project cycle.
EDB is not a commercial bank and we do not pursue high profits. However we cannot afford losses.
Q.: You said before that you planned to alter the bank's strategy considerably in 2016. Are these changes known already?
A.: We discussed the new strategy at the bank's council with the shareholders, received their opinions and prepared a final version that was considered by the EDB Strategy Committee. We plan to have the document approved at the next meeting of the EDB council in May.
It would be premature to provide details, but I can say that the focus will be on projects with an integration effect, i.e. those that have at least two EDB member states in the production chain.
Q.: At present, the bank's member states are six countries and the crisis has obviously affected not only Russia. How has the bank's strategy changed in this connection? What projects did you have to abandon? How have the bank's lending principles changed?
A.: The first thing I should note is that economic sanctions have not affected us directly. For this reason, we are ready to finance projects that meet our eligibility criteria. Our current treasury portfolio approximates US $1.2 billion. We can also raise funds in the external markets and issue eurobonds. We have enough available money for the moment.
The second thing is that the bank does not abandon any of its liabilities. However, the new team has inherited many projects that had not been worked on properly. As a result, we now have to literally squeeze our money back from some of the projects. We do reach agreements when it is possible. However, when we are not heard we go to court and win.
The third thing is that we cannot disregard that all the EDB member states are in different economic and political situations. This is the reason why our investment portfolio is not homogeneous. At present, Kazakhstan accounts for the largest share in the investment portfolio, almost 40%. Russia's share is almost 31%, Belarus almost 25%, Armenia 1.4%, Tajikistan 0.4%, and Kyrgyzstan 0.3%.
It should be kept in mind that EDB is a "two-pocket" structure. One pocket is the bank's money and the other is the money of the Eurasian Fund for Stabilisation and Development (EFSD), which is managed by the bank.
In Armenia, Kyrgyzstan, Tajikistan, and Belarus the bank works primarily through the fund: we have extended a total of US $515 million to Armenia, US $285 million to Kyrgyzstan, and US $110 million to Tajikistan. The situation in these countries is peculiar in that it is not easy to find an investment project with risks acceptable to the bank. So, we need state guarantees.
Q.: The economic ties between Russia, Belarus and Kazakhstan are traditionally strong. Does the bank plan to expand its operations in other EDB member states: Armenia, Kyrgyzstan and Tajikistan?
A.: One of the bank's main tasks is to increase quality investment portfolios in the member states. So, we analyse the situation in all the six member countries with equal attention, without giving priority to any of them.
Q.: Does the bank plan to expand its membership? Does it plan to enhance cooperation with other Eurasian countries such as Azerbaijan, Uzbekistan, Turkey, China, Iran, Vietnam, and European countries?
A.: EDB is open for new members. However, our goal is not to unite geographical Eurasia under the brand of EDB, but to promote trade and economic ties in it.
We had talks with China, Vietnam, and Iran, but there has been no solution yet. As for Uzbekistan, our countries have strong economic ties, but the Uzbek side is not ready to integrate with the EEU and does not intend to join EDB.
Q.: Do the bank's shareholders pursue import substitution and factor this principle in when devising EDB's policies?
A.: It's not import substitution that matters, but the creation of products, which would be successful both in the country and beyond.
Our task is to support projects with value added chains, taking into account their export potential, among other things. It is important that products are not simply made in Russia and then sold in Kazakhstan. It is necessary that they are made as a result of cooperation, for example, between Russia, Kazakhstan and Belarus.
Q.: What would you say about the bank's cooperation with other development banks: the Asian Development Bank, the EBRD, the New Development Bank BRICS, and interaction with the Interstate Bank?
A.: On the one hand, the emergence of new strong players such as the Asian Infrastructure Investment Bank and the New Development Bank BRICS has boosted competition for projects. On the other hand, the withdrawal from Russia of the traditional players such as the EBRD and the EIB has opened a new niche for projects.
EDB will strive to enhance partnership with international financial institutions in order to attract co-investors in joint programmes and mitigate credit and investment risks through joint lending.
We signed a US $3 billion agreement on the joint financing of projects in Kazakhstan, Armenia, Kyrgyzstan and Tajikistan until 2021 with the Asian Development Bank. EDB will provide US $1 billion and the ADB US $2 billion. We also signed a protocol on additional financing for the North-South road in Armenia. EDB is ready to provide US $320 million and the ADB intends to finance the feasibility study. We are now discussing technical details.
We have also established contact with the BRICS bank. I believe that by the end of the year we'll see certain results of our negotiations.
We made a number of proposals on joint participation in project financing to the AIIB. Among the large ones is the China–Western Europe transcontinental transport corridor (running through Kazakhstan, Russia, and Belarus).
Q.: To conclude our conversation, let me ask a more general question: what should be done in the first place for Russia to overcome the crisis and ensure economic growth?
A.: It is important to avoid trying to change growth indicators in the nearest future by any means. More attention should be paid to the quality of growth and its greater sustainability.
Source: Money and Credit (journal, Russia)