Dmitry Pankin told an exclusive interview IA Rambler about the investment portfolio and "bad" debts

Dmitry Pankin, Chairman of the Management Board at Eurasian Development Bank (EDB), is convinced that the bank's investment portfolio can be doubled despite economic recession. He told RNS about new investments, non-performing borrowers and possibilities to revive EBRD's frozen projects in Russia.

Rambler How did economic recession in the EEU countries influence investment projects, both ongoing and planned? Companies should cut down their investment programmes.

Dmitry Pankin - You are right. The current EDB portfolio approximates US $2.5 billion. Last year it exceeded US $2.5 billion and in other years reached US $3 billion. The reduction is due to two factors. The first is the economic recession of 2014-2015. In difficult periods like this the demand for investment projects goes down, because businesses wait. The second factor is, I believe, that the bank was not sufficiently proactive in searching for projects. There are good projects that require effort - search, development to the fulfilment phase, possibly more active work on the part of the bank itself. EDB's current objective is to increase its investment portfolio.

Rambler - Do you feel the influence of sanctions against Russia? Are there any players who are wary of dealing with the bank?

Dmitry Pankin - EDB is not a Russian bank, but an international one. It is headquartered in Almaty, Kazakhstan. We are not under sanctions. The bank communicates actively with other international development institutions. However, we cannot work with some of them on Russian projects because the current development banks' policy is to avoid the Russian risk. At the same time, they have developments in Russia. For example, the EBRD has projects, which it began to fulfil in Russia, but then froze, for understandable reasons. They may be of interest to our bank and, therefore, we consider implementing some of such projects. In addition, we look at specialists who previously worked at the European Bank for Reconstruction and Development. Among them we see many interesting, serious candidates we could invite to EDB.

I would like to point out specifically to the active work of the Eurasian Fund for Stabilisation and Development, which is managed by EDB. Its projects are very active. This year we provided a US $150 million credit to construct the North-South road corridor in Armenia. The project is being fulfilled in cooperation with the World Bank and the Asian Development Bank: we fund one section of the road and the World Bank another one. We have similar road projects in the Kyrgyz Republic where we also work with the Asian Development Bank on the upgrade of the Toktogul HPP. We consider engaging in the construction of a ring road around Almaty, with the involvement of the European Bank for Reconstruction and Development.

Rambler - New development institutions - the New Development Bank BRICS, the Asian Infrastructure Investment Bank - are being set up. Do you consider cooperation with them?

Dmitry Pankin - Yes, we'll look for areas of common interest with them. The establishment of the Asian Infrastructure Investment Bank, which focuses on infrastructure projects in the Eurasian region, is of special importance to us. We will surely build relationships with the banks and look for joint projects.

Rambler  - What is you forecast for the investment portfolio as at the end of the current year and for the next year? Do you expect a slowdown?

Dmitry Pankin - My task is to break the current trend. I believe that even in unfavourable economic conditions and an unfavourable overall investment climate we, in the bank, can do it. We have resources, which we don't use sufficiently. As distinct from large Russian banks, we have access to the international market and can raise rather "long" money in it. We believe that reaching a US $5 billion investment portfolio is realistic. This does not mean that we'll reach this figure in the next year, however in the next four years, by 2020, this is quite realistic.

Our current investment portfolio approximates US $2.5 billion, while it would be easy for a bank with a capital of US $1.5 billion to have a one-to-three relationship. We have a mid-term strategy we are presently refining and our objective is to increase these figures by approximately 2020.

Rambler  - How many projects do you fulfil now and for what projects have you created bad debt provisions?

Dmitry Pankin - We now work on more than seventy credit projects. Our provisions approximate US $230 million. The main provisions are for some unsuccessful loans, which were provided by the team in previous years (RNS: Dmitry Pankin headed EDB's management board in February 2015). First of all, these are two loans for the purchase of grain in Kazakhstan. I mean the notorious Ivolga company. There's no grain now and the company cannot perform the loan, so we are taking legal measures to recover the debt.

We are also concerned about the Tomsk wood plant, which manufactures wood boards. They are in an unfavourable situation in the market. The company does not perform well and delays repayments. These are, probably, the most "troubled" customers.

Another issue is the Mechel-Yakutugol structure. With them, we have reached a restructuring agreement. We did not write off the debt, but devised an acceptable repayment schedule.

We have problems with Belarusian enterprises - the construction of a hotel in Minsk (RNS: the developer is Mospromstroy-Hotel owned by the Gutseriyevs and the Shishkanovs). The hotel has been built but the borrower delays repayments. We also had problems with BelAZ, which failed to pay interest on time. Finally, we signed an amicable agreement on debt restructuring.

I would like to emphasise that US $230 million of "bad" debts is absolutely not hopeless. We need to work: to engage in dialogue with borrowers in some cases, to make some steps towards them by means of restructuring. If we don't see any realistic possibilities of repayment, as in the case with Ivolga, we request that the pledged property be foreclosed.

Rambler - You mentioned the previous management. The previous management said that EDB would possibly take part in the construction of an airport in Ho Chi Minh.

Dmitry Pankin - Vietnam was interested in this work. In accordance with our charter we only work with our member countries. So, we informed the Vietnamese side that if they wanted us to work on projects in their country, we should consider Vietnam's joining Eurasian Development Bank. We did not receive any negative or positive answer.

Rambler - In the current economic situation we have the most reliable and the least reliable borrowers. Will the bank pay turn to the sectors with lower risk?

Dmitry Pankin - We don't put it like this. For example, at present the most attractive sectors in Russia to invest are the food sector and agricultural processing. However, the bank can find an interesting project in any sector. The team and a wise approach to risks are more important. Our task is not to concentrate on a single sector, for example, a good mechanical engineering sector, but to search for integration projects with a value-added chain created by several countries in cooperation. This is the type of projects we look for. For example, Kamsky Kabel is looking for a possibility to set up a subsidiary in Kazakhstan. A joint venture with AvtoVAZ, to assemble cars for sale in Central Asia, is also being set up in Kazakhstan. Belarus has several interesting chemical projects. A Russian investor is ready to manufacture components in Russia, which will then be supplied to Belarus, and Belarus will supply end products. So, we consider different sectors.

Rambler - How many applications do you receive on average and how many of them do you approve?

Dmitry Pankin - Maybe, a couple out of one hundred. There's significant interest to the bank. As for serious new projects, I would mention EDB's participation in the construction of Sakhalin GRES 2, which is expected to stabilise the island's isolated power system and replace outdated power facilities. We are currently discussing details. Our possible role in the project will be to secure prepayment and contract performance.

Source: IA Rambler