Rossiyskaya Gazeta. Dmitry Pankin: When we can abandon dollars and euros

Rossiyskaya Gazeta. Dmitry Pankin: When we can abandon dollars and euros.

Q.: Mr Pankin, many experts and head of Sberbank Herman Gref insist that the banking crisis has begun in Russia. Do you see it?

Dmitry Pankin: No. I think it is a phoney issue. The previous crisis taught the banks how to work and they do not take excessive risks now. The problems do exist, obviously. The loan portfolio does not increase and delays on consumer loans grow, but these derive from the overall macroeconomic situation. Yet, this does not mean that the situation is critical and the banking sector needs to be saved. It's true that it is critical in other sectors.

Q.: However, you bank finds projects for investment. You even intend to expand the list of shareholders. What countries do you plan to admit?

Dmitry Pankin: The shareholders decided that we should not limit to the EEU member states but consider other countries that are active in the region. These are, in the first place, China, India and Iran. We also negotiated with Vietnam, but its reaction is somewhat unclear at the moment.

Q.: Which of these countries expresses the greatest interest?

Dmitry Pankin: Iran, because of possible joint infrastructure projects, which are currently being discussed. We are already at the stage of specific talks. Theoretically, this year we can reach an agreement to expand shareholding of the bank.

Q.: What projects will the bank focus on in the near future?

Dmitry Pankin: Our task is to give strategic priority to integration projects with value chains common to several countries. These are, first of all, projects in industrial sectors. We decide on our own what sectors to work with. There's no such task to develop exclusively mechanical engineering, for example.

In addition, many our projects are financed through the Eurasian Fund for Stabilisation and Development managed by the bank. These include major projects in Armenia and the Kyrgyz Republic. The fund also has projects in Tajikistan.

Q.: Is it possible now to find a new project linking several countries and covering possible risks?

Dmitry Pankin: We have many interesting proposals. For example, Kazakhstan's largest car seller, which knows its market very well, proposes to build AutoVAZ's assembly shop in Kazakhstan.

Belarus has many projects and it has been active always. They propose to finance copper deposits in Armenia so that Armenia purchases BelAZ trucks.

All this requires thorough risk calculations. As a rule, applicants come not with a ready project but with ideas that need to be elaborated.

Q.: Do you plan to take over any projects of the Eurasian Bank for Reconstruction and Development, which withdrew from Russia?

Dmitry Pankin: We signed a memorandum of understanding. The EBRD was very successful in Russia and it had many interesting infrastructure projects.

This is an example of how a development bank, when it complies with certain rules, can be effective both commercially and in introducing new business processes such as public-private partnership. And it was not its management which decided to quit. The management tried to resist. It was the political decision of its shareholders.

We are discussing with the EBRD joint participation in projects in Kazakhstan such as the construction of a ring road around Almaty, KazTransGas Aimak's projects, and the second phase of construction of the Yereimentau wind farm.

Q.: Do you extend loans in national currencies?

Dmitry Pankin: In roubles and tenge, but our capabilities in attracting finance in roubles are very limited. At present, we can attract roubles in the domestic market at an interest of about 11-12 per cent. This means that we can extend loans with an interest of 14-15 per cent. Is there any development or infrastructure project that could afford such interest?

For us, the difficulty is in that we work with dollars and the funds we raise in international markets are also in foreign currencies. But who would take these currencies? The initiators of projects in the raw materials sector see that their prices are falling. They prefer to pause and wait until prices in the market reverse. Those with domestic, rouble profits also have adverse experience and try to avoid taking currency loans.

Q.: Have you ever been in a situation where there's a political task to save an enterprise and you need to take a knowingly bad asset?

Dmitry Pankin: No. There was not a single case over the bank's history when the Council would require that we need to finance a certain project. All decisions are initiated by the bank's management.

Q.: Does the bank's special status and the participation of the countries in its capital help?

Dmitry Pankin: Yes, surely, and this help is very significant. When we have problems with some Belarusian enterprises we approach the government and say that they have a systematically important enterprise and it needs restructuring. However, non-performing debts do remain. Any bank has to deal with them.

Q.: Can the Eurasian Fund for Stabilisation and Development be seen as an instrument to bring macroeconomic and financial policies in the Eurasian space closer?

Dmitry Pankin: Definitely yes. For example, we receive an application from Tajikistan for a US $70 million loan. Then we begin to agree with the government the economic policy matrix as a loan condition. We see that the country has ten different rates of exchange and we propose that they should be reduced to one.

Then we observe an attempt to pay the largest bank's debts from the national budget. The natural question is why. We explain that for the financial and macroeconomic situation to stabilise the bank's debts need to be separated from the budget. We notice that Tajikistan has too many customs benefits and require that they should be abolished. The situation with Armenia and Belarus is similar: we extend loans against certain covenants. It is the real process of agreeing macroeconomic and financial policies.

Q.: Does the population regard these conditions with understanding?

Dmitry Pankin: It's hard to object common sense. For the time being, I did not hear the governments to call their populations to tighten their belt because Russians provided a loan on such conditions.

Q.: How could the EEU countries benefit from a currency union?

Dmitry Pankin: We don't need a single currency, at least for the near future. The difference in people's incomes in the countries is too great. In addition, the EEU countries react differently to external shocks, for example to falling oil prices.

However, all sides understand now that if Russia, which accounts for up to 90 per cent of GDP in the EEU, has shifted to a floating rate of exchange, the other countries have nothing else to do. If they try to keep their rates fixed their reserves will evaporate. This is how foreign exchange policies are coordinated in somewhat of a compulsory manner. Belarus and Kazakhstan have finally refused to fix their rates of exchange. Armenia had more or less flexible rate formation mechanism already.

Q.: Do the EEU countries become closer in terms of population's income?

Dmitry Pankin: Yes, they have been converging throughout the post-Soviet period, narrowing the gap with Russia by 0.7-1.4 per cent a year. Kazakhstan's GDP per capita is almost the same as in Russia. The only exception is the Kyrgyz Republic. Its gap with Russia is growing.

Q.: Are talks about the competition of jurisdictions in the EEU reasonable?

Dmitry Pankin: There are many talks, like, let's move production from Russia to Kazakhstan, but there are significantly fewer practical steps. I don't see anything bad in it - it is competition for an investor. Our regions compete in a similar fashion. A more serious problem is prices of raw materials. Kazakhstan has the same prices of oil and metals as Russia. Whether you invest in Russia or in Kazakhstan, the macroeconomic situation is the same in principle.

Q.: Don't you think it's high time to try to increase payments in national currencies between the EEU countries?

Dmitry Pankin: Raw materials and energy account for a significant portion of our mutual trade. Oil and gas prices are fixed in the US dollars and this is what makes this foreign currency so important in payments between the EEU countries. According to approximate estimates, dollars accounted for 24% of all payments in 2014, euro 5%, and the Russian roubles almost all other payments. The Belarusian rouble and tenge had fractions of a per cent.

In my opinion, it is important not to ban dollar and euro payments in mutual trade within, say, three months, but to think how to create conditions to make trade in roubles or tenge more convenient. When we had the EFSD Council in Yerevan, the president of Armenia said that the country's proceeds from its main exports were in roubles and migrants' wages were all in roubles. At the same time, we sell oil and gas for dollars. So they have to convert roubles into dollars and pay for our oil and gas in dollars. And they agree to pay the same world-established price but it would be easier to pay in roubles to avoid unnecessary conversion. In this case the transition to rouble payments does have economic logic. It is certainly probable that some rules of the Central Bank, as well as the nuances of tax laws and export control will need revision.