Vedomosti: "Putin’s Rate"
Confidence in the national currency has been restored, the rouble has steadied and inflation has slowed down, he said. "Inflation may run at 1.1 to 1.2% in April, according to the Ministry of Economic Development forecasts. This means we can count on the Central Bank to bring the refinancing rate down. Am I right, Mr Ignatyev?" Mr Putin addressed Central Bank Governor Sergei Ignatyev. The Governor smiled and nodded. "Of course, the issue is totally in the competence of Central Bank's Board of Directors," Mr Putin acknowledged. Neither he nor any members of the Government are members of the Board.
The Government must create conditions under which a reduction in the basic rate will really make loans cheaper, Mr Putin went on. "Actually, wherever you go, the first question you are asked at any company is how our financial system is functioning and what are the interest rates," the Prime Minister shared with the bankers. Then he announced his decision: From now on the banks which have received government assistance must issue loans at a rate not higher than the refinancing rate (which is currently 13% per year) plus 3 percentage points, and for a term of not less than a year. This is the limit, including all the commission fees, Mr Putin pointed out. These are the terms on which the banks are to issue loans to the real sector and to individuals in an amount matching the extent of government support.
"The CB must strictly monitor compliance with these terms," the Prime Minister stressed, adding that it is necessary to "spur on the crediting of the real sector". Former Vice President of the Central Bank, Alexander Khandruyev, was shocked by the Prime Minister's words: It is not the business of the Prime Minister to fix the rates and determine the size of bank loans. The leaders of other countries also urge banks to credit the economy, but nobody tells them exactly how to do it. True, the Russian Prime Minister is the head of the Vnesheconombank (VEB) supervisory board and in that capacity has a say on decisions to issue subordinated loans.
VEB has already issued loans to state-owned banks: VTB (200 billion roubles) and Rosselkhozbank (25 billion roubles); and to some private banks such as Alfa Bank, the Khanty-Mansiisky Bank, Nomos Bank and Gazprombank, worth a total of 32 billion roubles. Sberbank has received a 500 billion rouble subordinated loan from the Central Bank. All the private banks received sums matching the contribution to the capital of the bank's main shareholder at the annual rate of 8% and for a term of up to 10 years. Lately applicants have been required to present a detailed crediting plan, said Alexander Zelinov, director of VEB's Financial Institutions Department.
To encourage banks to issue loans, Mr Putin instructed the Finance Ministry and the Central Bank to change the mechanism of government guarantees to ensure that if the borrower becomes insolvent the bank can promptly get its money back under state guarantees before receiving the collateral.
In addition, the banks that have already received subordinated loans will claim the right to apply for loans in accordance with a new ratio of government and private money: 3 to 1 (which was 1 to 1 until now), the Prime Minister said.
The announcement drew conflicting reactions from VTB President Andrei Kostin and Alfa Bank President Pyotr Aven. Mr Aven was delighted that Alfa-Bank could get more VEB loans to match the 1:3 ratio, i.e. receive an additional 20.4 billion roubles without contributing any more money. Mr Kostin argued that Mr Putin had meant something else: namely, those who wish to claim shareholders' money under the new rule should again make a contribution to the bank's capital.
This interpretation of Mr Putin's message was shared by the top manager of one of the top ten banks. Mr Aven later reaffirmed his own interpretation: "[Central Bank Chairman Sergei] Ignatyev and I were sitting side by side, and we both understood him in the same way." He said that Alfa-Bank would apply for an additional loan "immediately" after VEB clarified the new procedure.
"As I understand it, those who apply for loans for the first time will be able to proceed from the 3:1 ratio. Those who have already received a loan will simply be able to get two more parts from VEB." This is how the Chairman of the management board of Uralsib, Andrei Donskikh, interpreted Mr Putin's statement. His bank's shareholders decided to increase capital by 12.2 billion roubles, i.e. Uralsib can apply for 36.6 billion roubles; however, it does not need to replenish its capital at the moment, Mr Donskikh said. The Finance Minister has explained that the new ratio applies only to the new contributions of shareholders. This is a tentative plan, the procedure has yet to be written up, but it will be published soon, a Government official claims.
Bankers are worried about the caps on rates, but not yet so much as to renounce government support. "Crediting terms are mainly determined by Central Bank rates. Of course the condition [of issuing loans at the rate of up to 16%] will be hard to meet. We will select the most effective borrowers," said Mr Donskikh. "16% is a benchmark that should stimulate a cut of rates across the board. There are some reliable borrowers who receive loans on almost the same terms already," says Deputy Chairman of the board of Gazprombank, Alexander Sobol.
"Money within the bank is not divided into government and private," says Deputy Director-General of Ursa Bank, Vladimir Mekhryakov. "Clients will clamour for 16% loans. I have already had calls from clients who have heard that we are going to get money from the Government."
"Now the whole country will be demanding special rates, although few people can repay the money today," Mr Khandruyev predicts. "16% is not a market rate," Mr Mekhryakov complains. "When the rates on rouble deposits are around 15-17%, the cost of loans cannot be less than 20%."
The article was written in collaboration with Tatyana Bochkaryova.
