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“Expert Ug”
The largest in the SFD bank “Centr-invest” inherited the ability to respond immediately to the situation from its founder, shareholder and chairman of Board of directors Vasilii Vysokov, for whom, however, it is very important not to run ahead the agenda by more than one step.
Сertainly Vysokov corresponds to our conception of how the hero of renewed economy looks. First of all, he is a hero who is not concerned about the survival, but development — in spite of the poor market conditions, which in the case of financial markets were particularly unfavorable. As a result, the whole last year it was difficult to find a banker who would be ready to talk to a journalist seriously — so much was expected from the banks and so little they actually could. And Vasily Visokov, who even before the crisis was a very public man, in a period of turbulence only activated. All the end of the previous year was devoted to the presentation of program “South of Russia against the global crisis,” to all strategic audiences, its psychological timeliness, after the fact, is difficult to overestimate. This year we set up an educational project “Entrepreneurial general education” for emergent entrepreneurs and students, educational program “Secrets of banking excellence” for the children and grandchildren (10 to 20 years) VIP-customers of the bank, the program “Energy efficiency in the housing services and utilities” for housing cooperative.
It just seems that all these — soothing passes that should mask the stagnation. In fact, each project has ideas that are very well sold to those who are capable of paying in crisis — international development institutions and administrations who need partners for the organization of the same “general education.” As a result — the recent contract “Centr-invest” with the International Finance Corporation for $ 40 million and the bank’s presence in all major state programs motivating small businesses and modernization. However, although Mr. Visokov feels exactly, what topics are sold, he is ready to deal not with all of them. For example, he has made plain that the bank cannot be enticed by innovative theme supported by authorities. Position of the bank — the promotion of modernization, which Vasiliy Visokov sees as modernization “from below” — according to the recipes of small business.
You said that a month after the beginning of the crisis you provided your customers with a strategy of anti-crisis development. What was the main distinction of this strategy from the pre-crisis?
— Deep scientific working out. From the perspective of monetarist theories, it was obvious that the reduced amount of money supply and liquidity must be subject to the decline in production, and deflation. The experience of developed countries confirmed it back in 2008, in Russia these processes became apparent only after a year. It required time and conviction to explain to customers, politicians: if the business has fallen by less than 30 percent, it is a successful business, and if we can cut expenses by more than 30 percent, then the business will remain competitive in the post-crisis economy. Post-crisis economy — it’s just a new balance of new demand and new supply. Statistics of the first half of the year over the south of Russia already confirmed the rightness of our positions. Many customers continue thanking us for this timely proposed strategy “South of Russia against the global crisis.” It was a non-trivial approach. It is greatly appreciated by foreign partners too.
—Many people think that foreigners strengthen the positions at the banking market at the time of crisis. “Centr-invest” — is a bank with foreign capital. Did you have the opportunity to attract foreign money during the crisis?
— The bank strictly on time and to the fullest extend fulfilled all its obligations to foreign partners. Today, we have no problem with attraction of financial resources from the market. But long-term money is needed for the post-crisis economy, which now cannot be found either in Russian or international private capital markets. For this reason we focus on working with international institutes for development, as today only they can offer long resources to the bank. Like in a previous year, this year “Centr-invest” has attracted about $ 100 million for a term of five years. Recently we signed an agreement with IFC for $ 40 million for crediting of energy-efficient technologies, agrobusiness and small business.
Reduction with retention of interest — In 2008, “Centr-invest” was among the ten most dynamic companies in SFD. According to the results of the first half of 2009, your assets declined by 18 percent — this immersion is, at least, deeper than average across the Southern District. According to the results of the nine months the reduction is less — 12 percent. What dynamics are you planning to have at the end of the year?
I have already mentioned that the reduction of business less than 30 percent —is a successful business. The experience of the 1998 crisis, when the only two banks that really worked in Rostov-on-Don were “Centr-invest” and another state-owned bank indicates that we need two years to recover. In 2009, we restored the pre-crisis results of the first half of 2008. Forecast for the end of the year: the capital — of about 5.5 billion rubles, assets — about 37 billion rubles (according to IFRS, for comparison, the results of 2008, the bank’s capital was 5.48 billion rubles, assets — 50.6 billion rubles. — “Expert Ug”). In this case, the bank’s share in the market of the south of Russia has not changed much. According to officials’ estimates the bank granted credits 15 times more than a couple of state-owned banks at the credit market, it means that the activity of “Centr-invest” in all types of activity is very high.
What is your level of past due debt? What are the limits you are planning to stay?
— Past due debt — is a result of meeting the regulator’s requirements of classification as “expiration” of detained amounts by the borrower the next day after maturity. Political statements at the beginning of the year about the attention and indulgence to borrowers created an illusion that we manage to write off the debts on the crisis. For that reason “expiration” increased dramatically in all banks in the first quarter. As a result of explanatory work with borrowers, the growth slowed down in the second quarter and in the summer stabilized. In the fourth quarter reduction of expiration began up to the level of five per cent of the loan portfolio, but the reserves are formed at more than six percent. “Centr-invest” almost did not give loans in currency; it carried out foreign currency hedging independently, and did not shift them on clients — individuals and small businesses. Therefore, our loan portfolio doesn’t have currency risk, and general work on past-due payment is carried out.
— What was the main method of dealing with risky borrowers — the restructuring or bankruptcy claims?
The main method was to help borrower to restructure the business in the new environment. This work was done both individually and within the information meetings and seminars. It was necessary to teach clients to abandon speculative growth and begin restructuring. When a client got post-crisis development plan it was possible to reconstruct crediting of, in fact, a new business.
— Evaluate the average level of expiration in the south of Russia. In your opinion, would there be more victims among regional banks? They turned out to be less than expected.
— Regional banks worthily passed through crises. Victims will be associated with the new requirements to the minimum level of capital, while expiration does not play a significant role for regional banks. Most worring are the largest borrowers, but it is rather the problem of the state level; I hope they will be successfully resolved.
— In 2008, you were actively developing a network of additional offices outside the Rostov region. In particular the bank implemented a program of development of resorts — coasts and the Caucasian Mineral Waters. Is the territorial expansion over in the short-term?
— Each office of the bank “Centr-invest” has been working as an independent bank: attract and allocate resources as efficiently as possible. If the level of efficiency is not enough in a region, there is no point in maintaining an inefficient business. The converse is also true, if there are conditions for effective business in a new area (the principle of efficiency: Team, Project, Money), the decision is made promptly. For example, during the crisis, we opened new offices in Yessentuki and Zheleznovodsk. In addition, new technologies allow to part with archaic notions of the bank as an office. During the year we set up about fifty cash machines, more than five hundred trade and service outlets have serviced by equipment of the bank “Centr-invest”. Prototype testing of mobile office has started. The bank is actively increasing its operating efficiency now — for example, through the introduction of new information technologies on the base of SAP for banking.
— Do you consider the possibility of entering into a regional bank? The crisis provides a lot of opportunities — do you investigate them?
— With all fertility of choice in the market of mergers and acquisitions there are no real alternatives to organic growth.
Last year the bank’s profit was more than half a billion rubles for the first nine months, this year over the same period — about 10 times less. What exactly was this index affected by and what do you associate with the prospect of increasing profitability?
Net profit is calculated after creation of provisions and taxation. This year the bank “Centr-invest” has increased reserves almost by billion. It is a very efficient and professional work. In addition, we have not incorporated a fictitious profit in the form of reassessment of currency assets, which creates the illusion of loan portfolio growth and profits as in other banks.
What is the dynamics of retail deposits on the background of the general market?
— The level of deposits in “Centr-invest” in October exceeded pre-crisis levels by more than two billion rubles. This is a general trend throughout the banking system in Russia and abroad.
— At first glance, the crisis has created the conditions to intensify your concentration on small business today. How did the proportion of enterprises, which belong to the small and medium size by law (income up to a billion rubles), and large enterprises in the loan portfolio changed during the crises?
— Business of the bank “Centr-Invest” is based on a model of sustainable development. This model assumes the stability of the shareholding structure, assets and liabilities, the loan portfolio on the borrowers structure, sectors and credit terms, liquidity and currency positions. In 2009, the share of corporate loans increased slightly, because there were no other possibilities of crediting of service producing industries except the bank “Centr-invest”.
It is written in the bank reports that this year the bank was planning a project of development of internal ratings for small businesses. Have you implemented this project? What is its efficiency?
— The project of development of a complete system of internal ratings for small businesses is a long term. At the present moment the concept and algorithm of the model is worked out in cooperation with the consulting firm DAI Europe with technical support of EBRD, preliminary set of initial parameters is chosen. In November, practical training was held within which employees of the bank with the support of DAI Europe worked out practical methods of assessment of the significance of the risk factors, creation and calibration of the model. The ultimate goal of the project is a semi-automatic mechanism of evaluation of the credit risk of small businesses. The elements of this mechanism are already in use. Statistics for the placement under regime of self-learning has accumulated.
Economy of the South should be modernized part by part — Now there is a lot of talk about the need for innovative development — including the economy of southern Russia. However, you usually turn the conversation about the innovations into the conversation about simple modernization. Why?
— Actually there are many conversations about innovation. Bank “Centr-Invest” deals with, as you said, “a simple modernization.” For example, it financed the modernization of 20 boiler-houses in Taganrog, reduced unit cost of heat by 30 per cent. We sincerely wish everyone who speaks about innovation the same results. Implementation of SAP for banking has been successful and clearer than the purchase of the assets of German automotive group corporations.
— So, according to your logic, there is no need to mention innovation till the approximate moment when the modernization will be carried out.
— Investment in innovation can be started only when there is a patent. But even in this case investors’ money can not be directed to the innovation. Bank that works with the public, is entitled to credit only proven technologies and projects. Those who are searching for adrenaline can invest their own money in researches and development; good bank is not entitled to such experiments.
— On our forum of the largest companies you stated that the government should understand that inefficient enterprises have to be closed. If you estimate the rating of 250 largest companies in the SFD, in your opinion, what proportion of them are companies that just need to be closed?
— Many large companies of south of Russia has already carried out structural adjustment in 1990s: changed management, ownership structure, technology, and marketing. But at least one-third of the work should be done in almost every company.
— Don’t you think that the next year or two modernization won’t become a serious trend because of the shortage of funding? How to stimulate this process in an environment of medium and large businesses?
— Your question shows that the book “Entrepreneurial general education” you didn’t read very attentively. There is a chapter dedicated to innovation in large enterprises, when the subsidiaries that are responsible for the innovations work effectively as small businesses. There is no such thing as lack of funding for good projects. There is sometimes bad financial engineering. Modernization in Russia is slow because not only journalists read good books inattentively.
— I read your book, but it is not perceived as a book that is written for medium and large businesses. “General education” can be offered to students, small businesses, but medium and large —can’t be. And the major problem of modernization is in the sphere of large-size regional business, which your project “Entrepreneurial general education” does not apply to. Maybe with this business you need to speak a different tongue?
— The technical level of many modern large enterprises today is that instead of them it is easier to build a new one. If we modernize by parts, the most effective will be modernization of individual processes by means of outsourcing.
— At first sight, it seems that the formula that works in your bank is quite simple: the introduction of international standards, ideologically considered positioning for an audience of foreign investors, attraction of cheap resources and highly profitable small business lending in the region. What in this case prevents the emergence in the South bank, which would make everything the same way as you?
— I am not sure about cloning — the best way of progress. Each bank must be interesting in its own way. In fact, let them try, and then lt will be clear for everyone that the formula is not so simple to implement in Russia.
— What is your forecast for the next year? What is your opinion about the configuration of the crisis — is the Russian economy in the middle of the L-shaped tail, or it has already been growing, but we still do not see it?
—Russian economy is like no other in the world needs to be restructured. From this point of view, the speed plays a secondary role. The dynamics of supply and demand is important. India’s economy increased by 6.1 percent for the year, and prices — by 11.6 percent. In China, the index of GDP (gross domestic product. — “Expert Ug”) was 7.7 percent, and the CPI (consumer price index. — “Expert Ug”) — 0.8 percent. Even in the USA, these indixes are — 2.3 and 1.3 percent, respectively. In Russia, these indexes remain at the level of — 8.9 percent and 10.3 percent. If you put those numbers on the diagram, it clearly shows that Russia still remains in the zone of stagnation. The situation in the South is a bit better, but major efforts on the use of the advantages of the district for the construction of the post-crisis economy is expected.
«Expert Ug» №48-50 (87-89)
21.12.2009