Exclusive: Russia needs to boost its debt, VTB CEO says, bank ready to co-finance budget

In this news, we discuss the Exclusive: Russia needs to boost its debt, VTB CEO says, bank ready to co-finance budget.

MOSCOW (Reuters) – Russia must increase public debt to support economic growth and VTB VTBR.MM, its second-largest bank, is ready to step up government bond purchases to help finance fiscal needs, said Chief Executive Andrey Kostin told Reuters in an interview.

Russia, trying to get out of the coronavirus crisis, has doubled its supply of ruble government bonds to 5 trillion rubles ($ 66 billion) this year. Foreign investors and state banks are the main buyers of bonds, known as OFZ.

To increase debt, Moscow temporarily raised Russia’s maximum spending cap, and Kostin said now is the time to actively start spending the National Wealth Fund, a $ 172 billion cushion for rainy days as well. .

“I am a supporter of increasing public debt, this is important for economic development,” Kostin told Reuters in remarks approved for release Wednesday. “VTB is ready to finance the budget, especially if there are refinancing tools.”

The state-controlled VTB, which has a market capitalization of nearly $ 6 billion, now owns 300 billion rubles of OFZ bonds and plans to double or even triple that amount, Kostin said.

He did not give a deadline, but the bank later clarified that it planned to increase its bond purchases by the end of this year.

Russia’s public debt is expected to fall to 18.5% of gross domestic product this year from 12.3% a year earlier, reducing an economic contraction to an overall decline of 4-5% in 2020 after falling 8% in the past. second trimester.

Since Russia’s public debt is much lower than that of most major economies, Moscow can afford to further increase its debt without taking into account the risks, Kostin said.

VTB, like its rivals, has seen an increase in non-performing loans and had to triple bad debt provisions by 180 billion rubles so far this year, Kostin said.

He said that in a worst-case scenario, NPLs could reach around 7% of his bank’s total loan portfolio compared to nearly 10% during the 2008-2009 global financial crisis – a “non-critical” development for VTB .

“We are past the lowest point in terms of economic contraction, and I can see from my clients that the situation is manageable,” Kostin said.

VTB, which cut the 2019 dividend to 10% of net profit from a 50% capital boost target, will at some point revert to the original target, Kostin said, and may also issue subordinated debt for increase capital if necessary.

Asked what has changed for Kostin, 64, after undergoing treatment for the coronavirus earlier this year, he said: ‘We have to think now that tackling pandemics and environmental issues are of great importance … They should be on the global international relations agenda, (and) be a priority with us. “

“Disease, environmental degradation is throwing us back… These are much bigger things than 5G,” he said, referring to the high-speed wireless technology being deployed.

Reporting by Tatiana Voronova and Katya Golubkova; Editing by Tomasz Janowski

Original © Thomson Reuters

Originally posted 2020-10-28 02:36:10.

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