BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/52
Loans extended by VEB (specifically, handing out money at the behest of the Russian cabinet) are the main cause of its need for support. VEB, for example, granted loans to finance construction projects for the Sochi Winter Olympics. The lending increased VEB’s loan stock by about 25 % in ruble terms in 2013 and doubled it in 2014. There has been practically no growth since then in lending. With the deterioration of its loan portfolio, VEB has made large loan-loss reserves, especially last year and further this year, pushing its financial result well into the red. Last year, the VEB Group’s Russian banks posted losses of about €5 billion. Losses in the first half of this year amounted to nearly €1.5 billion. The losses of the VEB Group have been made slightly worse by the weakened conditions of VEB’s Ukrainian subsidiary.
The need for the support also highlights VEB’s debt situation. VEB is subject to US and EU financial sanctions, which in practice has denied VEB of potential refinancing from international lenders. At the end of June, estimates put VEB’s total debt taken from markets at €15–20 billion, of which nearly €9 billion was in eurobonds. A large part of this debt is fairly long-term, but the finance and economy ministries note that in 2016 VEB needs €2.5–3 billion on its debt service. VEB should get some reprieve as China’s development bank this month committed to a five-year loan of 10 billion yuan (€1.4 billion).
Although VEB engages in some commercial banking, it is not registered as a bank and not subject to central bank supervision. The total assets of VEB Group banks located in Russia amount to about €45 billion, which would make VEB Russia’s fourth largest bank with holdings that correspond to about 4 % of the banking sector’s total assets.