By Tatiana Voronova and Katya Golubkova
MOSCOW, Oct. 28 – Russia needs to increase its national debt to support economic growth and VTB, its second largest bank, stands ready to boost government bond purchases to fund budget needs, chief executive Andrey Kostin said in an interview with Reuters .
Russia, trying to find its way out of the coronavirus crisis, doubled its range of government ruble bonds to 5 trillion rubles ($ 66 billion) this year. Foreign investors and state banks are the main buyers of the OFZ bonds.
To add to its debt, Moscow temporarily raised Russia’s maximum spending cap, and Kostin said it was time to actively spend the National Wealth Fund, a $ 172 billion rainy day pillow.
“I am an advocate of an increase in national debt, this is important for economic development,” Kostin told Reuters in a statement released for publication on Wednesday. “VTB is ready to finance the budget, especially if there are refinancing instruments.”
State-controlled VTB, with a market capitalization of nearly $ 6 billion, now holds 300 billion rubles of OFZ bonds and plans to double or even triple that amount, Kostin said.
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He did not provide the timeframe, but the bank later made it clear that it intended to increase its bond purchases by the end of this year.
Russia’s national debt is expected to rise from 12.3% last year to 18.5% of gross domestic product this year, mitigating an economic decline to a 4 to 5% decline in 2020 after a slump of 8% in the second quarter.
Given that Russia’s national debt is much lower than most major economies, Moscow can try to increase its debt further without taking any risks, Kostin said.
VTB, like its competitors, has seen a surge in non-performing loans and has had to triple its provisions for non-performing loans by 180 billion rubles so far this year, Kostin said.
He said that in the worst case scenario, non-performing loans could represent 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 have passed the lowest point in terms of economic contraction and I can see from my clients that the situation is manageable,” said Kostin.
VTB, which cut its dividend for 2019 from a target of 50% to increase its capital to 10% of net income, will at some point return to its original target, Kostin said, and can also issue subordinated debt to increase capital if necessary .
When asked what has changed for Kostin, 64, after undergoing coronavirus treatment earlier this year, he said, “We must now think that fighting pandemics and environmental issues are of great importance … you should move on globally in international relations, (and) be a priority at home. ”
“Disease and environmental degradation are putting us back … these are much more important things than 5G,” he said, referring to the high-speed wireless technology that is being rolled out. ($ 1 = 76.2604 rubles) (Reporting by Tatiana Voronova and Katya Golubkova editing by Tomasz Janowski).
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