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Memorandum on financial policies
APPROVED
by Directive of the Government
of the Russian Federation
#1007-r dd. July 27, 2007
M E M O R A N D U M
on financial policies of state corporation
‘Bank for Development and Foreign Economic Affairs(Vnesheconombank)’
I. General Provisions
1. Memorandum on financial policies of state corporation ‘Bank for Development and Foreign Economic Affairs(Vnesheconombank)’ (hereinafter referred to as the ‘Memorandum’) sets forth the core business areas and indicators of investment and financial activities of state corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ (hereinafter referred to as ‘Vnesheconombank’), inclusive of quantitative and qualitative restrictions on Vnesheconombank’s investment and financial activities imposed to ensure its financial stability.
Besides, the Memorandum establishes the principal terms and conditions of, the procedures to apply to, and the tenors for extending credits and loans, issuing guarantees, acquiring interest in charter capital of business entities, arranging export credits insurance and imposes quantitative restrictions on raising funds.
2. The Memorandum provides the basis for development of Vnesheconombank’s investment and financial policies, as well as for the risk management policy.
3. Vnesheconombank shall carry out banking and other operations envisaged by Federal Law “On Bank for Development” subject to the restrictions placed by the Memorandum. Vnesheconombank shall effect banking operations when implementing investment projects that meet the requirements imposed by the Memorandum, as well as when managing temporary idle funds (liquidity) in compliance with the requirements set out by the Memorandum. The provisions of the Memorandum shall be binding upon the Board and the Chairman of Vnesheconombank.
4. Underlying Vnesheconombank’s activities are the following principles:
à) Absence of competition from commercial financial institutions. When engaging in investment activities, Vnesheconombank shall give preference to those investment projects, implementation of which does not entail any competition from commercial financial institutions. As a rule, Vnesheconombank participates in investment projects when commercial financial institutions are unable to offer more competitive terms of financing as compared with those offered by Vnesheconombank;
b) Transparency. Vnesheconombank shall carry out its investment and financial activities following the principles of information openness and transparency and using best practices of corporate governance;
c) Viability. Vnesheconombank shall participate in implementing investment projects provided these projects are viewed as commercially viable;
d) Public-Private Partnership (PPP). Vnesheconombank shall give priority to the projects to be carried out on the PPP basis;
e) Environmental responsibility. Vnesheconombank shall not participate in the investment projects that do not fully comply with environmental protection requirements and ecological efficiency standards.
5. Analysis of investment projects compliance with the principles envisaged by § 4 of the Memorandum shall be performed at the stage of expert evaluation of investment projects in comformity with the Memorandum. The results of applying the above principles shall be reflected in Vnesheconombank’s annual report.
II. Major Areas of Vnesheconombank’s Investment Activities
6. The major areas of Vnesheconombank’s investment activities are:
à) implementation of investment projects designed to remove infrastructure restrictions impeding economic growth, including development of energy and transportation infrastructure, housing and public utilities infrastructure, as well as tourism;
b) implementation of investment projects aimed at fostering innovations;
c) participation in projects designed to enhance the efficiency of natural resources utilization, protect environment, improve ecological situation and participation in implementing projects aimed at boosting energy efficiency;
d) participation in projects aimed at the development of small- and medium-sized enterprises by way of extending loans to credit institutions and legal entities, which provide support to small- and medium-sized businesses;
e) support for exports of agricultural and industrial production and services with a view, inter alia, to diversify national exports.
7. In 2007–2010, the priority areas of Vnesheconombank’s investment activities by sectors of economy shall be:
à) aircraft industry and space and missile complex;
b) shipbuilding;
c) electronics;
d) nuclear industry, inclusive of nuclear power;
e) transport, special-purpose and power engineering industry;
f) metallurgy (special steel production);
g) wood-working industry;
h) military-industrial complex;
i) agroindustrial complex;
f) strategic computer technologies and software;
g) information communication systems;
h) medical equipment and pharmaceutics.
8. Vnesheconombank shall participate in implementation of investment projects following the established procedures and complying with the terms and conditions defined by the Memorandum and Vnesheconombank’s internal documents, by way of:
à) extending credits and loans, effecting leasing operations and arranging financing on recovery basis in other forms envisaged by Federal Law “On Bank for Development” (hereinafter referred to as “financing on recovery basis”);
b) issuing guarantees and sureties;
c) acquiring interest in charter capital of business entities;
d) arranging export credits insurance against commercial and political risks following the procedure established by the Government of the Russian Federation;
e) ensuring guarantee support for exports.
9. Vnesheconombank shall participate in implementing investment projects of national dimension carried out on the PPP basis, including projects to be financed out of the RF Investment Fund’s money, as well as investment projects related to construction of infrastructure facilities and other facilities designed to ensure functioning of special economic zones. Vnesheconombank shall participate in investment projects to be implemented within the framework of federal target programs provided that these projects are in conformity with the requirements established by the Memorandum. In exceptional cases, Vnesheconombank may participate in implementation of other investment projects following the established procedures and on terms and conditions defined by Vnesheconombank’s Supervisory Board.
10. When engaging in investment activities, Vnesheconombank shall ensure the minimum capital adequacy ratio of not less than 10 percent. The capital adequacy ratio is calculated as a ratio of Vnesheconombank’s equity (capital) to its risk weighted assets. The procedures to apply to calculation of the Bank’s equity (capital), the volume of risk weighted assets, as well as the capital adequacy ratio shall be worked out on the basis of the regulatory documents of the Bank of Russia and approved by the Supervisory Board of Vnesheconombank on submission by Vnesheconombank’s Board.
III. Terms and Conditions of, Procedures to Apply to, Tenors of, Restrictions and Limits on Extending Banking Credits and Loans, Issuing Guarantees and Sureties and Arranging Financing on Recovery Basis
11. Vnesheconombank shall extend credits and loans, issue guarantees and sureties, as well as arrange financing on recovery basis with a view to implement investment projects complying with major areas of Vnesheconombank’s investment activities defined by the Memorandum, as well as meeting the following criteria:
à) payback period – over 5 years;
b) total project costs – above RUR 2 billion.
12. The minimum volume of the aforementioned credits and loans, guarantees and sureties, as well as of financing on recovery basis with the aim to implement an investment project shall make RUR 1 billion or its equivalent in foreign currency.
13. The terms and conditions of and procedures to apply to extending credits and loans, issuing guarantees and sureties, as well as arranging financing on recovery basis, inclusive of loan security requirements and requirements for borrowers, shall be established by the directive on credit policy of Vnesheconombank to be submitted by Vnesheconombank’s Board and approved by Vnesheconombank’s Supervisory Board.
14. Prior to making decisions on extending credits and loans, issuing guarantees and sureties, as well as arranging financing on recovery basis, Vnesheconombank shall carry out expert evaluation of investment projects in compliance with the procedures envisaged by § 41 of the Memorandum.
15. Primarily, Vnesheconombank shall arrange medium- and long-term (exceeding 3 years) financing of investment projects.
16. The percentage of medium- and long-term credits and loans in the total loan portfolio shall not be less than 80 percent of the total volume of credits and loans extended by Vnesheconombank.
17. To mitigate credit risks, Vnesheconombank shall impose the following limits:
à) limit of exposure for a single borrower or a group of ‘tied’ borrowers shall not exceed 25 percent of Vnesheconombank’s equity (capital);
b) aggregate volume of large exposures shall not exceed 800 percent of Vnesheconombank’s equity (capital).
18. The Supervisory Board of Vnesheconombank shall be entitled to set additional limits, including those related to the structure of Vnesheconombank’s loan portfolio.
19. The methodology and procedures to apply to calculation of the indicators and limits set out in § 17 of the Memorandum shall be established with regard to the risk assessment principles defined in the regulatory documents of the Bank of Russia and shall be approved by Vnesheconombank’s Supervisory Board.
IV. Terms and Conditions of, and Procedures to Apply to Acquiring Interest in Charter Capital and/or Bonds of Business Entities; Restrictions and Limits on Acquiring Interest in Charter Capital and/or Bonds of Business Entities
20. Vnesheconombank shall take decisions on acquiring interest in charter capital and/or bonds of business entities provided that a business entity implements investment projects complying with the major areas of Vnesheconombank’s investment activities established by the Memorandum, as well as meeting the following criteria:
à) payback period – over 5 years;
b) volume of financing required to implement the project – above RUR 2 billion.
21. The minimum volume of funds to be appropriated for acquiring interest in charter capital and/or bonds of a business entity shall make RUR 1 billion or its equivalent in foreign currency.
22. Prior to taking decisions on acquiring interest in charter capital and/or bonds of a business entity Vnesheconombank shall carry out expert evaluation of investment projects in compliance with the procedure envisaged by § 41 of the Memorandum.
23. Vnesheconombank may acquire interest in charter capital of financial institutions (credit institutions, professional securities market participants, insurance companies) in compliance with Federal Law “On Bank for Development” and in line with the decision of Vnesheconombank’s Supervisory Board.
24. The restrictions provided for by §§ 20–23 of the Memorandum shall not cover operations with securities of business entities when managing temporary idle funds (liquidity) and risks in conformity with the requirements set out in the Memorandum.
V. Terms and Conditions of, and Procedures to Apply to Providing Guarantee Support for Exports and Arranging Export Credits Insurance against Commercial and Political Risks; Restrictions and Limits on Guarantee Support and Insurance
25. Vnesheconombank shall provide financial and guarantee support for exports of industrial production, as well as arrange insurance of export credits or credit facilities in compliance with the Bank’s tasks and functions.
26. The procedure to apply to arranging by Vnesheconombank of export credits insurance against commercial and political risks shall be approved by the Government of the Russian Federation.
27. The maximum percentage of Vnesheconombank’s commitments related to providing guarantee support for exports and/or arranging insurance for a single borrower or a group of ‘tied’ borrowers shall not exceed 25 percent of Vnesheconombank’s equity (capital).
VI. Terms and Conditions of, Procedures to Apply to, and Restrictions on Providing Financial Support to Credit Institutions and Legal Entities with a View to Develop Small- and Medium-Sized Enterprises
28. Vnesheconombank shall issue guarantees and sureties and extend credits to credit institutions and legal entities, which provide support to small- and medium-sized enterprises, in compliance with the procedures approved by Vnesheconombank’s Supervisory Board.
29. The tenor of loans to be extended to small- and mediumsized enterprises shall exceed 2 years. The loan amount shall not exceed RUR 150 million.
30. Annually, starting from 2007, the aggregate sum of guarantees, sureties and credits to be extended to credit institutions and legal entities, which provide support to small- and medium-sized enterprises, shall be defined by Vnesheconombank’s Supervisory Board for the next year.
31. The sum of guarantees, sureties and credits to be extended by Vnesheconombank to support small- and medium-sized enterprises shall be taken into account when calculating the indicators and limits set forth in §§ 17 and 18 of the present Memorandum.
VII. Major Areas of Vnesheconombank’s Financial Activities
32. The major areas of Vnesheconombank’s financial activities are:
à) resource base enhancement;
b) temporary idle funds (liquidity) management;
c) risk management.
33. In order to enhance resource base and manage temporary idle funds (liquidity) and risks Vnesheconombank shall be entitled to:
à) raise financial resources on the domestic and foreign markets, inclusive of the interbank loan market;
b) place temporary idle funds on the domestic and foreign markets, inclusive of the interbank loan market;
c) participate in transactions that contemplate payment by the parties thereto of sums depending on fluctuation in the price of goods and securities, exchange rate of a specific currency, interest rate and inflation level;
d) buy and sell foreign currency.
34. Vnesheconombank shall be entitled to raise financial resources by way of issuance and placement of bonds and other securities on the domestic and foreign markets in compliance with the Russian legislation regarding the securities market, as well as with the applicable foreign laws. The decision on bond issuance and on the procedure to apply to securities issuance by Vnesheconombank shall be taken by Vnesheconombank’s Supervisory Board.
35. To prevent conflict of interest, Vnesheconombank shall not acquire any corporate bonds or other securities issued by it when exercising the functions of a state trust management company for trust management of pension savings funds in compliance with Article 21, § 2 of Federal Law “On Bank for Development”, as well as the functions of an agent of the Pension Fund of the Russian Federation.
36. To manage temporary idle funds (liquidity), Vnesheconombank shall be entitled to effect transactions on the securities market in conformity with the legislation of the Russian Federation.
37. The Supervisory Board of Vnesheconombank shall be entitled to set out requirements with regard to the volume and structure of the securities and other financial instruments portfolio that is to be made up to manage temporary idle funds (liquidity), as well as to the volume and types of transactions to be effected by Vnesheconombank in compliance with § 33 of the Memorandum.
38. Annually, starting from 2007, the Supervisory Board of Vnesheconombank shall set limits on the funds to be appropriated for management of Vnesheconombank’s temporary idle funds (liquidity).
39. Vnesheconombank shall form funds out of the profit generated and on the basis of the directive on Vnesheconombank’s funds approved by Vnesheconombank’s Supervisory Board. Charity- and sponsorship-related projects shall be financed out of Vnesheconombank’s profit. Vnesheconombank’s Supervisory Board shall approve the program of Vnesheconombank’s charitable activities and sponsorship for the next year.
VIII. Expert Evaluation of Investment Projects
40. To participate in implementing investment projects and projects related to the export contracts of Russian exporters, Vnesheconombank shall carry out expert evaluation thereof.
41. On the basis of the expert evaluation of investment projects or projects related to export contracts of Russian exporters carried out by Vnesheconombank, a conclusion shall be drawn comprising analysis of qualitative and quantitative parameters, project efficiency and its compliance with the requirements established by the Memorandum. The procedures for carrying out the above expert evaluation shall be defined by the Board of Vnesheconombank.
IX. Terms and Conditions of, and Procedures to Apply to Provision by Vnesheconombank of Advisory Services in its Capacity as an Investment Advisor on Implementation of Investment Projects
42. On a commission basis, in its capacity of an investment advisor, Vnesheconombank shall provide advisory services on implementation of investment projects that comply with the major areas of Vnesheconombank’s investment activities and meet the requirements established by the Memorandum, including the structuring of investment project financing.
43. The amount of the commission fee and other terms and conditions for provision by Vnesheconombank of advisory services, in its capacity as an investment advisor, on implementation of investment projects shall be approved by the Board of Vnesheconombank.
X. Major Principles of Risk Management Policy
44. Vnesheconombank shall make loan loss provisions with respect to loan and similar indebtedness on the basis of regulations and requirements approved by Vnesheconombank’s Supervisory Board, which shall be established in compliance with the requirements set forth by the regulatory documents of the Bank of Russia, as well as generally accepted international principles and approaches.
45. Vnesheconombank shall create a reserve fund. The minimum percentage of annual allocations to the reserve fund shall be 20 percent of Vnesheconombank’s profit.
XI. Financial Statements and Information Disclosure
46. Vnesheconombank shall submit to the Government of the Russian Federation annual reports, annual consolidated financial statements compiled in conformity with the International Financial Reporting Standards (IFRS), and auditors’ reports within 10 business days of receipt of the auditors’ report.
47. Additionally, on a quarterly basis, Vnesheconombank shall submit to Vnesheconombank’s Supervisory Board information on:
à) investment projects meeting the requirements set forth by the Memorandum, with regard to which Vnesheconombank has carried out expert evaluation and passed a decision to arrange financing, inclusive of information on the extent and forms of participation in project implementation;
b) investment projects meeting the requirements set forth by the Memorandum with regard to which Vnesheconombank has carried out expert evaluation and passed a decision to reject the request to arrange financing, inclusive of information on the reasons for rejection;
c) investment projects with a volume of financing exceeding 1 percent of Vnesheconombank’s equity (capital);
d) the volume and structure of the securities portfolio made up with a view of managing temporary idle funds (liquidity) and risks.
48. Vnesheconombank shall disclose brief information regarding its activities on its Internet website (excluding information restricted or prohibited in conformity with the legislation of the Russian Federation). The list and contents of this information, as well as the procedures applicable thereto and the timeframes for its disclosure shall be approved by Vnesheconombank’s Supervisory Board.
49. Vnesheconombank’s Board, the internal audit department and the auditors shall control compliance with the provisions of the Memorandum. Vnesheconombank’s internal audit department shall submit quarterly reports for consideration by Vnesheconombank’s Supervisory Board.
Moscow,
August 2, 2007
#2065
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