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. Last Updated: 07/27/2016

32 Foreign Banks Lend VTB $240M

For MTCitibank Russia president Allan Hirst, left, and VTB chairman Andrei Kostin talking to reporters at Thursday's signing.
Thirty-two banks from 13 countries on Thursday provided a $240 million syndicated loan to Vneshtorgbank, or VTB, the largest single credit to a Russian bank since the economic meltdown in 1998.

"This loan confirms that foreign banks find Russia an attractive place to invest," VTB chairman Andrei Kostin said at the signing ceremony.

The loan to the former Soviet trade-finance monopoly, which is now Russia's second-largest bank by assets, was organized by Citibank and Deutsche Bank and was 140 percent overbooked; initially VTB was looking to raise just $100 million.

Bankers and analysts called the deal a landmark for the domestic banking industry and a clear sign that foreign banks' faith in the system has been restored.

"Foreigners' attitude to Russian banks has finally changed for the better," Citibank Russia president Allan Hirst said.

"We were surprised by the amount of interest in this loan," said J?rg Bongartz, Deutsche Bank's head of financial institutions for Central and Eastern Europe.

"We expected some oversubscription, but not so much. This shows the confidence that the banks have in the Russian economy and the banking sector in particular," he said.

VTB has $1.6 billion in capital and assets of $4.4 billion as of July 1. This, plus the fact that it is wholly state-owned and that the European Bank for Reconstruction and Development is expected to become a significant shareholder in the bank next year, helped VTB attract the lowest interest rate of all similar transactions since the crisis.

The credit is split into two parts -- $128 million and $112 million. The first part is a one-year loan at 2.5 percent above LIBOR, and the second is for 18 months at LIBOR plus 2.65 percent. The current LIBOR annual rate is 1.65 percent in dollar terms.

By contrast, recent syndicated loans to private Russian banks have been at LIBOR plus 3.5 percent or higher.

"The rates have gone down considerably during the last few years, but they still have not reached the pre-crisis level, said Andrei Ivanov, banking analyst at Troika Dialog. He said some banks got financing at LIBOR plus 2 percent before the crash.

Ivanov and other analysts, however, pointed out that companies can now attract more long-term money than banks. Sibneft, for example, recently received a $510 million syndicated loan, part of which is not due for five years.

The reason for this is that companies like Sibneft can secure their loans against export earnings, while banking loans tend to be unsecured and thus more risky, Bongartz said.

Kostin said the bank will use the unsecured loan to increase trading operations with its Russian customers. But analysts said the bank should pay more attention to the quality of its portfolio.

"The bank was never involved in lending operations in the traditional sense because it was mainly involved in servicing government trade contracts," Ivanov said. "So the real challenge for VTB now is not attracting more money, but paying more attention to credit risks."