U.S. RUSSIA FUND ADJUSTS TO THE BANKING CRISIS

 

By Lisa C. Torch

 

The U.S. Russia Investment Fund, a U.S. Government-supported investment firm that makes equity capital, loans, and technical assistance available to private businesses operating in Russia, has retailored its strategy in the wake of the August 1998 Russian banking crisis. The fund is in the process of reevaluating its Russian banking partners, adjusting its lending approach, and providing guidance to Russian businesses on how to weather the crisis and emerge more fiscally responsible.

 

Immediately following the devaluation of the ruble last August, the fund temporarily halted all of its lending and investment programs, including the Bank Partner Program, which works in conjunction with a consortium of Russian banks to provide small business, microcredit, auto, and mortgage loans in various Russian regions.

 

Adjusting Programs

The fund’s programs were reactivated in late October 1998. Over the past nine months, however, Fund management has closely monitored the financial condition of the banks participating in the Bank Partner Program. Part of this process was to assign banks to risk categories. Based upon these rankings, loan portfolios were moved out of troubled banks and were placed with more stable banks. Recently, the fund has pursued a strategy to attract new bank partners. Three new banks joined the program as of March 1999—Bank of Moscow, NBD Bank in Nizhny Novgorod, and the St. Petersburg Bank for Reconstruction and Development. Negotiations are under way with several additional banks that have proven stable following the crisis and that have long-term growth potential. These banks include three in the Russian Far East, two in Moscow, four in St. Petersburg, and one in Yekaterinburg.

 

After an initial pilot program, the fund is launching a mortgage-lending program with partner banks in Moscow, St. Petersburg, and Yuzhno-Sakhalinsk. FannieMae, the largest originator of mortgage loans in the United States, is working closely with the fund to develop a mortgage subsidiary in Russia.

 

In addition, the fund’s Direct Investment Program plans to capitalize on the need for revitalizing Russia’s financial sector following the crisis. The fund will deploy capital in the banking, leasing, and mortgage industries where there are promising opportunities to infuse Western knowledge and expertise. The fund will also continue to selectively make direct equity investments in core industries where it can add the most value and minimize risk, such as consumer products, packaging, food and beverage, communications, broadcasting, and pharmaceuticals.

 

Crisis Support

As part of the fund’s response to the Russian economic crisis, it has launched a “Survival and Recovery Guide for Small Business” on the Internet (www.tusrif.ru). The guide benefits Russian companies that lack the capital and turnaround management skills to effectively maneuver through a fiscal crisis. The guide offers advice and financial models covering cash management, cost reduction, financial management, debt restructuring, payroll, tax and legal issues, and third-party relationships.

 

The fund also plans to co-host a corporate governance symposium geared toward both Russian and U.S. businesses in autumn 1999 in Moscow. The conference will cover such subjects as U.S. GAAP (generally accepted accounting principles), the roles of boards of directors, tax policy and reforms, and management issues.

 

For further information on the fund, visit its website at www.tusrif.ru or call (212) 818-0444.

 

Lisa C. Torch is Director of Communications for the U.S. Russia Investment Fund in New York, New York.