— Over the past year and a half, medium and small businesses have been actively restructuring logistics and adapting to working under sanctions by creating connections with new suppliers. What is the role of bank guarantees in this process in domestic and foreign markets?
— My clients and I have survived the pandemic and face a new challenge in 2022, restrictions imposed by unfriendly countries. Many foreign suppliers have stopped their activities on Russian territory. Our task was to do everything possible to provide banking services to businesses in order to support them in the process of adapting to new economic conditions.
Bank guarantees have been and continue to be one of the effective tools to maintain a healthy business environment. They protect the business from risks, help recover from turbulence, rebuild processes and save jobs.
Guarantees ensure commercial obligations in the process of government procurement, under commercial contracts, payments of rent, taxes and customs, payment of excise duties and securing court judgments. Guarantees are an independent obligation of the bank to fulfill the client’s obligations and minimize the risks of the counterparty. Thanks to a bank guarantee, for example, the buyer can receive a deferred payment without the need to take out a loan or withdraw money from circulation, and the supplier can receive a guaranteed payment if he fulfills the terms of the contract.
Bank guarantees replace more expensive and complex structured methods of securing liabilities under transactions, saving businesses money for further development and allowing them to optimize pricing. Since the guarantees are not affected by key rate changes, the bank is able to keep rates at an acceptable level for customers; For example, the commission for issuing a remote express guarantee starts from 2% per year.
I would add that bank guarantees largely ensure the reliability of the public procurement system, including the timely implementation of contracts and agreements, despite changing market conditions and disruption of supply chains, increasing the cost of many goods, works and services.
— In which areas do they most frequently resort to banking services to solve problems of minimizing business risks?
Bank guarantees are in demand in all areas of business. According to our statistics, they are most actively used by infrastructure and transport enterprises, trade, mechanical engineering, construction and development, as well as the agricultural sector.
Entrepreneurs are increasingly using letters of credit for internal payments. Traditionally, this settlement tool has been widely used in real estate transactions and purchases of stocks and shares. We now see that the demand for letters of credit in international transactions is increasing. This applies primarily to the markets of China, India, Vietnam and the CIS countries. Letters of credit are in demand among importing companies, especially when entering new markets or working with new suppliers, as they allow them to protect the interests of all parties to the transaction.
How important it is to minimize risks for small and medium-sized businesses today is clearly demonstrated by the fact that VTB’s documentary portfolio (letters of credit and guarantees) in 2023 will increase by 38% compared to last year.
Electronic express warranties that can be issued remotely are especially popular with small businesses. Their exports doubled compared to the same period last year. When applying for a remote guarantee through a client bank (VTB Business), a minimum package of documents is required; Starting from this year, the warranty can only be given with a passport. At the same time the client can count on an individual approach.
The market for electronic bank guarantees is actively developing and we respond quickly to business needs. If earlier guarantees could only be obtained for small amounts and for relatively short periods, now the guarantee limit under laws 44-FZ and 223-FZ is already 75 million rubles for a period of up to 62 months. And the open guarantee limit without submitting financial statements for the same period is up to 10 million rubles.
— A lot has been done in Russia to ensure that medium and small businesses have priority access to state procurement. What changes have occurred recently at the legislative level in this area? What other improvements can the business expect?
— Both the government and banks are actively assisting businesses in import substitution of goods and services leaving the Russian market. The availability of bank guarantees for small and medium-sized enterprises is an important component of improving public procurement. The demand for them is constantly growing – this year we exported 1.5 times more for participation in government procurement compared to the same period last year.
Thanks to the joint work of federal executive authorities, banking, legal and business circles, positive changes in procurement legislation have occurred. We have received approval of standard forms of independent guarantees for government procurement under 44-FZ and 223-FZ for small and medium-sized enterprises. This accelerated the provision of guarantees. Minimum quotas for SMEs, which should be given priority in procurement, have been increased.
Work continues to improve the state purchasing mechanism to support business. VTB takes an active part in this process as a member of the Association of Russian Banks. On our initiative, a working group on independent guarantees and documentary letters of credit was established. It prepares proposals on changes in legislation in this area and sends them to the Ministry of Finance of Russia, the Federal Treasury, the Central Bank of the Russian Federation and the Federal Tax Service. We hold regular meetings with representatives of the administrative authorities and I must say that they hear us and meet us halfway. In addition, VTB works in this direction as a member of the banking commission of the Russian National Committee of the International Chamber of Commerce.
For example, the need to extend the previously implemented anti-crisis measures until 2024 in order to maintain and increase the volume of state procurement with the participation of small and medium-sized businesses is now actively discussed.
The banking community is moving towards digitalization and maximum reduction in paper usage. In order to transition to full-fledged electronic document management in the purchasing sector, mechanisms for the implementation of the laws must be determined in the legislation and end-to-end automation of the processes must be ensured. For the issuance of electronic guarantees, banking systems need to be integrated with a unified information system in the field of public procurement (UIS).
At the same time, standard forms of warranty alone are not sufficient; The formats of bank guarantees need to be introduced in the form of structured electronic documents. It will then be possible to transfer standard information regarding the warranty provided to the UIS. In this way, it will be possible to automatically reduce the warranty amount due to the supplier fulfilling its obligations under the contract using smart contracts and electronic documents confirming acceptance.
The integration of the independent guarantees register with the electronic contracts register in the Unified Information System will allow us to proceed to a seamless purchasing process with subsequent execution and acceptance of the contract. This is important because it will help increase control in public procurement.
— What other tasks, besides participation in government procurement, are solved by entrepreneurs most often with the help of bank guarantees?
— Within the scope of commercial contracts, a refund guarantee for advance payments is requested. They ensure the return of advance funds in case contractors violate their obligations.
At VTB you can get a remote commercial express warranty in an amount of up to 30 million rubles in a few hours for a period of up to 38 months with a minimum package of documents.
You can guarantee a larger amount for a longer period of time. To do this, you need to submit an application through your personal account in VTB Business. After receiving a positive decision, you can go to the bank branch to get collateral.
Tax guarantees will help improve relations with the Federal Tax Service and allow you to refund VAT on an application basis, without waiting for the completion of the desk tax audit. Guarantees are used everywhere in the payment of excise taxes on tobacco and alcohol products. You can also apply for tax guarantee remotely for the amount and period you want.
It is selected individually, taking into account the conditions, needs and capabilities of each client.
Meanwhile, on April 1, 2024, an amendment to the Tax Code of the Russian Federation will come into force, which will simplify the process of securing tax and consumption obligations using a bank guarantee. Now the taxpayer must independently submit the guarantee received from the bank to the tax office. According to the new procedure, the guarantor bank will do this on his behalf and send the document directly to the tax office electronically. We’ve been pushing for this change for several years and the problem has finally been resolved.
Customs guarantees will help secure membership in private registries and will be a popular tool between exporters and importers to secure cross-border transactions.
We also actively support the government’s economic development programs. For example, we have established cooperation with industrial development funds throughout Russia. We participate in integrated development programs for regions and provide support to participants in public-private partnerships.
We are ready to consider any warranty claims; just apply online through VTB Business or at a bank branch.
How has the process of obtaining collateral changed fundamentally with digitalization? What does it take now to complete?
We are trying to instill a culture of issuing bank guarantees electronically by showing customers that this is easy, fast and convenient. The use of digital technologies in the banking sector has changed the “face” of the bank. Paper contracts and guarantees are a thing of the past.
Thanks to the use of the pre-scoring model, we can set pre-approved coverage limits for our customers within the framework of 44-FZ, 275-FZ, 223-FZ and 615-PP. The limit amount is up to 10 million rubles per client, the offer is valid for 90 days.
An express guarantee from VTB can be obtained remotely and without opening a current account through the online service “Potential Customer Account”.
We continue to improve VTB’s warranty line to make the transaction process as simple, efficient and comfortable as possible. For the convenience of customers, for example, when applying for a warranty, the information they provide is automatically supplemented with data from open sources. When evaluating an application, we use technology for automatic recognition of the customer’s financial statements, automatic scoring and a convenient service of communicating between the customer and the bank directly from the guarantee application.
Just the other day, we opened a special account so that agents and partners can interact directly with the bank. They can now submit warranty applications for their customers directly to VTB and receive a decision within minutes. Essentially, we are becoming a marketplace for financial products for business.