Progress and lessons learnt of Russian bank in financing residential energy efficiency

The capacity of commercial banks to provide loan financing for sustainable energy projects has a strong impact on scaling-up of energy efficiency projects implementation across the world.

Interview with Center-invest Bank, Russia, was conducted to discover the bank's experience with investing in sustainable energy projects.
Center-invest Bank, a participating bank of  RuSEFF-Residential Programme, disbursed more than 11 billion rouble for improvement of energy efficiency of the commercial enterprises, residential buildings and infrastructure. The implementation of these projects reduced CO2 emissions by 147,000 tonnes per year and preserved over 60,000 hectares of trees. How energy efficiency became a leitmotif for the bank was discussed with Sergey Smirnov, the Deputy CEO of Center-invest Bank.
- Sergey, could you briefly introduce yourself, what is your background, when did you join the bank?
- I joined the bank in December 2003; soon it will be 10 years since I’ve been working for Center-Invest Bank. We have such a tradition to give gold and silver badges. Golden are presented to those, who have worked for 15 years and silver – for 10 years. Thus, I will get my silver badge soon.  I came to the bank after graduating with distinction from Rostov State University, faculty of Mechanics and Mathematics. Then I completed the Course on Economics and got Ph.D. in Economics. I worked in the bank as an intern in the Foreign Exchange Control Division. Then I became a specialist, then a senior specialist, then a head of the department and only then, I came to a lending division, where I started to work on lending.
- When did Center-Invest Bank’ start financing energy efficiency?
- In 2005 International Finance Corporation (IFC) allocated a credit line in the amount of RUB160 million to the bank. The fund was for energy efficient modernization of businesses. At that time, the department for SME was in charge of granting the loans. The resources were allocated very quickly. In 2007, we received a credit line in the amount of RUB230 million from the European Bank for Reconstruction and Development (EBRD) for industries. In 2008, we’ve got a third partner, which is a German corporation for development, Kreditanstalt für Wiederaufbau (KfW), and agriculture was also included into the programme on energy efficiency. We were issuing loans for purchasing tractors and combine harvesters. In 2009, we’ve developed a new product – loans for energy efficiency for Homeowners Associations and managing companies. In 2011, the line was expanded – we’ve added individuals and provided loans for people who wanted to insulate roofs and walls and replace windows.
Another significant credit line was provided by EBRD in April 2013, (this programme is named RUSEFF-Residential, the loan amount is RUB750 million - editorial comment). This fund was also utilized for loans on energy saving for homeowners. We have to say that our bank has become the first Partner-Bank for the largest financial institutions, such as EBRD, IFC, Eurasian Development Bank (EDB), KfW, Development Bank of Austria (OeEB).
As of today, our portfolio of energy efficient loans has reached RUB6,8 billion, 60 per cent of which are the resources of the bank and only 40 per cent are funds borrowed from our foreign partners. Thus, our bank stakes on financing energy efficient projects – this year we plan to allocate two billion rubles for such projects.
- Which of the directions is developing more rapidly?
- Two weeks ago an informational agency Bloomberg published an extended material about our bank and they had a similar question. We’ve made calculations and here are results. As of today, 47 per cent of energy efficient projects are in the industrial sector, 32 per cent are in agriculture, 6 per cent are in the housing and public utilities' sector and 15 per cent of loans go to homeowners.  If we consider the dynamics, the programme on financing homeowners is developing very quickly. We are expecting that this year it will be 30-40 per cent of our general loan portfolio.
- Sergey, can you provide a bit more information about this product, for which purposes do homeowners use the loans on energy efficiency?
- First, we have launched the programme on financing multifamily buildings. It is not a secret that many residential buildings are in an awful condition. We were expecting that Homeowners Associations and Managing Companies will take loans for refurbishment and, thus, modernize their dwellings. Unfortunately, as you may know, serious changes were made in the Housing Code, therefore, it is unprofitable. We forecast that the market will recover and the number of borrowers will grow. Back then in 2011, we noticed that Homeowners Associations and Managing Companies do not wish to take loans for the refurbishment, because the “Fund for reforming of Housing and Utility Sector” was operating and money were available “free of charge”. Then we altered a programme a bit and offered loans to homeowners, primarily, to the owners of individual houses. The demand for such loans was big. Together with the increase of energy prices, people start thinking not only about their comfort, but also about reducing the expenses for heating and electricity.
Thus, for the first six months we have provided 1912 loans for RUB545 million. Two thousand loans are not easy to provide, therefore, we see that a serious demand is there.
- How do the borrowers use their loans?
- The majority of loans are used for the replacement of windows and balconies' glazing; this is 32 per cent. The second most popular investment is roof insulation – 17 per cent; in the third place is wall insulation – about 12 per cent, floor insulation is 9 per cent, home appliances of class A and higher and the replacement of heating systems (installation of new boilers etc.) is 8 per cent for each category. As you can see, our people prefer measures on saving heat consumption.
- Recently, I have read an interview of one federal official, where he paid compliments to your bank and its management for the development of energy efficient loans. Could you, please, tell if you have the support from the government?
- In our region there is a grant programme to reduce interest rates if a loan is used for the development of industrial or agricultural sector. Thus, part of our loans is within the scope of this programme.
As far as new regulations on capital repair are concerned, we participate together with our partners actively in round tables on this topic. We believe that we’ve been heard at some level. So, now Legislative Assembly for Rostov region introduces to State Duma a legislative initiative on changing the terms for the access to a capital repair saving system made at a special account. Now, lawmakers stipulated that only those banks, which have RUB20 billion can open special accounts for capital repair savings. Regional authorities supported our idea to use other indicator of ranking and stability instead of the size of authorized capital, which is used as an indicator now. If such changes were introduced, our bank will be included into this system, because all other financial indicators of our bank are perfect.
We also suggest and actively discuss with authorities the possibilities for creating a guarantee fund for providing loans for Homeowners Association. There is a mutual profit – the government gets non-budgetary financing, and we protect ourselves from loan defaults.
- What, in your opinion, we should do to promote financing of the residential sector in our country, primarily, of multifamily buildings?
- Only an active consumers’ education and creating guarantee funds could promote financing of this sector. We are cooperating with our partners on possible information distribution and education of the chairmen of Homeowners Associations on the details of new legislation. Thus, we had two seminars in Rostov and Krasnodar, with more than 200 participants. Now, the European Bank for Reconstruction and Development has developed a programme, in which we, upon their invitation, take part. As far as guarantee funds are concerned, this mechanism has been verified by Eastern Europe countries and is already successfully operating to support SME in Russia and it is likely to have positive results in Housing and Public Utilities sector.
- Sergey, you’ve been involved in financing of energy efficiency for years, what about your own flat, how energy efficient is it?
- In our house, the majority of our neighbours use additional electric heaters, because the building is big and the temperature does not exceed 20 °C. My family is getting cold at such a temperature, that is why we have replaced our old windows by triple glazing windows, have done glazing of the balcony and now we have 23-24°C in winter without any additional electric heaters. Thus, we do not spend extra money on electricity.

Interviewed by Mila Rotynskikh

23 Oct 2013