Project Financing in Banking Sector
Many companies organize financing in Russia: from large banks, such as Gazprom and VTB, to small finance and law agencies. Most often it is credit facility, and in a number of cases it is project financing.
The second variant is an interesting direction. In distinction to crediting, project financing does not include lodging a security in the bank. For example, in construction industry, due to high costs of construction projects, building companies do not have enough assets to provide the required security to banks. Thus, the bank invests in implementation of construction projects which serve as security for debentures. Such a program is similar to attraction of investments, as the meaning of investment is borrowing based not on security, but on a certain project. At the same time a certain term the investment loan is granted for is stipulated. Usually project financing is granted for the term of 2.5–3 years.
On the banking market the interest rate for loans within the framework of project financing varies from 12.5 to 16 %. The terms are more favourable than credit ones; however, prospective borrowers prepare offers thoroughly. An important role here belongs to the company’s reputation, its financial and business story.
Many large banks have specialized departments for project financing, which evaluate technical and economic support of projects and develop variants of their implementation. It is of interest that international practices use the principle when forecasts are based on pessimistic project development scenarios, thus reducing risks to the minimum. In Russia the given variant is not widely spread and, as a result, the stipulated terms are often not met and other obligations are broken.
The project financing potential is very high in Russia, while abroad it is an actively developing form of bank loans. The main source of funds for project financing is at present the banking sector; therefore, a very important indicator is dynamics of its development. According to statistics, assets of the banking sector increased during the first quarter by 3.4 %, which significantly exceeds the rates of the same period of the previous year. The main growth driver was expansion of the loan portfolio. At the same time, the main share in the structure of liabilities is those with the term of less than a year, while long-term liabilities over 3 years make up only about 3 %. Thus, quite few enterprises can count on the possibility of obtaining project bank financing.
Nevertheless, it is the banking sector that remains one of the country’s few growing economy sectors, despite the negative environment. Therefore, on the public level, through political and legal measures, it is necessary to develop and expand the given kind of loans in the banking sphere. This could promote creating stable cooperations of productions, there would arise a possibility of obtaining advanced foreign equipment and machines on leasing terms. However, high investment risks owing to instability of Russian economy force banks and other financial organizations to treat issues of project financing rather cautiously.