February 26, 2016 / 8:22 AM / 4 years ago

Putin replaces head of VEB state development bank

MOSCOW (Reuters) - President Vladimir Putin has removed the head of ailing Russian state development bank Vnesheconombank and named a successor from top lender Sberbank, the Kremlin said on Friday.

Vladimir Dmitriev (R), Chairman of Vnesheconombank, and Maelia Dufour (L, front), COFACE company representative, sign documents, as Russia's President Dmitry Medvedev (C) and Foreign Trade Junior Minister Pierre Lellouche stand in the background, during a signing ceremony at the St. Petersburg International Economic Forum, June 17, 2011. REUTERS/Alexander Demianchuk

Sources had told Reuters last week that Putin had decided to fire VEB chief Vladimir Dmitriev and replace him with Sberbank Vice President Sergei Gorkov, after VEB’s bailout needs rose to $16 billion.

Dmitriev’s dismissal is the latest sign that loyalty to Putin is not enough to keep senior state officials in their posts during times of crisis.

A senior government official told Reuters last week that Dmitriev’s failure at VEB could no longer be tolerated now that cash was tight. Dmitriev did not respond to a request for comment.

The Russian economy is heading for its second year of recession on the back of weak oil prices and Western sanctions over the Ukraine crisis.

When oil prices were high, VEB lent huge sums to politically expedient but financially questionable initiatives such as infrastructure projects for the 2014 Winter Sochi Olympics.

But as its debts have piled up, state corporation VEB has given the Kremlin a big financial headache.

At one point at the end of last year the government was discussing giving it treasury bonds worth over 1.5 trillion rubles ($20 billion) as part of a support package.

Although support for VEB is now likely to be smaller and spread out over several years, it will still require a large injection of state cash.

Dmitriev’s dismissal follows the removal of Vladimir Yakunin, the head of the state railways company, and Evgeny Dod, the boss of state-owned RusHydro, Russia’s biggest hydropower producer, in the past year.

Reporting by Margarita Papchenkova and Lidia Kelly; Writing by Alexander Winning; Editing by Andrew Osborn

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