29 april 2010

Prime Minister Vladimir Putin meets with President of VTB Bank Andrei Kostin

The focus of the meeting was VTB Bank’s performance during the first quarter of 2010, specifically its loan portfolio and interest rates. Bank chairman Andrei Kostin told Prime Minister Vladimir Putin that the bank’s interest rates had been significantly reduced, now averaging slightly over 11%.

Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, Mr Kostin,

The first quarter is over. What are the results?

Andrei Kostin: Good afternoon, Mr Prime Minister,

The financial performance of the bank in the first quarter shows that it has overcome the difficulties faced by the banking sector last year. The bank managed to reverse the negative trend, curb the growth of bad debt and improve its financial indicators.

During the first quarter of last year (of the Russian fiscal year), the net revenues of the three leading Russian banks in the VTB Group, namely VTB, VTB24 and VTB North-West, exceeded 21 billion roubles, which is higher than before the recession.

I'd like to emphasise that the results of the bank's performance in 2009 allowed the Supervisory Board to make the decision to charge dividends in the amount of 25% of the bank's 2009 revenues. After this decision is approved at the annual meeting of shareholders, we'll transfer the 5.2 billion roubles in dividend payment to the federal budget.

As far as the problems we're still facing, I should mention that the banks' loan portfolios barely grew during the first quarter, including at VTB. But the recent trend has been positive.

Vladimir Putin: But you said they grew somewhat. How much? By what percentage?

Andrei Kostin: When we reported to the parliament, we said 10%. We believe we'll be able to ensure growth of between 10% to 15%, unless financial officials take steps to restrict liquidity in the banking sector.

Vladimir Putin: You mean steps to ...

Andrei Kostin: Steps to restrict liquidity, as a measure of fighting inflation.

Vladimir Putin: But no restrictions have been imposed so far?

Andrei Kostin: No.

Vladimir Putin: What are you going to do with the money you received from the government last year? We've recently discussed this issue in detail with Sberbank. You are paying 8% now, correct?

Andrei Kostin: Yes, 8%.

Vladimir Putin: How much money did you receive? Are interest payments crippling your business? What are you going to do with these funds?

Andrei Kostin: We received 200 billion roubles as a subordinated loan for 11 years. There are 10 years left now. This money was used to increase lending to industries last year. As you know, we actually built up the bank's portfolio during the recession. Of course, now that the refinancing rate has been reduced to 8%, the situation has changed somewhat, and the money has become more expensive. But we're still unable to return these funds in full, and would like to see the interest rate reduced by at least another 1.5%. We believe this would be an appropriate measure in this situation. Otherwise, we'll return the funds as we receive revenues from the market, which may take between 12 and 24 months.

Vladimir Putin: The financial authorities that you mentioned are considering this measure as one of the solutions to maintain macroeconomic stability and deal with inflation. That is if the government reclaims this money.

Andrei Kostin: We understand that this is a possibility, and we will be ready for it. But the risk is elsewhere. To repay this money on schedule, we'll need to borrow more from external markets to offset long-term resources. No restrictions should be imposed here at least, so that we could borrow on the free market...

Vladimir Putin: In this case this measure will have no macroeconomic effect, and so it would be better to reduce interest rates for you.

Andrei Kostin: I agree. In macroeconomics, economic growth and funding for investment programmes are as important as inflationary policies.

Vladimir Putin: Mr Kostin, you'd like the government to reduce interest rates for your subordinated loans, but what interest rates does your bank offer on loans to the clients?

Andrei Kostin: We've recently reduced our interest rates considerably, and the average is now a little over 11%.

Vladimir Putin: I've just returned from Astrakhan, where I met with the heads of local companies. They told me that interest rates for shipbuilding companies are still at 17%.

Andrei Kostin: Very rarely. We reduced interest rates overall. I can give you a list of loans that were issued in April. You'll see that local governments received loans at only 8.2%. These are the actual decisions; I can show you the protocol of the lending committee. See, on the first page: local governments - 8.2%, the space industry - 8.7%, there are also 10%, and 11.75% interest rates. Then, industrial enterprises, oil companies, 9.6%, 10.8%. These are the interest rates for loans in roubles.

Vladimir Putin: I see. Let me take a look at it, please. It's 7% for currency loans?

Andrei Kostin: Yes, interest rates for currency loans are 7%...

Vladimir Putin: And there's even 4%!

Andrei Kostin: Yes, there are 4% interest rates. Currency loans are in less demand today, and there's a clear connection with the fluctuations of the Central Bank's refinancing rate. More to the point, bankers are in a close race for potential borrowers. In this situation, I believe, we'll continue reducing interest rates.

Vladimir Putin: But what's this, 14%? Look, it's for Energomash.

Andrei Kostin: Well, much depends on...

Vladimir Putin: That's the highest interest rate.

Andrei Kostin: Yes, but they have the longest payment period, five years. It's the maximum possible payment period.

Vladimir Putin: But what about Sollers? The interest is 13.5%, and the payment period is two years. I see you haven't been doing much to support manufacturers.

Andrei Kostin: Well, it is what it is, with no sugar coating. I repeat, the overall trend is... See... This was a year ago... There are no 17%, 18%, or even 15% interest rate now...

Vladimir Putin: I see. That's good.