Vladimir Putin's opening remarks:

We will proceed as follows today: I will say a few words and then we will listen to your colleagues.

First of all, I would like to welcome you and congratulate you on your recent anniversary in October. The bank turned 20. During this time you have built a strong, highly qualified and well-trained team. I was reminded of this today as we walked around the new office: young, nice and highly qualified people. I want to congratulate Mr Kostin (head of VTB Bank) on his choice of staff.

The team here is made up of true professionals: both top managers and experts. This human capital allows VTB to expand, to strengthen its competitiveness in all market areas, to win clients' trust and to expand its network in Russia and abroad. Currently, the bank operates in 19 countries and employs over 40,000 people. It is a large, important and truly international institution.

Today the bank opens a new office furnished with state-of-the-art equipment. This represents yet another step in the development of its business and the introduction of banking services that are in high demand and will benefit the entire Russian economy, domestic companies and investors. I agree with what has been said today: such institutions form our Russian financial centre, a world financial centre in Russia.

VTB assets are steadily growing. To date they exceed 3.7 trillion roubles and account for over 11% (11.4%) of the assets of the entire Russian baking system. And this year profits may surpass the bank's all-time record: about 50 billion. Is this correct (turning to Mr Kostin)?

Andrei Kostin: They will be a bit higher.

Vladimir Putin: Even higher.

Andrei Kostin: Over 50.

Vladimir Putin: They are already at about 40, right?

Andrei Kostin: They have reached 38.5 billion over nine months. After your visit we will surpass 50.

Vladimir Putin: Good! We will see the results.

It should be noted that this year growth indicators have been good throughout the entire Russian banking sector. In the first 10 months of this year, the loan portfolio has increased by 9.2% and, more importantly, loans are becoming easier to obtain. New loans provided to the real sector of the economy this year exceeded 1.1 trillion roubles. The average interest rate on long-term loans is also going down. It is currently 11.4%, while it was 14% for three last year quarters. Nevertheless, things are far from perfect. We all understand what is happening in Western economies, in the USA and in Europe. Clearly, such rates are not possible in Russia due to the specific features of our economy. That is not what we need. However, interest rates on loans for the real economy should not constrain economic growth. We all understand this and, hopefully, we will gradually reduce loan rates jointly with the Central Bank.

VTB is a reliable partner of the Russian government. During the global financial crisis VTB, like other systemically important Russian banks, played a significant role in the implementation of national anti-crisis measures and now is promoting the post-crisis recovery and modernisation of the economy, primarily by actively financing development projects and innovative ideas, and issuing loans to key industrial enterprises, the high-tech sphere and major construction and infrastructural projects. I will not name all of them, but one of the projects that we have repeatedly discussed with the bank is Pulkovo Airport. This is just one example.

VTB, like other banks with state participation, has a special mission. The bank helps accumulate resources for national goals, assumes the risk and arranges financing for projects that private lenders have difficulty financing on their own.

Another important area of the bank's activities is the promotion of small and medium business. The total loan portfolio for small and medium business currently stands at about 200 billion roubles.

The Russian economy is making good progress. Of course, we need to maintain this trend and work toward long-term goals of modernising our industrial retooling. A major role here will be played by banks and, of course, by VTB group.

Your bank has the tools to meet these goals, including a steadily growing investment business, which helps raise capital both on the domestic and global markets that it invests in new and promising projects. I am very glad to note that the number of clients in this segment of the bank's activity has increased 25 times over, and now exceeds 500.

Some time ago we spoke with the bank's management. I agreed that real banks today have to be equipped for investment banking. I am happy to point out that this activity is expanding at a rapid pace: the funds in question are estimated now at tens of billions of dollars. No less important are the high-class investment banking experts you hire: entire groups switch over to you even from top-tier world banks, as far as I understand. This is also a good sign, a sign of growth and the sustainable development of the entire VTB group.

Let's talk to our colleagues in the regions.

Andrei Kostin: Thank you very much, Mr Putin.

You have already said a lot about the bank’s activities. If you’ll allow me, we have a very brief presentation, I will make it quickly. Then we will link up with the regions and other countries.  First of all, I would like to express my gratitude to you for finding the time to visit our bank. It was founded 20 years ago, and to my knowledge it has never been visited by the prime minister before. We are very grateful to you for showing interest in the bank’s work. 

VTB Bank was founded during the Soviet era, and the Russian government established it for foreign economic activity. In fact, that is where its previous name Vneshtorgbank (the Bank for Foreign Trade) came from. We consider the year 2002, when the Russian government replaced Central Bank as VTB’s shareholder, to be a defining moment to some extent; there was a new strategy to turn the bank, which specialised in foreign trade, into a bank offering a wide range of services and products for people, enterprises and the real economy.  

And that’s why the bank’s activities in the regions increased sharply from 2002 to 2006 and it started providing services to small and medium-sized businesses. Then we bought GUTA-bank, on the verge of bankruptcy, at the request of Central Bank and the government, and we turned it into a bank for the people. And today, after starting from nothing, it is second only to Sberbank, another retail bank (a bank for the people). It accounts for about 7-10% of the market. That is quite a large amount considering that it was built from the ground up in five years.

During this time we continued to develop our network. What’s most important, we went to CIS states, as we considered them the second most important market after Russia. Five years ago you opened our bank in Ukraine. We, in fact, created this system. Due to these changes, in 2006 we accepted a new brand and were renamed VTB Bank so that the name would not scare off small companies or people. I consulted with you on this at the time. Before we changed the name small companies and individuals were not sure why they should do business with the Bank for Foreign Trade.

Another important stage began in 2007, when we became the first Russian bank to make a major international IPO. It was the world’s largest IPO for banks that year: we raised some $8 billion in capital for the bank. We also made an IPO in Russia and 120,000 people became VTB shareholders. In 2008, an investment division was set up – exactly what you were just talking about. Now 800 people, who represent our investment bank in different countries around the world, are leaders in attracting investments in the Russian Federation. We have expanded into new parts of the world, in new and very important developing markets: we have opened banks in China, India and even Angola. We are still the only Russian bank represented in Africa. 

I would like to pay special attention to the economic and financial crisis, since it really was a severe test for us, the banking sector. But I would like to thank the government for its very keen and precise understanding of the banking sector’s problems. I know how difficult it was for the government to allocate major funds to support the banking sector, since many economic sectors needed it. But I believe you made the right decision: you found the strength to support the banking sector and, unlike in many other countries, the sector continued to work without interruption and continues to do so today.  

Vladimir Putin: So it was a good decision?

Andrei Kostin: Very good.

Vladimir Putin: It wasn’t a case in which brawn was used instead of brains - we have a good combination of the two here. A very successful combination.

Andrei Kostin: But I would like to add something…

Vladimir Putin: Pardon me, Mr Kostin, I would like to repeat a figure. The banking sector has repaid 98% of the loans? 

Andrei Kostin: Yes.

Vladimir Putin: So this decision was absolutely right, well thought out and effective both as a tool to combat the crisis and as a business tool, as it brought real benefits to the government. Russia’s Central Bank earned 150 billion roubles on it, the Bank for Development and Foreign Economic Affairs (VEB) earned approximately the same amount (if not more), except for that 175 billion, which was allocated to provide credits to the real economy. But almost the entire amount went to the real sector and is being used there now. While we had many doubts at the time, we absolutely did the right thing. Of course, I must acknowledge that we came up with this solution jointly with the banking community. Now, at the end of the year, I appreciate the work done by your bank, Sberbank, VEB and the entire banking community during the year. You acted very responsibly, and your measures proved to be very effective.

There were a few exceptions, though. It has to be acknowledged that defaults on loan payments to the Bank of Russia amounted to 48 billion [roubles], though profits totalled 150 billion (roubles). I don’t think these 48 billion have been lost for good. We’ll recover these funds, I’m sure. I mean the Bank of Russia will reclaim them with the help of the state. This can be accomplished by requisitioning assets. We’ll work on this problem.

On the whole, we supported the banking system and industry. In fact, we rescued them, although, admittedly, we had to sustain some losses to do so. But the state actually profited from these transactions. Our efforts were timely and effective.

Andrei Kostin: But there’s a fly in the ointment… Truth be told, banks have learned one very important lesson through the crisis: they have come to understand that a narrow-minded and self-serving approach does not work. The crisis showed that a strong bank is possible only in a strong economy. So in the pursuit of our goals, like maximising profits, we must also take into account the interests of business and ordinary people. I believe the crisis taught us a really good lesson –banks should work in harmony with the larger economy, without trying to grab up all the benefits.

Vladimir Putin: Another very important signal for the economy and the banking sector is that ordinary people’s deposits in Russian banks have risen by 2.5 trillion roubles this year. In the best of times, deposits stood at some 7.8 trillion roubles, while now they exceed 9 trillion. This is a good sign. It shows that people trust the economy and the banking system.

Andrei Kostin: I’d like to say a few more words on this topic. I often meet with American and European bankers. Apparently, the crisis there has damaged the relationship between the financial sector and the government.

Many bankers complain that governments are often guided by purely political motives and take populist measures without taking into account the interests of the banking sector. Governments continue to criticise the banking sector. Luckily, Russia has managed to avoid this misunderstanding, in my opinion. Russian bankers listen to what the government has to say, and the government understands and basically shares the views of the bankers. It is critical that this sector continues to develop dynamically.

 You have mentioned that in the past nine years VTB grew two and a half times faster than the banking sector in general. True. In early 2002 our assets stood at 187 billion roubles. One interesting detail: at that time, nine clients accounted for half of our transactions. Today our assets are nearing 4 trillion roubles, as you noted. The bank’s depositors consist of 7.5 million individuals and 200,000 companies. We occupy a strong position in the banking sector, and we offer very good solutions and a variety of services. Our market share is somewhere between 10 and 12%.

A large share of our funds goes toward loans for manufacturers; this year it stood at 2.3 trillion roubles. I don’t think I need to go into detail on this issue since you have already spoken about it today.

I’d like to say a few words about our investment projects. We provide high-quality consulting and project financing. We are financing projects for Rosneft’s refining complex and for a network of power substations in Moscow. We also operate outside Russia. For example, we are participating in a major Armenian investment project, Teghut. After the Armenian government asked you to support it, we made this project one of our top priorities and are financing it now. There is also the Pulkovo project, which you also mentioned. VTB is a leading investor, and not only in the Russian market. VTB is one of the top ten banks in terms of global stock offerings.

I have already spoken about our retail banking, which we pay special attention to. Our main priority here is mortgage lending.

In 2010, after the downturn, lending increased by 30%, and our share in the mortgage market reached 14%. We resumed issuing mortgages on housing under construction, which we had to suspend during the crisis. We decided to take the risk and are continuing to lend in this market.

I would also like to note that VTB services a total of 130,000 people daily.

Vladimir Putin: What’s your interest rate on mortgages?

Andrei Kostin: It depends. It ranges between 8% and 14%. The average interest rate is 11.7%.

Vladimir Putin: And eight percent is for the bank’s employees?

Andrei Kostin: No, it depends on how much a borrower pays. If a loan is taken out for five or seven years at 14% the rate is different from long-term loans, with 20% down payment. So the average rate is currently about 12%, or 11.7%, to be precise. I know you always insist that interest rates should be lowered.  We understand the objective and will work on it. We will rely on your guidance when our own efforts fail.

Vladimir Putin: Have you received anything from Vnesheconombank for these purposes?

Andrei Kostin: We use the Vnesheconombank and Mortgage Agency systems in our mortgage loans. Now, our clients also use maternity capital. If I am not mistaken, we have issued about 11,000 government-subsidised mortgage loans at lower interest rates. We were among the first banks to launch the programme, and join the automotive industry support programme. Government-backed loans account for 12% to 15% of the auto loan portfolio.

I have said already that we developed our retail network. The number of cities where we have private and corporate clients has increased from 43 to 200 over the past nine years. Now, our branches are servicing about 70% of the country’s population and area. I have referred to our international network already. We are the only Russian bank to have a global network in Russia and another 18 countries.

You have raised the issue of making rouble transactions. We are ready for that, in principle, because we have subsidiaries in Ukraine, Belarus, Kazakhstan, several other CIS countries, and China. Our network can switch to the rouble, and we are doing so, step by step. We think we are largely contributing to the promotion of the rouble’s evolution into regional and, possibly later, into global reserve currency. Apart from Europe, where London is the pivotal centre, we have interests in Asia – Vietnam, India, China and Singapore, as well as in Africa and in Dubai, where a financial centre has been established. But I hope we will have something even stronger in Russia. After all, Dubai has established its own local centre.

Finally, we believe that social responsibility is the duty of all businesses. We must contribute in social programmes. Healthy living and prosperity are vital for the nation, for the way life should be. That is why our bank has spent roughly 6 billion roubles on charity and sponsorship in 2010. We are taking part in several programmes. One, World Without Tears, concerns children’s healthcare. We pay for expensive medical equipment, medicines and other supplies. If I am not mistaken, we have purchased all this for 16 hospitals and clinics this year. We are also funding public organisations of veterans and persons with disabilities, and paying grants to students enrolled at Russian universities.

Sport is one of our principal fields of activity. I don’t need to tell you how important it is – you know that better than I do. We are sponsoring twelve sports, including volleyball, basketball, judo, mountain skiing, and track and field. We started supporting the Dynamo football club in 2008. Now, we have begun upgrading major renovation of its stadium [in Moscow]. As you know, it was mentioned in the Russian bid to host the 2018 World Cup, so it will be among the most advanced sports centres in Europe.

Vladimir Putin: Mr Kostin, do you do any sports yourself?

Andrei Kostin: I work out at the gym, and I’ll be going mountain skiing soon.

Vladimir Putin: All right. What about the rest of the bank’s top management?

Andrei Kostin: People are different, Mr Putin. We are not like Sberbank…

Vladimir Putin: So you don’t keep an eye on your staff.

Andrei Kostin: I don’t make a point of it, and I don’t organise workouts for them. But I could do that, sure.

Vladimir Putin:  I think you should.

Andrei Kostin: All right, Mr Putin, we take your orders seriously.

Vladimir Putin: I usually try not to issue direct orders, but you can take this one as an order.

Andrei Kostin: I will. We should work harder.

Vladimir Putin: There are young and attractive people on your staff. If they spend all their time sitting at their computers, the results will be deplorable in just a year or two.

Andrei Kostin: We do try to keep fit… We have several teams. There are regular football matches with the city hall and hockey matches with the Interior Ministry…

Vladimir Putin: That’s good.

Andrei Kostin: …with Mr Nurgaliyev. He is known as a good hockey player.

Vladimir Putin: You should also have a judo competition with the prosecutor general’s team.

Andrei Kostin: We will, Mr Putin.

Vladimir Putin: Or you can have a boxing match.

Andrei Kostin: All right, I’ve written all that down. But then, they’ll knock us all out, I’m afraid.

One last issue concerns support for culture. We have ambitious cultural programmes. Our bank is the general sponsor of the Mariinsky Theatre and member of the Bolshoi Theatre council of trustees. We support Pyotr Fomenko Studio in Moscow, which I think is one of the best drama companies. We are funding the Tretyakov Gallery and the Russian Museum. All in all, we have sponsored 26 events, if I am not mistaken, in the theatre, cinema and television. We also sponsored the Pyotr Konchalovsky retrospective. I think you have seen it. In short, we have a rather ambitious cultural programme.

Vladimir Putin: It was a good exhibition, I must say.

Andrei Kostin: A good exhibition of a good artist.

I would like to say the following in conclusion. Last summer, our supervision council, headed by Finance Minister Alexei Kudrin, approved our new programme for further progress. We intend to double the bank’s loan portfolio in three years, and more than double our profits. You see, I said our profits exceeded 50 billion [roubles] this year, while we intend to have 120-140 billion net profit by 2013. Next year, we expect a 60% increase to 80 billion roubles.

We will tackle major challenges even in the first quarter. First, the federal government has set us the target of privatising another 10% block of shares, and is working on it with us. We think it’s very important because the sale will help us to recover a major part of the money the government invested in our capital last year. We are also working on other projects, in particular on the acquisition of some new financial agencies. So next year will be extremely demanding. And the last thing I want to say…

Vladimir Putin: One moment, please. You are making good profits, exceeding 50 and even 80 billion. Here’s the opening line: cost per share in 2013, which is up 15 kopecks in current prices.

Andrei Kostin: But we have today…

Vladimir Putin: Just a moment. More than 15 kopecks means up 15 kopecks.

Andrei Kostin: No, it’s not. The price is 10 kopecks now, and 15 means a 50% increase.

Vladimir Putin: A share is worth 10 kopecks now. What did it cost in 2007?

Andrei Kostin: 13.6 kopecks.

Vladimir Putin: So it cost 13 kopecks.

Andrei Kostin: The price fell to 2 kopecks during the recession.

Vladimir Putin: And you expect it to go up to 15?

Andrei Kostin: I do. Today’s it’s worth 10. That is, we intend to attain the placement level within two years and exceed it by 2013. This is a matter of principle to us because we have seen our stock plummeting. We would like to erase this chapter from our history. But then, it was during the crisis…

Vladimir Putin: All this is very important for your shareholders.

Andrei Kostin: It does.

Vladimir Putin: So a share was worth 13 kopecks in 2007, and you say it will go up to 15 in 2013?

Andrei Kostin: That’s right. Mr Putin, our strategy…

Vladimir Putin: Tell me the truth – is it a large or a small amount?

Andrei Kostin: Mr Putin, if our profit was roughly 30 billion roubles in 2007, we think that we need 120 to 140 billion now, after the downturn, to get back to our previous level on new terms, because major changes took place in the market. We will need to triple our profits to attain the level of our pre-crisis stock. Do you see my point?

Vladimir Putin: So back to the previous value level?

Andrei Kostin: Back to the 2007 level because the capitalisation of the world markets has decreased a great deal. The market is regaining its previous positions but it is still very vulnerable.

Vladimir Putin: What level do you plan to reach next year?

Andrei Kostin: Analysts say our shares can go up 20% to 25%.

Vladimir Putin: What will it be, approximately, at the end of 2011?

Andrei Kostin: This question is for the head of our investment group.

Vladimir Putin: Mr Solovyov (Yury Solovyov, head of the VTB Capital), what will one share be worth?

Yury Solovyov: It’s hard to say precisely because we depend on the world markets. I think the value will exceed 11 kopecks and will make sustainable progress after we overcome that benchmark.

Andrei Kostin: I think it will be higher. Mr Soloviev is too cautious. But then, it’s the right thing to do.

Vladimir Putin: In short, will you expect the shares to return to the 2007 level in 2012?

Andrei Kostin: In 2012, I think so.

Vladimir Putin: That is an important signal to shareholders who have not sold their stock. Many will think after our conversation: all right, we will believe Mr Solovyov and Mr Kostin and retain our stock. That will be good for the bank, won’t it?

Yury Solovyov: We will do our best not to let them down.

Vladimir Putin: Good. That’s what I wanted to hear.

Andrei Kostin: Mr Putin, I would like to say that our new strategy generally aims at capitalisation. Even its name, The Road to 15, shows that we’ve taken on a certain risk because all clever people say: “The bank’s management is not responsible for the stock price; it is responsible for the indices.” However, we have assumed the responsibility to say that we think it our duty to raise the share price to 15 kopecks by 2013.

Vladimir Putin: The bank’s management is not responsible for the stock price? But the stock price is directly dependent on the indices.

Andrei Kostin: It is, certainly. That is why we have named the programme The Road to 15. We must reach this target by 2012 and exceed it in 2013.

In conclusion, I would like to tell you about the people who work for the bank. We employ about 43,000 people. 8,000 of them are working abroad, and the rest around Russia. 86% of the staff have university degrees. We hire 200 to 250 graduates every year. We have opened our own corporate university. About 200 people have obtained degrees there. Mr Putin, you often say in your public addresses that top experts must have quality education. That’s what we are doing. Here is just one example. Meet Mr Herbert Moos, one of our key employees. He is our Financial Director and my deputy. He is an ethnic German from Siberia who emigrated with his parents and had not been to Russia for 15 years when I met him in Hong Kong. He spoke Russian with a German accent…

Vladimir Putin: Believe me, he speaks German with a Russian accent.

Andrei Kostin: Mr Putin, he returned to Russia to take up a management position…

Vladimir Putin: …and learned German.

Andrei Kostin: Now he has learned Russian, too. His wife is Japanese and had never been to Russia. She moved here for their child’s sake. Now, all her plans are tied up with Russia. I think that’s very important. We have many such experts though they might occupy lower positions. We think that banks can presently offer good terms to experts who emigrated from Russia for a number of reasons and are returning. That is what the situation is like today.

Vladimir Putin: Does Herbert like his job?

Herbert Moos: This is a strong bank for Russia. There is room for development… Much has to be changed in Russia. That would be impossible without strong banks. VTB is an interesting place. It can achieve a great deal, and has already achieved a lot – it can help to make Russia a country that takes pride in its financial agencies. VTB will be a real global bank. It will be respected and reckoned with. It will be part of Russian history. Russian history is very interesting from this perspective, and my job is very interesting from the career perspective.

Andrei Kostin: Thank you, Mr Putin. Our presentation is over. It was rather optimistic but, believe me, we are very self-critical in our work. This is not just wishful thinking. We see how much is yet to be done. Thank you.

Vladimir Putin: I would like to congratulate you all on the year’s achievements and on your new office building. I wish a happy New Year and merry Christmas to your entire personnel without exception. I wish you every success. Thank you very much.