Transcript of the beginning of the meeting:

Vladimir Putin: Mr Gref, the larger the institution, the more bureaucratic it becomes. It is my understanding that these words do not apply to Sberbank. You are busy working with your corporate clients and individual customers. As far as I know, you have acquired several foreign assets, thereby making Sberbank an international financial institution. 

German Gref: Thank you very much, Mr Putin. We are trying our best. Unfortunately, bureaucracy is intrinsic to any large organisation, and Sberbank is no exception. We are trying to keep it in check, especially in our relations with our clients. This is because we know that the size of our corporation won’t matter if we fail to provide convenient services to our clients and make their visits to our branches a pleasant experience. That is how things are.

Our goal is to become the top provider of banking services in Russia. We serve five million customers every day. Our aim is to make sure that each customer receives impeccable service. To be frank, we are not quite there yet, there is still room for improvement

In 2011, we took steps to significantly improve our banking processes and customer service. Mr Putin, last year we showed you our “loan factory” technology and promised that we would make all our retail loan products available under these arrangements. I’m referring to mortgages. We delivered on our promise and completely switched over to the retail loan factory arrangements in the fourth quarter of 2011.

Vladimir Putin: If we assume that all mortgages issued in our country represent 100%, what is your percentage of that?

German Gref: Last year, Sberbank accounted for 46.5% of the Russian mortgage market. That’s a lot. In fact, this number is down from the 60% we had during the crisis when many banks disappeared from the market, but 46.5% is still a lot. Last year, every second mortgage in Russia was issued by Sberbank. Our loan approval time under the loan factory arrangements was 12.5 hours on January 1, 2012, down from 22.9 hours in early 2011. Previously, it took weeks to get a loan approved. Now we can do it in a matter of hours. Mortgages are a slightly more sophisticated product so it can take up to 40 hours to make a decision on them. However, the landscape has changed dramatically. We now make much more decisions than we used to. We reached an all-time high in December 2011 when we issued 57,500 loans in one day. That’s 3-3.5 times more than in 2007.

Vladimir Putin: That’s impressive. What were your profits in 2011?

German Gref: Last year we made an unprecedented 310.5 billion roubles in profits in accordance with Russian accounting standards.

Vladimir Putin: How do those figures compare with 2010?

German Gref: That’s 1.7 times higher than in 2010.

Vladimir Putin: That is impressive growth.

German Gref: We have increased our net profit more than three times within the space of four years. We expect our net profit to grow even more this year. Our retail loan portfolio grew by 37% last year, which is a steep rise.

Importantly, we are ridding Sberbank of its image as a bank plagued by long queues. I regard having to stand in an endless queue as a disgrace both for the bank and for me personally. I reported to you before that such a stigma is an embarrassment for any major bank. In early 2011 the average time it took to get served was 41 minutes for 80% of our clients. By late 2011 this figure was down to 18 minutes. We have set ourselves the goal of bringing this time down still further to 10 minutes or less for 90% of our clients by late 2012. By April 30 we will complete the installation of electronic queue management systems at all our branches which have five or more cashier windows. We will be able to monitor the service time in an objective manner. Our customers will no longer have to waste their time standing in  queues. Our branch administrators and bank promoters will use the 10-15 minutes before the next cashier becomes available to update our customers on our financial services and explain how to use online banking services. We will do our best to make sure that our customers don’t waste their time in our branches.

Vladimir Putin: How many people are employed with Sberbank across the whole country?

German Gref: If we take Sberbank as a separate legal entity, then we had about 240,000 employees as of January 1. If we take Sberbank as a group of companies, then it’s about 280,000 employees.

Vladimir Putin: Are you cutting down on the number of branches?

German Gref: We shut down about 150 branches across Russia last year, that was out of a total of 20,000. However, we are working hard to redistribute our branches across the country, closing the ones that don’t have enough business and opening others in locations where there is greater demand. With regard to our rural customers, we are making efforts to keep our branch network unchanged. We are only closing branches where we can replace brick-and-mortar offices with mobile banking facilities – either with vehicles that travel to remote locations or with online kiosks that offer the full range of banking services.

Vladimir Putin: This is exactly what I was about to ask you to do. You know and I know that in certain remote locations there are no branches of any bank other than Sberbank, and it’s unlikely that any will show up any time soon. If you close a Sberbank branch in those places, then people will be majorly inconvenienced, since they will be forced to travel to the back of beyond just to be able to use your services, to withdraw or deposit money for example. That just places an additional burden on people. Sberbank is a special institution. We have always supported it and will continue to do so in the future. Therefore, I expect that you will not give up on the social aspects of your work.

German Gref: In terms of economic viability, we’d be better off closing down one third of our branches, since it is not economically feasible for us to keep them open. We are doing our best to make sure that we operate without losses while keeping the entire branch network intact. We are aiming to resolve both tasks at the same time. We are fully aware of what you have just said, and under no circumstances will take any radical steps until the time when we have the necessary technology in place to enable us to make the full range of our services available in rural areas.

Vladimir Putin: You are one of the undisputed leaders in the implementation of innovative technologies. You might want to give some thought to how this technology could be used to reduce the workload at Sberbank branches across the country and preserve the network in its entirety.

German Gref: We focus on these matters a lot. We are collaborating with Russian high-tech companies that are working on pioneering solutions to effectively address this challenge. We are not going to do anything drastic before we find a solution to this issue.

As regards our work rate, we currently issue nearly 40 retail loans per minute on a 24/7 basis. As we reported to you during your visit to Sberbank, we were going to use the loan factory facility to create small business loan products by the end of 2011. We launched this process last year and issued 25.5% more loans to small businesses last year than we did in 2010.

We provided 46,000 loans and launched three new products under the loan factory arrangements last year. It takes us 60 hours to approve small business loans now compared with the 14-45 days it used to take us. Most important of all, we are now trying to launch startup loans. We have launched a pilot franchise loan programme which will run for four months. We have already received over 300 applications and have issued the first loans. If we manage to carry through this process, which we hope we will, then from 2014 we will help create approximately 20,000 – 25,000 small business startups every year using this product.

This is a technologically challenging process, but we know it can be done. We will make all the preparations this year, launch it in 2013 and start its serial production in 2014. We are putting a lot of focus on small businesses now. This year, we plan to unveil a brand new aggregated product for small businesses called The Business Environment at the St Petersburg forum. We are working on this in conjunction with several major IT companies. I will not disclose its details now. It’s a fairly sophisticated product, but it is very convenient for small businesses if they want to obtain a comprehensive set of services. We want to be able to demonstrate a prototype of this programme in St Petersburg and begin a test run in the second half of 2012. If we manage to keep up with this schedule, then we will launch serial production of it in 2013.

We issued 5.5 trillion roubles worth of loans to our corporate clients last year, 1.7 trillion of which accounted for a growth in our loan portfolio. Last year was a good year for us. In December, we issued 70% of all the loans issued across the country. In one month alone we issued 480 billion roubles worth of corporate loans. There were liquidity problems, and many clients came to us. This was sort of a test for us. However, the loan factory and the loan conveyor demonstrated their effectiveness, and we managed to cope with the sharp increase in loan requests. We issued twice the amount of money in December than we usually do. This helped head off volatility in the economy. Today, we issue one small business loan every minute. This is also an impressive number, but we hope that we will be able to increase the throughput capacity of our small business systems.

Last year, we opened five new client support centres. In all, Sberbank operates nine such centres in various locations across the country. We have created 13,000 new jobs. These are modern workplaces staffed by highly skilled professionals engaged in payment processing. We have opened four underwriting centres where risk managers make loan decisions. These four centres employ 4,000 people and handle all the loan applications in the country.

Vladimir Putin: What about the information centre that I saw – how is that doing?

German Gref: It is operating at about 20% of its capacity, but this will increase to 50% by late 2012. Next year, it should be running at about 80% of its total capacity.

Vladimir Putin: Other institutions will also be using its services, is that right?

German Gref: Mr Putin, we built this data centre exclusively for our own needs. We will begin the construction of another one at Skolkovo this year. It will be 1.5 times larger than the one we built at Yuzhny Port, and it will be used by all Skolkovo-based companies and other high-tech companies that need high-speed computing services. We should complete the project in Skolkovo by late 2013. That will be the end our ambitious efforts to renovate our platform. From 2014, Sberbank will be one of the world's most high-tech banks. After 2014, Sberbank will start on a path of innovative growth.