Transcript of the beginning of the meeting: 

Vladimir Putin: Good afternoon. You have recently merged with a regional bank, haven't you?

Oleg Vyugin: Yes, I wanted to tell you about the deal. Two banks out of 15. The merger has launched a process; it will be the fourth largest bank in the size of capital with a complementary business. MDM Bank is a strong bank in the European part of the country, a bank servicing corporate clients, while URSA Bank is Siberia's household retail bank. So, our businesses don't overlap. The merger has created a bank that will have 500 branches throughout the country.

Vladimir Putin: So, you complement each other?

Oleg Vyugin: Yes, we do, and we are a good team. We plan to save on outlays because all the back offices we intend to set up in Siberia will be much cheaper, and they will get more jobs.

Vladimir Putin: This is good. What about your progress in the real economy? We discussed this issue some time ago, remember?

Oleg Vyugin: In principle, we continue to lend money to small business, which we consider an important strategic move. We grant approximately 300 million roubles per week. The loan portfolio is growing.

We have suspended portfolio growth for medium-sized and large companies. We are now working hard to determine what has changed at our borrowers, because most of them have had a serious shock this fall. First, the external demand has fallen, meaning the demand for our exports, notably commodities and primary goods. Second, the debt burden has grown dramatically. The funding of the banking system is almost zero. External funding is plummeting; we are mostly repaying debts. The companies are doing so as well.

People are saving money now, increasing their deposits, but this is not a fast process, and the increment is not large. As for companies, their reserves are falling, with the money not always remaining in deposits. In other words, we can receive additional funding only from the state.

We have discussed this issue with [Finance Minister] Alexei Kudrin and [Central Bank Chairman] Sergei Ignatyev. They agree that the state is now one of the most realistic sources of funding for the banking system, so that it will help solve the companies' debt problems.

We are now dealing with them to see if companies can restructure their operation, and whether they are ready to adapt to new conditions. If so, we prolong their debts. So, our main work now is assessing risks and prolongation of credits. If we demand debt repayment immediately and at any cost, we would bankrupt these companies.

Vladimir Putin: Of course. Do you issue mortgages?

Oleg Vyugin: Yes, we have a considerable mortgage portfolio, although not the largest one, because we have started this business only recently. We have issued approximately $600 million in mortgages.

Vladimir Putin: What do you think about our recent decisions on mortgages, notably the decision to postpone interest payment and paying down the principle debt for debtors in a difficult situation, those who have lost their jobs or whose main income has plummeted? The Government can issue guarantees through the Agency for Housing Mortgage Lending.

Oleg Vyugin: This is a positive decision, a positive goal. Apparently, some families will be unable to repay loans. I hope there will not be many of them, but still. Banks' repressive actions will be ineffective in this country.

Vladimir Putin: Yes, this would be senseless.

Oleg Vyugin: Yes, senseless.

Vladimir Putin: This would also be senseless economically.

Oleg Vyugin: So, the best way would be to refinance such loans through the Agency for Housing Mortgage Lending, if possible.

Vladimir Putin: What kind of relations do you have with the Central Bank?

Oleg Vyugin: We have normal, working relations with it. Moreover, we exchange market information, so that the Central Bank will be aware of all the undercurrents. The Central Bank has taken a clear stand, providing liquidity and believing that longer-term financing is the task of the Government. This is a possible form of mutual action aimed at supporting liquidity.

We definitely have no problems. Our united bank now has $2.5 billion in free cash, but we have to keep it because we are not sure if our passive assets are sufficiently stable. Had the Government acted to strengthen the long-term passive assets, we would have been more active. We have proposed this.

Vladimir Putin: Yes, you have, but we will consider this issue later.