Transcript of the beginning of the meeting:

Vladimir Putin: Mr Kostin, we have met on multiple occasions, either one-on-one or at larger conferences. I have also discussed with your colleagues the need to expand lending to the non-financial sectors. I know that your bank is putting a lot of effort into it.

I would like to hear about your latest achievements, the progress you've made over the past three to five weeks. I would also like to hear your assessment of your risks and of the situation with the so-called bad loans and bad assets.

Andrei Kostin: At a meeting in late June you asked bankers to increase the loan portfolios of Russia's leading banks. Specifically, VTB was given the task of augmenting its loan portfolio by 100 billion roubles in the third quarter of 2009.

In July, our monthly increment was 6.4%, or 84 billion roubles, meaning that we reached our quarterly goal in one month. Admittedly, we can hardly expect similar results in August, but on the whole, I think, we will meet and exceed the plan in the first ten days of September.

We have seen improvement and encouraging trends in July in a whole range of sectors, including the metals and coal-mining industries. We certainly believe here at the bank that more loans should be issued to seal and build on the positive trends. This is what we are determined to do. In January through July, VTB's loan portfolio grew at an average monthly rate of 2%. We'll try to keep this pace through the rest of the year.

Something else I would like to say - the cost of the loans is as important as their size. We at VTB agree with the Government that bank interest should be lowered. So we took some steps in July to cut our rates in general, issuing new loans at rates some 2.3% below the previous level. I can cite our loans to engine manufacturer Saturn: We have cut interest to 14.5% from 17.5%, and will try to keep up this trend.

Naturally, the Central Bank's refinance rate is a crucial factor here. If the regulator continues the policy to lower its refinance rate, maybe even faster than this week, when ...

Vladimir Putin: Saturn wasn't happy, they said your loans were too expensive.

Andrei Kostin: Saturn is our biggest borrower. We have made nearly 12 billion roubles available to them. But we are operating in a market environment. And the market is getting more favourable for borrowers these days. We will certainly continue this policy, especially when the state guarantees system begins functioning effectively in August at last.

Ten of our corporate clients have received approval from Government commissions. In August and September, we are going to extend about 100 billion roubles secured by state guarantees. This will significantly lower bank risks and allow us to be less stringent in negotiating interest rates.

Vladimir Putin: Do you mean the system is up and running and you can go on holiday?

Andrei Kostin: I will go away for a week if you let me do it. I don't think I could spare more time in any case.

Vladimir Putin: Good. And what about the so-called bad loans?

Andrei Kostin: It's the banking sector's biggest problem. The number of overdue loans has been growing fast. We don't expect them to exceed 8% this year, but that is still a large sum for VTB, whose loan portfolio amounts to about $100 billion.

But, first, we have the state's assistance. We will finish the capitalisation of the bank by October 1. Second, our financial position is stable. The bank's profits rose by 30% this year.

But we will not achieve such revenues as in 2008, which were 26 billion roubles.

Vladimir Putin: How much money did you channel to reserves last year?

Andrei Kostin: Our reserves have grown several-fold. The reserves are not always lost money; we believe that in a few years we will manage to get part of this money back, and even make a profit.

For example, we received the highly popular Children's World store on Lubyanka as a "bad" asset. We have started financing, and by 2012, we will turn it into a store selling quality goods both for children and adults at good prices.

We are confident that we will manage to sell it to a strategic investor, possibly even before the store opens its doors. We have many such projects. We have gas and oil assets and development projects in Moscow, and land plots in the Moscow Region. All this demands hard work, but we will see a return on the "bad" assets and reserves in a few years. Therefore, today's losses can turn into profits in the future.

Vladimir Putin: I am sure you will do just that. I see some improvements in the situation both in Russia and on the world markets. How is your capitalisation, by the way?

Andrei Kostin: Capitalisation has been growing, but last year's fall was enormous. This is a global tendency. The cost of VTB shares, as many others, depends on the world economy, the stability of the Russian rouble and oil prices.

But I think that when the market becomes more stable, investors will pay greater attention to companies' performance. We are improving our work. We hope that some time our shares will cost the same as before the crisis.

Vladimir Putin: VTB has turned, in fact, into an international financial institution. How are your affiliates doing?

Andrei Kostin: Yes, VTB is the only Russian group working in 18 countries. But not all the countries give us the support we have in Russia.

But I must say that our largest affiliates working, for example, in Ukraine or in London show good results. The group has successfully responded to the challenges it faced and is committed to improving its performance.

I would like to note that VTB Capital investment bank is part of the group. We have recently opened its new office in Dubai, which is an international financial centre. Our group has a presence in London, Singapore, and Dubai, and does a great job of attracting investors to Russia.

Therefore, we have not abandoned our plans in foreign countries. We believe that VTB can be an international financial group and continue strengthening its position while its rivals are losing theirs.