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Andrei Kostin: “We very much believe that this time Russia can do much better than in 2008”


INTERVIEWER: Thank you so much for being with Bloomberg today. It’s the start of the VTB Capital Conference today in Moscow. Could you tell me for VTB, how is Q3 going? How is the volatility in the market, the turbulence we have seen in the past few months, how is that impacting your bank?

ANDREI KOSTIN: Well, I mean up till now I think, VTB is feeling quite all right in spite the fact that of course, we witnessed great volatility on the stock market, particularly on financial markets. But we acknowledge growing problems. There’s less liquidity in the Russian financial sector, there are some concerns about our clients, particularly if the international environment continues to worsen. Of course, what is happening in Greece, some controversial news coming from America, and there’s some information that there’s a slowdown of economic growth in China, it does not encourage very much.

INTERVIEWER: Are you experiencing cash squeeze? Do you need to borrow more through government auctions because you can’t find cash anywhere else?

ANDREI KOSTIN: Well, the government started to provide some cash, in particular the Ministry of Finance provided more than RUR 1 trillion already. But the government and the Central Bank are quite prepared for this, so we don’t see any problem. We saw a much more severe squeeze or real squeeze in 2008, and the government and the Central Bank were quite successful in providing additional liquidity. I think liquidity in Russia, as well as in America or Europe is not very much a problem nowadays.

INTERVIEWER: So it’s not getting more difficult at the moment for liquidity?

ANDREI KOSTIN: It is getting more difficult to get liquidity from the market, because the international markets are very difficult for Russian companies and Russian banks, because the Central Bank was selling dollars and thus removing some of liquidity from the market. But, as I said, this is a manageable problem. I mean, the government and the Central Bank know how to do it; the banks now have experience how to do it. So we do not expect too much problem coming from liquidity issue. I mean, the problem of the Russian economy is if the price for commodities and demand for commodities started to fall more drastically, and then our clients, our enterprises start to experience some problems with actually repaying the debt. That will be the problem for Russian banking sector, like it was in 2008. There is some reason for concerns, because there is some decrease on some major commodities, but it is not as bad as we saw in 2000s, and we hope it will never reach the same level as it was. We don’t think that whatever we can say, first wave, second wave or third wave of crisis, we don’t think that’ll be so severe as it was in 2008, particularly for Russia. Russian fundamentals and economy are quite sound, Russian basic macroeconomic are quite good. So we very much believe that this time Russia can do much better than in 2008.

INTERVIEWER: What about the capital outflow, the capital flowing out of the country? We have some new numbers, just a few days ago, USD $49 billion for the first 9 months of the year, that sounds like a lot, doesn’t it?

ANDREI KOSTIN: Well, I think a lot of enterprises, the clients, they prefer to keep their reserves or their cash in dollars, because you know, we witnessed some kind of devaluatuion of the rouble over the last few weeks, it devalued for more than 10%. So I think it mainly explains why corporate clients particularly prefer to keep their deposits or their cash money in dollars. I think once the situation stabilizes, I think the situation will improve.

INTERVIEWER: Are you worried about the fall, more depreciation of the rouble?

ANDREI KOSTIN: No I don’t. I think devaluation always has a good impact and a bad one, you know. So, from this point of view, the economy is gaining, particularly export-oriented economy is gaining from this. So, but on the other hand, of course, there’s some negative effect on foreign investors, sometimes on the population. I think the devaluation on limited scale is not a very big threat for the economy. But of course, as you know, the Central bank is monitoring the situation and that’s why it actually sells dollars now, to keep this process under control.

INTERVIEWER: Let’s come back a tiny bit on the European debt crisis and how it is impacting your bank and Russia? What is the effect and what advice would you give to Greece since Russia has experienced a default in 1998?

ANDREI KOSTIN: Well, first of all, Russian banking sector has no direct exposure to Greece or Italy, or Portugal, or other European bonds, sovereign bonds or corporate bonds. I read in today’s newspaper that there’s some big portfolio, but I never heard about these. Definitely, VTB …

INTERVIEWER: But Europe is the main trading partner of Russia…

ANDREI KOSTIN: But VTB definitely has no, and I don’t think that many Russian banks have any large positions on these. So there is no direct effect, but of course, I mean the European debt crisis today is in a position to destabilize the whole world economy. I mean the Americans are watching very carefully, the Chinese are watching very carefully, and so from this point of view, as it can worsen substantially the global economic outlook, that definitely might affect Russia. For Greece, I think there’s one advice, which Russian government was following for many years: to save more, to spend less. I think that’s the only medicine, remedy you can advise.

INTERVIEWER: At the moment the Russian government holds around 75% of VTB. When do you think, they plan to go down to 50% plus 1?

ANDREI KOSTIN: Very much depends on the market; there are no ideological restrictions for these. But according to the plan we have, we are planning to sell another 10% next year, and we will be focusing on it. I think we can still be very much on time schedule for this.

INTERVIEWER: Bank of Moscow, are you managing to absorb the bad loans of Bank of Moscow, how is that working?

ANDREI KOSTIN: Absolutely. You know, last week we received a 10-year loan from the Agency of Savings Insurance, but the final lender of course was, the initial lender was the Central Bank of the Russian Federation, and this was for almost RUR 300 billion, and that will help us to cover what we call “the black hole” of Bank of Moscow. So we are quite comfortable now, it provides us with additional liquidity today, so we very much believe that this is a sad story with a happy end, and that the Bank of Moscow will play an important role among the VTB Group, and it will be a strong franchise in Moscow and in other parts of Russia.

INTERVIEWER: By when do you plan to have 100%?

ANDREI KOSTIN: Well, I think we might have, according to our agreement we have to make a new emission of shares to buy for up to RUR 100 billion till the end of next year, but our plans are to make it earlier. Maybe as early as the end of this year.

INTERVIEWER: Great. And finally, how do you see the return of Mr. Putin and presidency, how is that going to change, you know, business in Russia?

ANDREI KOSTIN: Well, you can ask Mr. Putin today during the conference, but I think it on one hand shows that there are definitely signs of stability in Russian political life, which should encourage investors. I mean, Mr. Putin is well-known and under his leadership Russia was always conducting a very liberal economic policy. So I think it is a good sign, I think the combination of Mr. Putin and Mr. Medvedev makes this even more likely successful, as a successful tandem, now working in new conditions. I think this is a very good decision for Russia.    

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