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Andrei Kostin: The Russian banking sector’s real growth this year will be around 50%


KIRYL SUKHOTSKI: Russia’s second biggest lender VTB is on check for the biggest-ever full year profit. Despite the concerns that current market volatility may squash loan demand. Joining me is VTB’s Chief Executive Andrei Kostin. Mr. Kostin, do you expect the liquidity situation to worsen in Q4?

ANDREI KOSTIN: The answer is yes. I think least for the next two months we will experience some problems with liquidity, though in December there are good chances that the budget spending will fill in financial markets with more liquidity. So I think it is a temporary problem.

KIRYL SUKHOTSKI: But how bad this problem will be?

ANDREI KOSTIN: No, it’s not bad at all, because first of all, we have a very well constructed system, which was built in 2008-2009 by the Central Bank, by the Ministry of Finance, and Mr. Putin, when addressing our conference this afternoon, said that if necessary both the Central Bank and the Government will support the liquidity. So we don’t expect too much problem with it. I think that the Russian government can do what other central banks and governments are doing – providing more liquidity.

KIRYL SUKHOTSKI: Yes, but you said that in September the situation may turn to the better, that December is the time where markets probably factor in big problems in the Eurozone.

ANDREI KOSTIN: Probably, but again, I think liquidity is no problem for today, for any economies. I think that’s really not the cause of concern, and basically, I mean the mood here, across our forum, is that Russia still will be doing quite well this year. We expect the positive growth of around 4%, we have non-deficit budget and the inflation down to 7%. And the overall view, with the exception maybe of Greece, that we do not expect recession, we might experience maybe more moderate economic growth all around the world, but definitely not a crisis or recession.

KIRYL SUKHOTSKI: Is there enough insulation against the Eurozone debt promise? For example, how it will affect Russia and VTB, for example, if Greece defaults?

ANDREI KOSTIN: Well, we don’t think that Greece will have a direct effect on Russian financial sector, for example, we are more concerned about commodities.

KIRYL SUKHOTSKI: If a contagion happens, for example?

ANDREI KOSTIN: I mean, definitely the problem for Russian economy could be lack of demand and lower prices on major export commodities, like oil, gas, aluminum and others. So, unless there is a drastic fall of prices, Russia can do quite well.

KIRYL SUKHOTSKI: VTB Capital accounts for probably half of your profits, and with lots of market volatility in the past weeks and months, do you think that can lead to some trading losses in Q3?

ANDREI KOSTIN: No, I think VTB Capital accounts for much less than that…

KIRYL SUKHOTSKI: But still, do you expect any trading losses in the 3rd quarter?

ANDREI KOSTIN: Yes we do, definitely in the 3rd quarter, in the 4th quarter we shall see. I mean we think that the market lost a lot already and there are good chances that the situation will improve. So, we are quite positive on this.

KIRYL SUKHOTSKI: You expect, probably, the record profits in 2011, what about 2012? How successful will this year be for you?

ANDREI KOSTIN: Difficult to say, but we still see a lot of demand for new loans. Of course, we are more cautious today, we now might probably revise the interest rate on new loans, but we continue to loan. Overall, the Russian banking sector’s real growth this year will be around 50%, which is not bad for an economy.

KIRYL SUKHOTSKI: Do you expect 2012 profits to be comparable to 2011?

ANDREI KOSTIN: Very much so, yes. We are still quite positive that it might be even higher than this year.

KIRYL SUKHOTSKI: Bank of Moscow, one of recent problems you talked a lot about. Do you think you’ve even covered all bad loans there?

ANDREI KOSTIN: Well, the support we received from the Central Bank actually covered the problems, which really cannot be compensated otherwise. But we will be working on other difficult loans, but we think the worst is behind us in the Bank of Moscow situation very much.

KIRYL SUKHOTSKI: Yeah, it was behind, but do you expect that some other bad loans may come up that you …

ANDREI KOSTIN: I think we have quite a clear picture of what’s inside Bank of Moscow, so we don’t expect new surprises.

KIRYL SUKHOTSKI: Do you think that in terms of the Russian, generally the Russian banking sector, that the Bank of Moscow is a one-off affair, or are there other banks in the Russian banking sector that can have …

ANDREI KOSTIN: We think that such scale, large bank, it is quite a unique situation, I hope.

KIRYL SUKHOTSKI: Do you think Bank of Moscow will be profitable in 2012?


KIRYL SUKHOTSKI: How profitable?

ANDREI KOSTIN: I can’t say now.

KIRYL SUKHOTSKI: It’s because you don’t know or because you don’t want to say?

ANDREI KOSTIN: A little bit later we will come with some business plan for next year for the Group, then we will tell more precisely.

KIRYL SUKHOTSKI: But you do not have this business plan as yet?

ANDREI KOSTIN: Not yet, we are just finalizing it, we are working on it.

KIRYL SUKHOTSKI: Do you think that the political risk in Russia has risen since Vladimir Putin’s announcement to come back as President?

ANDREI KOSTIN: Well, I saw all that Mr. Putin said early this afternoon, just vice versa, we avert any political risk and he said we should be consistent, and there shall be no revolutionary changes, and I think that’s to the benefit of Russia and Russian economy.

KIRYL SUKHOTSKI: What about Alexei Kudrin’s departure, are you concerned? Will it signal the end of fiscal stability?

ANDREI KOSTIN: I don’t think so, I think there’s a general course of the government to have a very strict discipline. As I mentioned, we have probable surplus of budget this year, and Mr. Putin also mentioned that Mr. Kudrin stays in the team, so I think we will see Mr. Kudrin again

KIRYL SUKHOTSKI: Many thanks, and hopefully we will see Andrei Kostin again, Chief Executive of VTB, here in Moscow. I’m Kiryl Sukhotski, it’s Reuters.

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