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Meeting on developing the banking system

July 4, 2013, Novo-Ogaryovo, Moscow Region

Vladimir Putin held a meeting on developing Russia’s banking system, looking in particular at how to make it easier and more affordable for small and medium-businesses to get loans.

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President of Russia Vladimir Putin: Good afternoon, colleagues,

We have had a series of meetings over these last weeks to discuss ways to stimulate economic growth.

A number of measures were proposed during the International Economic Forum in St Petersburg and will all be implemented within the deadlines we have set. 

Let me repeat that the situation in the economy today is such that we cannot delay. Endless consultations between the different state agencies are also counterproductive. We need to act, move forward, approve and implement without delay balanced, systemic measures to stimulate business and create the conditions for new projects, especially in the non-raw materials sectors, and open up new opportunities for renewing and modernising capital stock, creating new jobs and raising labour productivity.

To move ahead, our companies, including small and medium-sized businesses, need access to cheap financial resources, ‘long’ money, above all through borrowing of course. But the businesspeople say that bank loan costs are clearly excessive.

We discussed this issue at a meeting in Sochi some 6–8 weeks ago now, in narrower format perhaps, but whatever the case, we examined the matter in quite some detail.

“We need to act, move forward, approve and implement without delay balanced, systemic measures to stimulate business and create the conditions for new projects, especially in the non-raw materials sectors.”

We discussed it at the meeting in May and again on the sidelines of the St Petersburg forum. I want to make the following points.

First, the cost of loans is closely linked to the inflation rate. This is understandable. Inflation’s non-monetary side, namely, natural monopoly cost increases, also remains strong. This is also something we discussed earlier too, and we are now taking serious steps to change price-setting policy in this area. As you know, starting in 2014, regulated price growth in this area will be limited by previous year’s actual inflation rate.

Why this is starting only in 2014 is also understandable: our big companies have already made their investment plans and signed the relevant contracts, and it would be wrong and even harmful to interrupt them in mid-flight.

Second, we need to find the right balance between stabilising inflation and making it cheaper to borrow. Of course, the Central Bank shoulders a big share of the responsibility here, but the Government also needs to make consistent, calculated effort in the areas under its responsibility.

Third, although inflation is coming down, the banks are not lowering interest rates on loans and are even raising them for some categories of borrowers. This is in response to the risks in corporate sector and the economy in general.

But at the same time, as I have already noted, macroeconomic risks in a number of countries abroad, especially in the Eurozone, are a lot higher than in the Russian economy today, but their banks’ interest rates are a lot lower than in Russia. We need to make a thorough analysis of this situation and work out what exactly, aside from the natural desire for profit, is making our lenders keep interest rates so high. 

As I also already noted, why we do not see at work here the competition mechanisms that we always talk about when discussing these sorts of issues? Why aren’t these mechanisms working here when we have 900 banks in Russia? Where is this basic competition that we talk about in the other economic sectors? Maybe it’s because we only have four or five big banks and they are all linked in one way or another to the state?

Fourth, the statistics show that over the last 18 months lending growth to business has dropped by almost half. Big business can get loans at home and borrow abroad too, but small and medium-sized businesses usually do not have such choice as they face problems with collateral and guarantees. The biggest problem is that interest rates for these companies are traditionally several points higher than for big companies, though it should be the other way round. Companies just starting out can end up paying interest rates of 20 percent or more, and that is without the commissions and other payments added on. How can any project possibly be profitable in such conditions?

With us here today is Alexei Ulyukayev, in his new capacity as Economic Development Minister. By tradition it is this ministry that is responsible for small business development. Mr Ulyukayev, I know that the ministry has drawn up a system of measures to improve lending mechanisms for small and medium-sized businesses. 

“We need to find the right balance between stabilising inflation and making it cheaper to borrow.”

The interesting thing is, the head of the Central Bank worked on the small and medium-sized business development issue from the practical personnel point of view, the current presidential adviser on economic issues also worked on this complex problem, and the now former deputy head of the Central Bank is working on it. Look, it’s really time to get this cart out of the rut it’s been stuck in for so many years and get it moving. This is just the sector that we really need to work with. Of course we all know and understand that the banks find it more reliable and profitable to work with big companies, but the whole economy does not begin and end with them.

I propose that we start work and take a detailed look at how to improve access to bank loans for business in general, including for small and medium-sized businesses.

I know that there are various approaches in this area, but I stress that this meeting needs to produce some concrete decisions on bringing down interest rates for business. There must be market measures of course. Imposed measures enforced through purely administrative means cannot and will not provide effective solutions. But even working within the market framework and procedures, we still need to find solutions. We know that our banks’ profits are growing. This is good. It’s good that they are putting this money into development, into capital, and are creating the conditions for expanding their lending activities, but we will not be able to solve the fundamental problem if we don’t take a closer look at the situation and come up with some thoroughly planned measures and solutions. I recall how, at the meeting in Sochi, to my great surprise, the then chairman of the Central Bank, now adviser to the current head, said that yes, our financial institutions do indeed put an excessive cost on risks, which they then make the basis of these interest rates they charge. 


July 4, 2013, Novo-Ogaryovo, Moscow Region