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President of Russia Vladimir Putin: Mr Gref, how are things going at the bank?

CEO and Chairman of the Board of Sberbank German Gref: Mr President, looking at the first 10 months of the year, the situation is more or less stabilising, compared to last year. Of course, this year’s results are worse, but the first half of 2015 was very complicated from the point of view of all the processes and the financial result. The second half has been significantly better. We have generally created all the reserves.

Yesterday, we published our performance results for the 10 months. In October, our net profit amounted to 34 billion rubles; this is a record since the beginning of the year. We have created significantly fewer reserves than in all previous months. Over the last 10 months, we earned 178 billion rubles; that’s about 40% less than the first 10 months of last year.

But as I already said, the most important process is the gradual recovery. We are creating increasingly fewer reserves, seeing fewer bad debts, and we are gradually restoring our margin, because Background information Bank of Russia (Central Bank) Central Bank rates are falling.

Vladimir Putin: Fewer reserves mean fewer fears.

German Graf: First and foremost, fewer company bankruptcies.

In the first half of the year, we created a large number of reserves for possible bankruptcy, for the companies that found themselves bankrupt in accordance with the Central Bank requirements. Now, the situation is more or less stabilising.

Since the beginning of the year, we extended about one trillion rubles in new loans and provided five trillion rubles to the economy overall.

Our portfolio growth this year is small. For now, we are advancing at a good pace in terms of consumer lending. Our corporate loan portfolio has grown slightly, but very little.

It is good that the loan demand is recovering, especially among large and medium-sized businesses. Small businesses are recovering much more slowly, but we are nevertheless seeing that the trends here are gradually becoming more favourable.

It’s good that retail deposits are also recovering. Last year, the retail deposit portfolio grew by 4% over the year, but in the first ten months of this year, we are seeing an increase in deposits of over 15%. While in the beginning of the year we saw an enormous outflow of funds – you remember the critical situation that emerged at the end of last year, now, as we introduced very high interest rates to attract foreign currency assets in the first place, we are seeing a high influx of foreign currency deposits. It is clear that people are taking their money back to the bank, and today, we have a huge currency liquidity surplus. We allocate currency in our own bonds, purchase government securities of the Russian Federation and corporate securities. So the currency situation has also stabilised.

I know that you are usually interested in mortgage lending rates and the situation with mortgage loans in general.

Vladimir Putin: That’s what people take out.

German Gref: We try to give this issue special attention too. In the last 10 months, we extended 520 billion rubles’ worth of mortgage loans and over 339,000 families were able to buy housing.

We see that the first half of the year was also very difficult; there was about a two-fold drop compared to 2014, and now monthly lending has almost reached the 2014 levels, which is also a positive sign.

In the last 10 months, we allocated about 140 billion rubles under state support programmes, and will provide about 200 billion rubles in total by the end of the year. These are the programmes where the government has stimulated and subsidised the rates. And we lowered interest rates under these programmes.

Vladimir Putin: Through agencies?

German Gref: Yes. Today, the interest rate is 11.4%. The maximum rate was 12% and we lowered it twice; now the mortgage interest rate is 11.4%. Since October 15, we have reduced the initial payment requirement down to 15%. Overall, we have returned to pre-crisis parameters of mortgage lending. Moreover, with state support, the interest rates are significantly lower than they were. They were around 12–12.5%, and now they are at 11.4%.

Without state support, we offer mortgage loans for secondary housing at about 12.5% for young families and at 13.5% for everyone else.

In this sense, we see that the situation is becoming stable but the important thing is that the demand in the construction market has sagged significantly. Of course, mortgages have great significance for stabilisation and lending, as well as for debt repayment by construction and development companies.

Vladimir Putin: We need to be very careful with construction and development companies, without getting them in a state when it would be hard to recover on their own. It seems the bank is not interested in making their position complicated either, meaning that in general, these are also your clients.

German Gref: For now, all the companies are in a difficult situation. We had a serious problem last year. The Mostovik company unfortunately went bankrupt. Luckily, this year, we have no such serious cases in our portfolio.

We restructured loans for nearly all construction companies. We understand that this year – and most likely next year – will be difficult. We hope that beginning in 2017, we will see some resurgence in demand and market growth, so it is important for us to hold out for another year. I think we have the resources to support the sector. We will try to continue lowering mortgage rates, keeping interest rates for new projects as low as possible, and doing really long-term restructuring for honest developers so that they can get through this difficult period.

Vladimir Putin: You just mentioned big projects. Which ones would you like to note as the most interesting and promising out of what you are currently financing or lending to?

German Gref: Mr President, unfortunately, there are few new construction projects.

Vladimir Putin: In general, overall.

German Gref: The biggest project is the Yamal LNG facility with Novatek.

Vladimir Putin: It is going well.

German Gref: We feel that this is a very well-built company. We undertook huge risks because we see that the company is meeting all of its obligations to build the facility strictly according to schedule.

We just finished financing the previous facility. Unfortunately, a fire delayed this project by about a year, but they dealt with this very quickly because, of course, this is the most massive project.

Naturally, it is long-lasting and very expensive; it is the most expensive but, I feel, the most effective project that will totally reshape the gas economy. It will essentially be the first Russian LNG plant.

Vladimir Putin: And a large one. What is the total amount of financing?

German Gref: $16 billion in total.

Vladimir Putin: $16 billion.

German Gref: It includes both Chinese and Russian financing.

Vladimir Putin: And European financing.

German Gref: And European, yes. We supported this in various ways, so that the government would support the project as well; we gave our opinion that we believe it is an entirely reliable project. It will be profitable even with the most unfavourable oil and gas prices.

Vladimir Putin: They are asking us to speed up the provision of the second tranche from the National Welfare Fund.

German Gref: We recently participated in a meeting the Finance Minister held and we support this; we feel that they are very professional, with very good financial management, and for the moment we have no complaints toward them. I think it would be great if all borrowers were like this.

Vladimir Putin: Very well.

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