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The subjects discussed included measures to simplify lending to individuals and companies and efforts to enhance the accessibility of the bank’s financial services to people in remote regions.

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President of Russia Vladimir Putin: I know that you have been working to support banks on which life in small and outlying residential areas depends. I would like to talk about this, as well as about investment activities, including those involving our financial institutions.

Central Bank Governor Elvira Nabiullina: In this case, I would like to begin with general issues and the situation in the banking system.

We are working with the Government on measures to attract more investment in the economy in keeping with your Address and the May executive order. The Central Bank is working on two goals: to enhance financial and price stability, so that there are sufficient funds for investment, and so that the overall situation in the financial system is good enough to allow the allocation of funds for investment.

I would like to brief you on some of the results of the banking system development in the first six months of this year. I believe it is very important that by this time we have done a great deal to rehabilitate the banking system, which means that our banks should have sufficient capital and liquidity to enable them to increase their lending.

Overall, bank lending has been growing, although at a different pace in different sectors. According to the year-on-year results for the first half of the year, lending in the economy has grown by 8.5 percent. Individual loans have increased by as much as 18.9 percent. Mortgages, which we have discussed many times, continue to grow rapidly, by 22.4 percent year on year, which is a lot. Of course, we have also reduced the interest rate to a historically low level, 9.56 percent. But there is the potential to continue to lower it.

Here is a figure to illustrate my point. In the past, people mostly took out consumer loans, while now mortgages account for 44 percent of all loans. It was 27 percent five years ago.

Vladimir Putin: It is nearly half.

Elvira Nabiullina: Yes, 44 percent is a lot. Of course, this rapid increase means that we must closely monitor the quality of mortgages, because we remember mortgage bubbles that appeared in many countries. We must not allow this to happen.

Vladimir Putin: You mean unsecured loans.

Elvira Nabiullina: That’s right. So far, the quality of mortgages is quite good. Mortgage arrears amounted to only 1.3 percent early this year, and it has hardly increased since then. Overall, retail loan arrears amount to 6.1 percent. In other words, mortgages are serviced very well, and the quality of these loans is good.

Corporate loans, which are vital for economic growth although mortgages support the economy as well, have been growing a bit slower, by 4.6 percent in June year on year.

Vladimir Putin: What about personal loans?

Elvira Nabiullina: In general, personal loans have increased by 18.9 percent year on year. The structure of lending is growing in all sectors, although differently.

The important thing is that we have recorded an improvement in lending to small and medium-sized enterprises (SME). SME lending sagged seriously in 2015 and 2016, but now it is growing faster than corporate lending as a whole, by 6.9 percent. Not bad at all, considering that the interest rate has for the first time decreased to below 10 percent on average.

Interest rates differ, of course, so that some companies take out cheaper loans and others get more expensive loans, but the average interest rate is 9.95 percent. Much depends on SME transparency, because some SMEs are keeping in the shadows and are therefore obscure entities for banks. However, we are adjusting our regulations so that it will be more profitable for banks to issue loans, including to small and medium-sized enterprises.

Since we are concerned with the structure of loans (on the whole, loans are growing), we would like to see priority growth of loans that are used to develop production and for investment projects.

This is why we have decided to transition from neutral regulation, when we assess only the risks, to stimulating regulation. I mean that our regulation and our reserves policy will mostly make the lending to small and medium-sized businesses more beneficial, while discouraging the issue of credits just for property redistribution. We will discourage hard currency lending as we will the financing of proprietary businesses. This will be done because the bank sanitation policy has shown that quite often banks’ problems are linked to their attracting deposits only to invest the money into proprietary projects without analysing the risks, doing nothing. These banks go bankrupt and we must protect the depositors’ rights. And, of course, we will mostly discourage the crediting of proprietary businesses.

A topic that I would like to discuss separately, one that has become our priority, is enabling people in sparsely populated localities and in remote territories to access financial services, because this is a big problem. A great number of people live in such remote localities and banks often close their local offices because their operations are unprofitable.

In this regard, we conduct a two-pronged policy. First, we are simplifying and making cheaper for banks such forms as mobile banks and traveling, light structural units. We are promoting new financial technologies and branchless banking. There were concerns that far from all citizens would use financial services and internet services. But our recent poll has shown that we are advancing rapidly in this area. While 23 percent, according to polls, used internet banking and branchless banking two years ago, this was 31 percent last year, and 44 percent by mid-2018. This means that the outreach of financial services is rather rapid.

Introducing a unified biometry-based identification system will be of much help. A relevant law has come into force and the banks are beginning to use it. Jointly with financial institutions, banks and communications providers, we have been pursuing a special pilot project in the Russian Far East, where this problem is rather prominent. Our objective in the Russian Far East is to make financial services more accessible. This will be our priority.

Vladimir Putin: Good.

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