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President of Russia Vladimir Putin: Good afternoon.

Let us begin with the shipbuilding sector.

VTB Bank CEO Andrei Kostin: Of course, Mr President.

Vladimir Putin: How are you developing the sector?

Andrei Kostin: During the period under review, we established new governing bodies of the United Shipbuilding Corporation, elected the board of directors, and appointed the Director General and his deputy. Under your Executive Order, we are currently working with the Government to create a regulatory framework to oversee the company’s performance.

The Director General and I visited the largest shipbuilding enterprises, including Sevmash and Zvezdochka in the Arkhangelsk Region, the Baltic Shipyard, the Proletarsky Zavod and Admiralty Shipyards in St Petersburg, and Krasnoye Sormovo in Nizhny Novgorod. During our trip, our main goal was to monitor the fulfilment of state defence contracts, as well as the quality of work and project implementation deadlines.

On the whole, I believe that the corporation’s efforts to fulfil state defence contracts are satisfactory. Of course, there are some shortcomings in the work of the corporation and affiliated partners, as well as in the mechanism of their relations with the Defence Ministry. However, we are working together with the Defence Ministry and with the active assistance and support of the Ministry of Industry and Trade, we have drafted a “roadmap.” I therefore believe that we will cope with this task.

Regarding the civilian shipbuilding sector, I believe that extremely broad prospects are opening up there. Here is a positive example: the Baltic Shipyard is implementing a programme on orders from Rosatom and building nuclear-powered icebreakers for the Northern Sea Route. Russia is the only country to manufacture this type of vessel.

We have now accumulated multiple orders for all classes of ships, including bulk carriers, tankers, fishing vessels, crab boats and combined river-going/sea-going vessels. We are experiencing very high demand.

Unfortunately, we are now unable to fully meet this demand. We lack sufficient production capacities and technologies. In my opinion, we will have to overhaul the industry and build new enterprises and new shipyards. We believe that it would be desirable to build at least two new shipyards, one in the north-western region, somewhere near St Petersburg in the Leningrad Region, and another one in the Far East.

We are including all this in the industry development strategy, which we will be ready to submit to you in March-April 2024. This is our long-term plan.

Prioritising the expansion of skilled workforce training, using both higher and secondary professional education, remains crucial for the industry. Our primary focus is on St Petersburg with its extensive capabilities. There are severe personnel shortages, exacerbated by intense competition where talent is being poached by other sectors, including the defence industry. Despite these challenges, we are committed to tackling this issue.

I have no doubt that we will see the creation of a cutting-edge and productive shipbuilding industry within the next five to seven years.

Vladimir Putin: This is excellent. Your deep involvement, including your visits to the plants, is commendable.

How is the VTB team responding to the introduction of such a substantial asset?

Andrei Kostin: The response is positive, without a doubt.

There will undoubtedly be close collaboration with the bank; teams are already making visits to the enterprises. Consequently, we are working on the financial rehabilitation plan and the future investment strategy.

Vladimir Putin: How is the bank itself?

Andrei Kostin: The bank is performing well, Mr President.

This year was successful not only for VTB but also for the entire banking sector. As I reported to you last year, the bank was seriously impacted by rampant lawless practices, where we lost our foreign subsidiary banks, which are now undergoing liquidation. We suffered significant losses.

This year, we have successfully compensated for these losses. We are rebuilding our capital base and are about to achieve a record-breaking profit of around 420 billion rubles, which is a substantial accomplishment. Importantly, we swiftly adapted to the changing circumstances. While losing access to Western markets, we redirected our focus primarily to Russia and friendly markets.

For instance, our branch in Shanghai, the only Russian bank in China, is expected to double its turnover within a year, which is indicative of the progress in Russian-Chinese trade and economic relations.

Notably, next year, we anticipate a slowdown in the banking sector’s growth and a drop in our revenue, because the Central Bank has adopted anti-inflation measures, including raising interest rates and restricting lending, particularly in consumer finance.

We acknowledge that these measures are temporary. We anticipate that once the economy hits the target inflation figures, the Central Bank will adjust its stance, introducing a less stringent and perhaps even more accommodating monetary policy.

Vladimir Putin: They need to be careful with being too accommodating.

Andrei Kostin: We are aware of that.

Vladimir Putin: It appears that our detractors did not anticipate the Russian banking sector’s ability to successfully navigate these external challenges. They overlooked what seemed to be an elementary consideration that a bank is not just a repository for money but an integral part of the economy. The state of the banking sector reflects the overall economic situation.

Andrei Kostin: No doubt about it. The banking sector was bracing itself for a variety of scenarios, but the economy proved to be resilient, and overall economic growth followed.

Vladimir Putin: And the bank's operations are built on this foundation, of course.

Andrei Kostin: Correct.

This once again underscores the failure to isolate us. Despite secondary sanctions and other challenges, transactions in national currencies are widely used in trade with friendly countries.

Vladimir Putin: Are you personally satisfied with the bank's performance?

Andrei Kostin: Yes, we performed well this year. Currently, we are developing a new strategy which we will present early next year. It will certainly account for the enormous changes in the banking sector. However, our outlook is one of great optimism.

Vladimir Putin: Mr Kostin, I am aware that your involvement in the shipbuilding industry is relatively recent, but still, I have a question for you. You said there were certain issues and challenges, particularly regarding technology. You have met the employees and talked with them. I can see that we are acquiring new competencies in many industries, but what about shipbuilding?

Andrei Kostin: I believe these processes are also underway. I visited several enterprises, and I can see that they are using varying levels of technological advancement. Some can boast modern equipment and technologies, while others still rely on outdated production processes. There is need to bring this foundation up to standard.

I was at Krasnoye Sormovo Shipyard and they told me they had orders to keep them busy for several years. The efficiency of their operations needs some attention, and not all their contracts are profitable, but this is a matter of secondary importance. Overall, workers in the industry know that their skills are in demand and they have work to do. They will not be left without work, which is certain.

Vladimir Putin: This will motivate them to explore innovative technologies.

Andrei Kostin: It indeed encourages the pursuit of innovative technologies and solutions. I met a variety of directors. Some of them have found innovative solutions, even in the situations where funding was inadequate. Overall, I am certain that we will be up to the task; people are poised and motivated to get this done. In general, I have not detected any negative sentiments. I met with the teams and engaged in discussions. Notably, many workers are quite young, and there is a palpable sense of enthusiasm in their work.

Vladimir Putin: Excellent.

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