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President of Russia Vladimir Putin: It’s obvious that the organisation you head has established itself. You have succeeded in doing this.

Today I would like to discuss separately and to give priority attention to two items: the state defence order and its servicing, and the military mortgage scheme.

Promsvyazbank CEO Pyotr Fradkov: Mr President, as per your instructions, we are establishing a base bank for the defence industry at Promsvyazbank. Of course, our main task is to service the state defence order and to finance defence industry enterprises.

At this moment, over 70 percent of enterprises on the register of the Industry and Trade Ministry are our customers.

If I may, I would like to give several figures, Mr President. The financing limit for defence industry enterprises is 1.5 trillion rubles, where at least 800 billion rubles’ worth of loans are issued at a preferential interest rate of 5–5.5 percent annually. In this sense, we are acting in accordance with our mission to implement the task you have set us, which is not only to remove sanction risks from the banking system in general, but also to provide soft-term financing to defence industry enterprises.

The same principle is being applied to the servicing of the state defence order and the contracts proper. We are servicing nearly 70 percent of state contracts signed by the Defence Ministry as a government customer. This is quite a lot. Back in the best periods, authorised banks serviced approximately 40 percent of contracts. In our case, the volume of transactions is huge: between 40,000 and 47,000 per day. Moreover, we also guarantee fail-safe service, which is of crucial importance to us.

At the same time, I would like to point out the following. We are not only working with enterprises and the Defence Ministry proper, but it is also extremely important for us to make our banking products available to military personnel. This is an important sphere. One such product is military mortgage. This is a broad subject.

Our bank is an absolute leader when it comes to this banking service: our portfolio of military mortgages is worth 82 billion rubles. This form of assistance has been recently provided to 50,000 military personnel families. We also take competitive terms into account and continue to develop this segment: as of now, our market share for this product is nearly 45 percent, and we will continue to make use of and strengthen our status as the base bank.

I would like to give several more figures, if I may. It is clear that our main function is to service the defence industry, but it is also extremely important to develop as a universal banking institution, in accordance with the initial decision. It is very important that we have tried to find a suitable format for remaining an effective market institution and to grow stronger as a bank while working to accomplish our special mission. We have grown a lot stronger recently. Our assets are currently worth 3.7 trillion rubles, which means that our bank confidently holds sixth place in the banking system, and we continue to actively develop.

Vladimir Putin: Profit is growing.

Pyotr Fradkov: Profit is also one of our main indicators – we are guided by it. As for such a strictly market indicator as return on equity, we are also at the same level as our competitors in a positive sense. It is very important for us to remain an effective institution rather than simply an instrument for distributing budget funds.

Finally, the corporate civilian sector is important for us too. We are also working with small and medium-sized businesses where we have strong positions as well. Thus, our portfolio for small and medium-sized enterprises is almost $800 billion rubles. Importantly, these are not only businesses involved in state defence order but, as a matter of fact, civilian companies – civilian mortgage and civilian aircraft leasing. All this is done through us, under the programmes you know well, for instance Sukhoi Superjet and helicopters, to name a few.

Vladimir Putin: It is, of course, necessary to prop up defence industry enterprises when resolving diversification issues.

Pyotr Fradkov: This is a separate area of our work. We understand that this is also our mandate. It is natural because we are working…

Vladimir Putin: This applies precisely to medium and small-sized businesses.

Pyotr Fradkov: …we are laying emphasis on this as well. Now the diversification portfolio amounts to 200 billion rubles.

Vladimir Putin: In other words, you have singled it out as a separate area?

Pyotr Fradkov: It is a separate area of our business. It is closely tied to defence.

Vladimir Putin: I see. What can you say about the implementation of the tasks assigned to the defence industry in this context? How quickly will they be carried out?

Pyotr Fradkov: We are conducting a special rating of corporate readiness for this work. In general, we are seeing that businesses are finally coming to realise that this is a natural environment for their existence and development. This is not something imposed on them from above but a natural way for them to survive in the near future. I am referring to a swing: either they will have to work in some areas of state defence order or compete in civilian markets. We are seeing that not all companies are ready for this, sometimes due to some difficulties with personnel. On the other hand, they do not know how to compete in market conditions.

Vladimir Putin: Civilian market conditions.

Pyotr Fradkov: These things are a bit different. It is not that they do not want to do this. Probably, they do not always know how to do this. Apart from using strictly financial instruments, we, also as a bank, are trying to draft non-financial support measures for them, to help companies focus on this area.

Vladimir Putin: Diversification will certainly increase their technological potential, and, hence improve their work in their main line – defence production.

Pyotr Fradkov: I think more and more businesses are coming to realise this.

Vladimir Putin: Good.

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