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Vladimir Putin: Good afternoon dear colleagues!

At one of our last meetings with Russian business representatives, representatives of the banking community once again raised the issue of meeting in such a format to discuss current and medium-term problems of Russia's banking sector. It is not by chance that our meeting is taking place here, in Novosibirsk. Siberia's economic development is one of the defining and long-term factors of all of Russia's social and economic development. And having a stable system of financial credit is an extremely important factor in this regard. Let me add that such a system is the base condition for the development of all the regions of the Russian Federation without exception.

At the beginning, I shall say a few words about the general state of the national financial and credit sphere. One of its most important indicators is the country's relatively stable macroeconomic situation. As you know, the 2006 budget was planned with a surplus. And at the same time expenditures have increased. Significant financial means will be allocated to priority national projects in education, health care, housing and agriculture.

As of 1 December 2005, Russia's gold and currency reserves amount to 168 billion dollars. They have increased by 44 billion dollars over the course of this year. The trade surplus exceeds last year's indicator by almost one and a half times.

Internal investment demand continues to grow. The country's debt is consistently decreasing, in part thanks to debt repayments ahead of schedule.

The banking sector's assets and profitability ratios have grown. In addition, credit organizations have been able to increase their capital.

Along with this I wish to draw your attention to the fact that Russia's economy is faced with absolutely new tasks. In particular, the social and economic development of Siberian regions is in many ways connected with creating innovative production facilities, the economic development of promising territories and financing large infrastructure projects.

I consider that Russia's banking system must address these new problems and meet citizens' present-day needs both by its scale and by the quality of the services it offers.

However, banking services are still inaccessible for the inhabitants of remote Russian regions and also for its rural areas. The population of the Siberian Federal District is the one that suffers the most from the lack of services. Here, there is only one full-fledged banking office per ten thousand people.

In addition, the lack of banking infrastructure and the banks' low level of participation in the economic and social spheres slows down the development of Russian regions and hinders the exploitation of Siberia's natural riches.

It is obvious that, in practice, strictly market incentives for developing the banking sector are still particularly insufficient. The practice of granting advantages and privileges to certain credit organizations by state and municipal bodies is still going on.

At the same time the share of banks with state participation in their activities has recently increased. A significant number of banks founded by the state remain weak and incapable of providing financial and credit resources for large-scale projects.

I consider that of course the state can participate in credit organizations' activities, but on the condition that these banks go about solving really strategic problems.

The National Banking Council should consider the question of modernizing the system of state-owned banks. We need precise criteria with respect to the desirability and efficiency of state participation in credit organizations' activities. And in those cases where state participation is deemed necessary, the role of government representatives that control banks' activities should certainly be reinforced.

I consider that the national banking system can give Russian citizens and, in particular, Russian entrepreneurs a much greater range and variety of services. These are services which should be more accessible to clients.

And certainly, banks should participate more actively in the implementation of the priority national projects I have already mentioned. As you know, measures to create financial incentives for the development of agricultural production and growth in rural areas exist. In 2006–2007 we must already create a full-fledged system of land-based mortgage credits.

I do not think that the Russian Agricultural Bank should be the only to participate in this task. Especially since national projects are designed to assist a systematic modernization of certain sectors. In the end, they must help solve basic social and economic problems. Here I am referring to the fact that small businesses find it hard to gain access to the banking system. Businesses that are especially vulnerable and weak precisely in rural areas. It would be desirable that banks develop their own initiatives in the areas I have mentioned.

A separate set of questions concerns developing mortgages. I am ready to discuss in detail your proposals with respect to creating an effective market for mortgage notes and increasing investor trust in these instruments.

I draw your attention to tasks related to how Russian banks can better serve major Russian borrowers.

National companies have recently begun to borrow more from abroad. And the growth rates of business credits in the real sector of the economy have slowed down.

In sum, the major tasks that stand before Russian banks concern increasing their competitiveness. And today I suggest that we discuss the measures which will help us accomplish this strategic task.

Thank you for your attention.

Let us now discuss the themes we talked about.