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Vladimir Putin: Good afternoon dear colleagues!

Today we are going to consider problems linked to the development of Russia’s banking system. And I would like to say at once that this is the first time we are examining these issues at such a high level, at the State Council Presidium.

But before we begin our work and turn to these problems, I would like to congratulate the Savings Bank of the Russian Federation (Sberbank) on a historic date. 165 years ago, in November 1841, the charter of savings banks was signed and the first of these banks became today’s Sberbank. And today the bank remains a leader in Russia’s banking system – it is not only the largest when measured by the size of the establishment but also the most accessible and open for the population.

And it is with all my heart that I congratulate all of the bank’s employees on this anniversary and wish you further successes.

Andrei Kazmin: Thank you very much.

Vladimir Putin: Dear colleagues, over the last few years Russia’s banking system has managed to make a powerful surge in its development. In practice, we have completed forming the necessary structures in the financial and credit sector and, in turn, this sector has begun to grow vigorously. In three and a half years the assets of Russian banks have grown by almost three times and banks have played an increasingly important role in ensuring people’s well-being. The volume of credit given to individuals in 2004 – 2006 grew by 10,7 times and exceeds 1,5 trillion rubles. This is not in percentage but by number of times. And as much as 10,7.

Banks have noticeably increased their influence with respect to the regions’ social and economic development. Along with this banks are increasingly participating in all sectors of the economy. So as a result of the implementation of the national project – the development of the agro-industrial complex – significant credit resources came to agriculture for the first time. According to the Russian Agricultural Bank, in nine months various agrarian and peasant farms as well as cooperatives attracted 28,1 billion rubles. In other words, in a year the volume of credit increased by more than eight times. By eight times in one year.

At the same time I must point out that Russia’s banking system still contains a number of topical problems that require additional solutions. And I would like to pay special attention to a number of them.

The first one. The network of banking establishments in the regions remains insufficiently developed. In Russia for every 100,000 residents there is an average of only eleven bank branches. This is significantly less than in the USA, France, Italy and many other countries. The inhabitants of regions where there is no industry or of remote population settlements have difficulties reaching the nearest banking office, often because it is so far away. And for these reasons how many people do you think remain on the margins of the banking system? 60 million people. An absolutely inadmissible number of citizens are unable to take advantage of the resources offered by the banking system.

This problem is well known and we have already addressed it several times. I know that the government, the Bank of Russia and the Association of Russian Banks are making efforts to increase the network of banks. But meanwhile the situation is improving too slowly.

I consider that, along with measures to establish more bank branches and representative offices, we need to develop other essentially new approaches. We need to establish a more varied system for providing financial and credit services. And, for example, we could involve the already developed postal infrastructure for this purpose.

The second thing. Already today the domestic banking system does not cope efficiently with the increase in the level of demand for financial and credit services. Along with this, investment projects that are implemented in various sectors of the economy do not require short-term so much as long-term, advantageous and major credits. And increasingly often it is not Russian but foreign banks that offer these credits and the share of credits they give in the non-financial sector reaches 40 percent.

It is clear that strengthening the positions of domestic banks assumes that they can increase their capacities and form major financial and banking structures in Russia. As a whole this will help strengthen the competitiveness and financial stability of the banking system. And this is important in view of our plans to accede to the WTO. These plans have not yet been implemented but we are defending our interests and negotiating the accession conditions that are the most advantageous for us. Nevertheless, taking into account these plans and in view of the fact that Russia might accede to the WTO, perhaps the country’s banking system does not have so much time to ensure its competitiveness. Both business and the state are interested in this.

The amounts and possibilities offered by the financial and credit market must be sufficient to finance major investment projects, the most varied initiatives put forward by small and medium-sized businesses, as well as regional and municipal programmes.

I expect that we will discuss concrete proposals with respect to increasing the capitalization of Russian banks and simplifying the procedures for integrating and consolidating their activities.

For my part I propose that we discuss the possibility of involving pension savings in bank capitalization, including by using them as mortgage titles. Of course we need to consider that pension resources and pension savings fall under a special regime, and that they require special protection. We need to proceed with extra care. But we certainly need to think about this.

Further. It would be wrong to require that the banking system show evidence of dynamism, high rates of development and, along with this, do nothing to improve the conditions in which banks operate. It is necessary to recognize that expensive and often superfluous administrative requirements persist in the financial sector. And it would be right to remove them. And along with this I would point out that reducing administrative barriers and obligatory requirements should proceed in parallel with banks’ increasing their capacities for internal control. By freeing banks from external checks and reports, we have the right to expect more openness and better quality of work from banking establishments.

And now a few words about how banks work with ordinary clients. In this respect, it is first and foremost necessary to introduce new banking products. I draw you attention, for example, to how pronounced the need is for educational loans. We are talking a lot about this service but we still do not have enough interesting proposals here. It is clear that the conditions for this kind of loan must significantly differ from other kinds of consumer loans. It is also impossible to repeat, to simply reproduce a mortgage in the details. Credit to receive an education must be really accessible for the majority of young people and those who are not yet financially secure. We certainly understand that it is young people who are the recipients of this service. It is clear that they have the least financial security. Credit must be accessible both for those who cannot obtain a mortgage and for those who do not have regular incomes to make repayments. I am confident that finding the correct method is possible, including with partial state guarantees.

Pay attention to how housing credit is developing. When an interesting banking product appeared on the market, people willingly took advantage of this. The volume of mortgage credits has already exceeded 100 billion rubles. And it has acted as a stimulus for developing the whole construction sector. Along with this, we are well aware that it is impossible to consider this type of credit as fully accessible. With the average level of income that exists in Russia today, combined with the credit rates and time frames, we cannot yet say that this amounts to a universal means for resolving housing issues.

The banking community, state and municipal authorities must increasingly inform the population on the essence of banking services and, one might say, to teach them the rules of cooperation with banks. And just now I only spoke about mortgages. Far from everyone knows which conditions are offered in which regions, by the central authorities, or, shall we say, about the subsidized rate for young families and for those working in rural areas. People are badly informed about these instruments. And in many respects here we must begin from nothing. Today only a quarter of Russians have bank accounts. And less than 10 percent of the population uses plastic cards. An important part of Russian citizens avoid banks, simply do not understand what banks do, and consider it too hard to understand for themselves, requiring specialized professional training.

I am convinced that the problems mentioned can be solved and that it is necessary to resolve them, and not to resolve them hurriedly but through systematic work.