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Vladimir Putin: Meeting With Governor Of The Central Bank Elvira Nabiullina

Vladimir Putin met with Governor of the Central Bank Elvira Nabiullina to discuss the banking sector’s work over the first half of 2015.

Meeting with Governor of the Central Bank Elvira Nabiullina. Courtesy of Kremlin

Meeting with Governor of the Central Bank Elvira Nabiullina. Courtesy of Kremlin

By The Kremlin

Ms Nabiullina also spoke about progress on establishing the national payment system and national rating agency.

* * *

President of Russia Vladimir Putin: Ms Nabiullina, the Central Bank is doing a lot to strengthen the national currency, or at least, to keep it stable and maintain the stability of our financial system in general. I see with what determination you are following this road. What is your assessment of the situation in our financial and banking system today?

A year ago, we discussed the question of electronic payments within the Russian Federation and the plans to establish our own electronic payment card.

There is also the matter of the national rating agency. I realise that this task is far from straightforward, of course, as this would have to be a genuinely independent agency that has the trust of all market players. Only on these principles can the agency build its work. Where do things stand today on this matter?

Let’s start with the first point.

Governor of the Central Bank Elvira Nabiullina: The situation in the banking sector is in many respects a mirror of what is happening in the economy. Of course, external events inevitably have an impact on the banking sector’s development. Looking at the basic indicators for the system as a whole though, the banking sector is in the safe zone and is stable.

The situation has been changing quite fast. The second quarter was better than the first quarter. If we take an indicator such as profit, for example, we see that over the first half of the year as a whole, the banking system has come through with a profit. There were losses in some months, but the result for the six months as a whole is a profit of 51 billion rubles. This cannot compare to last year’s result of 600 billion, of course, or the 1 trillion rubles that we had the year before that, but it is nonetheless a positive result, and we hope that the sector will finish the year with a profit of around 100 billion rubles.

Capital increased by 3 percent over the first six months. It is capital and profit that allow us to increase lending activity. Overall, lending fell by 0.5 percent over the first half-year, but if we take a closer look, and take the indicators free of exchange rate fluctuations (which did take place), we see that lending to business fell by 1 percent in the first quarter, but rose by 0.9 percent in the second quarter. There was slightly more lending activity in the later months (March-June). Our cautious forecast is that lending to business will increase by around 5–7 percent for the year as a whole.

Regarding deposits, we had an outflow of deposits at the end of last year and the start of this year, but this outflow has been fully compensated now.

Vladimir Putin: I believe there has even been an increase.

Elvira Nabiullina: Yes, household deposits in banks increased by 7.2 percent. Three quarters of these deposits are in rubles. There was an increase in dollar deposits, but they have since fallen again.

Vladimir Putin: What is the approximate average interest rate on deposits now?

Elvira Nabiullina: The average rate has been changing quite fast following the decrease in the key interest rate, and is now around 10–11 percent, perhaps even higher.

Vladimir Putin: So it’s advantageous to keep money in bank deposits.

Elvira Nabiullina: Yes, it’s advantageous of course. The banks are offering attractive interest rates on deposits.

By the way, on the lending issue, we are monitoring the top 20 banks, keeping watch on the rates at which they lend to manufacturers and industry, and analysing the big loans that they extend. In January, the interest rate on loans was 25–27 percent, while now, more than half of loans are made at an interest rate of between 14 and 18 percent.

We realise that this interest rate is still rather high for most companies, but we see nonetheless that the rate is coming down after its peak increase. We hope that the financial system will maintain this stability and perform its basic role of lending to and financing the economy.

Regarding the national payment card, this was a two-stage process and we are keeping to the timetable. The first stage was to establish an operations and clearing centre.

Vladimir Putin: Has this been done?

Elvira Nabiullina: Yes, we have done this, and this operations centre is already processing the international payment systems’ Russian operations. The next task is to issue our own national payment card. We plan to begin this in December. We will start with a pilot project, in which 20 banks have already said they will take part. Next year, we will start mass-scale issue of the card. We plan to issue around 30 million cards. Our citizens currently hold a total of around 230 million cards. We will increase the number of cards issued in the future. The name chosen for the card is ‘Mir’, and it was selected through an internet vote.

So as to make things convenient for our citizens, we are already concluding co-badging agreements with the international payments systems. What this means is that the card issued as the Mir national payment card within Russia will also work abroad, like MasterCard, American Express and so on. This will make it more convenient for people and they won’t have to worry if they want to buy something abroad or go somewhere.

The next project is the national rating agency. I met with representatives of our major businesses, people from the banks and insurance companies to discuss whether it makes sense for us to establish such an agency. Everyone I met with agreed that we should go ahead with this project.

Vladimir Putin: Of course it makes sense. I remember talking with the then head of the European Commission about how they in Europe were unhappy with what our American partners were doing. In their opinion, many of the assessments given by the international – read American – rating agencies are not objective. I understand their dissatisfaction on this point. They were looking then at the idea of establishing new independent rating agencies of their own, and it would make sense for Russia to think about this too.

Elvira Nabiullina: Yes, we see this as part of the overall work to develop all components of a financial market infrastructure that would be independent from the situation on external markets and from the geopolitical situation. We should have all the key components here in Russia. We are not driving anyone out of our market, but we need to have our own infrastructure too. A national rating agency is part of this infrastructure. The main reason for establishing our own agency is to reduce our dependence on external risks, and the second reason, as we see it, is that we need such an agency because we have our own specific instruments here. For example, we plan to develop securitisation of loans for small and medium business, and there are some specific circumstances here. The international rating agencies do not always agree to rate these sorts of instruments.

Vladimir Putin: There is a lot they cannot take into account.

Elvira Nabiullina: We have been discussing this plan with the market actors and agreed that this will be their project. The Central Bank will not participate by providing money. We are organising the project, and it must be built on principles that will win investors’ trust, because, as you said, investors’ trust and transparent work are crucial here. We need to make it a solid organisation.

Vladimir Putin: If we cannot ensure these things, it makes no sense to even set up this agency.

Elvira Nabiullina: Yes, I agree completely. This is why we have decided that each participant’s stake will be no more than five percent, so that people can be confident that some big player is not setting the agency’s agenda, and that it is open to the participation of many investors. It has to be a solid enough organisation. The law requires minimum capital of 50 million rubles, but this agency will start out with capital of 3 billion rubles, in order to be able to develop its activities as needed.

We will bring in top professionals. The agency’s work must be absolutely transparent and based on the best international practice in terms of methodology and so on. We hope that investors will trust the agency, and we will use its assessments for our purposes as a regulator and watchdog and for refinancing purposes.

Vladimir Putin: What is the timetable for this project?

Elvira Nabiullina: The market actors plan to establish the agency by the end of this year, but it will probably only start giving its first ratings around the middle of next year.

Vladimir Putin: Good.


Courtesy of The Kremlin


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