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Andrey Kostin: «We are more conservative now. We want to have some safety pillow in order to keep some capital if things get worse»

 
06.06.2012

I am very pleased to say I am now joined by Mr. Andrey Kostin, the Chairman and Chief Executive of VTB Bank. Talk to me a little bit about your contingency plans, Mr. Kostin. I know we’ve talked about the fact that everyone needs to be prepared in the eventuality, even if it’s not a base scenario, that Greece leaves the Eurozone. Is your bank ready for it?

— Yes, I think we’ve become much more conservative, we have much less risk appetite now, we’ve learned our lessons from the beginning of the crisis, I would say. We are less dependent on international borrowing, for example, and there are other things which we already made in order to get ready. And I also have to add that Russian government is now again discussing with the banks the necessary measures, so it seems that both the government and the Central Bank are ready to implement the same instruments which were used in 2008-2009 to provide liquidity, to provide even capital, if necessary, and probably some other measures could be added. So the government and the Central Bank are also thinking about this, so we have the contingency plan to work together.

— Are you concerned that at the moment actually the Central Bank is not doing enough to try and support the rouble, or, on the other side, if you support the rouble too much, does it take the extra liquidity off the markets, which you so surely need?

— Yes, the Central Bank will start to support soon, because I know, they came from the policy of monitoring or fixing the exchange rate to the floating exchange rate and focusing on inflation. So now they have the corridor for rouble, and as we have now nearly reached the bottom of this corridor, the Central Bank is ready now to spend more dollars to keep the exchange rate, so we can expect they start stabilization or even slight growth of the exchange, but of course that means that might be less rouble liquidity in the Russian system, and the Central Bank is expanding its instruments for this, but…

— So you are not actually expecting the rouble to depreciate further, I mean, what kind of level is dangerous for growth?

— No, I mean the thing is that the Central Bank announced quite a clear policy in the identifying this corridor, and Russian Central Bank has the third largest currency reserves in the world after China and Japan, so they have plenty of money. Of course, they are spending now just a little, if we compare with 2009, 2008, there was much bigger spending. So they are ready to do it, they just have not implement it yet, have not use it yet.

— Recently VTB bank bought assets or commodities, are you going to see more acquisitions in this kind of environment, because actually valuations were cheap and share prices were cheap?

— No, there were a couple of things which restricted us from this. One thing, of course, is that buying in crisis you also take additional risk.

— That’s why it’s cheap.

— Yes. The second thing is that we had excess capital before, which we don’t have now. Frankly speaking, we just don’t have capital to make any substantial acquisitions. By saying this I mean it’s billions of dollars. Of course, we can buy some brokerage or other companies which you talk about. If we talk about dozens of millions, it’s a different story, but for large acquisitions we don’t have enough capital. And as I said, we are more conservative, we want to have some safety pillow in order to keep some capital if things get worse. For example, NPL growth and other things like this.

— How concerned are you when actually Greece will have to leave the Euro, possibly after the elections of June 17th, and what happens on the markets the next day if Greece leaves, can it be an orderly exit or will it be an actual Armageddon?

— I think this scenario is becoming more and more probable, though I still believe that EU leaders will find a solution. My expectations are that European banks might be ready to even negotiate a new deal with Greece, if this is the only problem. But of course, we don’t know what will be the composition of the new Greek government, to what extent this idea of restructuring and staying in European Union at the expense of more austerity, or less austerity plan will be achieved. But of course, market to a very big extent already took it into account, but not in full, so we definitely expect further problem with the stock market, which performed very badly in Russia. We have a pending situation on the stock market, and of course that creates a lot of problems.

— Yes, that fear factor that people talk about, Andrey Kostin, in terms of what you are hoping for the banking sector, what needs to happen for this liquidity to start flowing or the lending freeze to start doing this, is it an intervention?

— For European banks, on the one hand, the liquidity is there, but on the other hand there is too little capital and too much risk to lend to the real sector of the economy, and without there will probably be no further growth. So my opinion is that regulators should relax or to soften their approach to Basel III implementation of the policy. I think the time of crisis is not the best time to implement such radical changes, which shall create additional pressure on the capital. In Russia, for example, the government is prepared to take part of the risk or to provide some additional guarantees for banks to lend money to the real sector. I think something, maybe in one or another form there should be splitting of risk.

— In Europe as well. All right, Andrey Kostin, thank you for your time, the Chairman and Chief Executive of VTB Bank.  


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