— I am joined by Andrey Kostin, the CEO and Chairman of VTB Bank. First I want to ask you about the investment climate and the concerns over what was seen in the US right now and the government shutdown. How much of a concern is that?
— The Russian stock market is very much influenced by international investors. On one side, we have the slowdown of the Russian economic growth. On the other hand, we now have bad news coming from America about shutdown of the government, about debt ceiling problem. Though, we have here the opinion that sooner or later this issue will be resolved. It is some kind of political game between White House and Capitol Hill. But at the end of the day of course it does affect the Russian market, as I said it’s quite fragile. So we hope the sooner the issue in America resolves, the better for the Russian stock market and the Russian environment for investment.
— It is still the bigger issue given Russia’s reliance on foreign investment — the idea of tapering and the continuation of slowdown at least of monetary policy in the US. Is that still the more crucial issue here?
— Yes, of course. You know, we’re facing now for the first time probably situation when the world prices are high and the growth slows down. So it is definitely a signal for us that the economy does need global restructuring, that the economy should be of different nature. And thus the investments into Russian economy are becoming more and more vital.
— You also have a huge inflation situation as well. Yes, you have weak growth, but you’re also trying to balance relatively high inflation. How do you support economy while at the same time managing that bad inflation risk?
— That’s the problem actually. We can’t introduce the QE for example scheme because of the threat of inflation. So the government is focusing on curbing down inflation. And as a result we expect that more investment will be coming when the inflation is down. But of course it limits the possibility of the government or Central Bank to use instruments to support the economy like many other countries are doing at the moment.
— You are talking about the foreign investment in Russia and this is part of the reason why you’re holding this summit Russia Calling today. But there’s enough money in Russia itself. Why aren’t they investing in their own country? Why hasn’t this cash been put to work?
— We do have the problem of capital flight. Though I can’t completely agree that we don’t have all the money we need. Russia still has huge potential. In particular Russia joined WTO and we are now more open to the world. And there are a lot of opportunities for investors. But of course we have the problem of what we call long money. We don’t have the developed system of pension funds, of insurance companies’ investments. So, from this point of view, we do need foreign investments. And, I think, that the government has introduced many years ago already one of the most liberal currency regimes among all the BRICS countries for example. But, I agree, the key factor now is to create proper investment climate and to bring more investment from all parts of the world.
— Now, we are talking about the growth profile as it also has an impact too on the banking sector. You reported a steep increase in provisions in Q2 for VTB Bank alone. One of the analysts reported that they saw after your Q2 results and suggested that VTB is a
— Well, I think there are two things. First of all, we had additional sharing issue in May. It was quite successful actually. We raised more than 3 billion dollars; mainly from sovereign funds all around the world. They came from Norway, Qatar, Azerbaijan. And so when you have fresh capital, of course, you need some time to spend it. Secondly, we are getting ready for worsening of economic situation. So we think that we better increase our provisions now in order to be ready for any worsening of situation. So I think today our policy has slightly changed: we are not thinking about the immense growth which we’ve always been doing. For the last ten years we grew more than forty times. But now we are more concerned about risk management, we are more concerned about safety of our investments. So probably the speed of our growth will not be so fast. But we’ll continue to be one of the most reliable banks in Russia.
— Perfect. Andrey Kostin, the CEO of VTB Bank.