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Vladimir Putin: Ms Nabiullina, you have only just taken up your new post. The Central Bank is a very important institution, of course, and plays a key part in the country’s financial life. Now it is gaining new functions and important powers and is in the process of becoming a mega-regulator that will work on the financial markets and other areas.
Elvira Nabiullina: Mr President, the Central Bank is indeed a complex organisation with extensive functions, and it does have quite complicated tasks before it now.
Without lessening the importance of other areas, I see three main priority areas of work. The first is monetary and credit policy, of course. It has to fit with the situation and developments in our economy. The key task here is to continue the policy of reducing inflation.
The inflation rate is still slightly higher than the target corridor that we set, but we hope to have it within a corridor of 5–6% by the end of the year. A lot will depend on the harvest and on food prices, but on the whole we expect to be able to reach our inflation targets.
We plan to continue bringing down inflation next year and hope that the decision to keep prices in check for natural monopolies’ services, which has already been approved, will have a positive effect here.
Beefing up banking supervision is the second priority area. We need a stable and healthy banking system and fair competition between banks. This will help to fill our market with services for our people and businesses.
The third priority area is that of the mega-regulator, with the extensive powers and responsibilities this entails. Formally speaking, we take on these new functions as from September 1, but we are already working now to ensure that the transition period goes smoothly and we are ready to begin our new duties immediately.
I also have to mention another key issue, namely, making bank loans for the economy more accessible and affordable.
This brings me back to the inflation question, since bringing down inflation is a basic precondition for lowering the interest rates. But this is not enough. We see that profitability of many of the investment projects the country needs is lower than the interest rates that these companies can obtain on the market, if we can compare in this way. We therefore need systemic efforts to bring down interest rates on bank loans.
I think there are several areas of work here. The first is to work on the refinancing system. We need to adjust the refinancing instruments so that many banks can get liquidity from the Central Bank. The liquidity situation is more or less stable at the moment, but we need to keep it predictable for the banks.
This will require some fine-tuning of the instruments, as we see it. The share of money the Central Bank can give the economy is not so high, 4–5%, but the important thing is for this money to be channelled in such a way as neither to fuel inflation nor lead to capital flight. We therefore need a carefully planned refinancing policy.
But the most important thing is still market funding of the banks – attracting deposits from individuals and legal entities. In this respect we have some imbalances in the loan structure. They are linked to the fact that we had very active development, especially in 2012, of consumer loans. Collateral-free consumer loans increased very rapidly. It was a decision of the Bank of Russia.
This consumer credit growth has slowed slightly now, but the distortion is still there. We cannot continue to build up these household debt risks, especially collateral-free loans, because people do not perhaps always realise what high interest payments they will have to make and so on. As the regulator, we therefore need to make an additional decision. We are drafting proposals for legislative amendments so as to prevent this sector from overheating.
”The Central Bank is gaining new functions and important powers and is in the process of becoming a mega-regulator.“
Vladimir Putin: Yes, we would not want a repeat of what happened in the United States with mortgages, when people took out loans and couldn’t pay them back. But artificially restraining things is also not the answer. We need to proceed very carefully here.
Elvira Nabiullina: Artificially restraining things is not the answer, but the banks and their customers all need to be aware of the risks they take on. We need balanced development here.
Coming to another of our priorities, we analysed what components actually make up the interest rates and compared the situation here to what happens in other countries. So-called risks account for a large share in the interest rates in Russia. Banks assess the risks when they issue loans to companies, including the likelihood of the bank actually getting the money returned.
This again brings us to the question of our laws and how they are applied: how do our laws on collateral and on bankruptcy work in practice? I think that this is an area in which we will soon need to take measures that will make it possible for the banking system in general to lower interest rates. The same goes for administrative costs.
Another priority area for our cooperation with the Government is putting in place the mechanisms that will make it easier for small and medium-sized businesses to get credit financing. This sector probably suffers the most from high interest rates. We can improve the situation by using guarantee mechanisms, guarantee funds and securitisation mechanisms.
We are ready to work through the refinancing system with public-private partnership projects backed by state guarantees, so that banks will also be able to finance these investment projects and will know that they can obtain money from the Central Bank. These are our initial plans as regards the loans situation.
Vladimir Putin: You probably know the figures for revenue growth in banking systems around the world. As far as I know, our banking system, far from lagging behind, is actually one of the leaders. Russian banks’ capitalisation is growing at a much faster pace than in other countries.
Elvira Nabiullina: Yes, but this is because we are developing lending quite fast too. I would like to give some figures on how lending is developing.
Vladimir Putin: Yes, but it is linked to the high interest rates too. Banks’ capital is growing a lot a faster here than in many other countries. I think we are in second place.
Elvira Nabiullina: Capital is growing fast, and it is showing good profitability too, but banks’ lending is also developing quite fast. In the Eurozone, lending is starting to fall. It is good that capital is growing here, and now we must work on putting in place the conditions for lowering interest rates. There are issues to sort out in this area, of course.
I want to add, not so much in defence of the banks as simply to say that we need to look at the situation from all points of view, that banks did indeed make big profits last year – growth has been slightly lower this year – but after they paid all their taxes, they put 75% of this money into their capital, in order to develop lending, in other words. This is far more than in the past.
Vladimir Putin: That’s a good development scenario.