President of Russia Vladimir Putin: Mr Gref, good afternoon.
Chairman of the Management Board and CEO of Sberbank German Gref: Mr President, good afternoon.
Vladimir Putin: I know that you would like to report on the current operations. I also recall we have discussed this with you, that our financial institutions, including leading ones, are facing a lot of tasks during these difficult times. But I do see that you are handling them well. Please tell me how you are managing to do this.
German Gref: Mr President, thank you very much.
It is true that the last three months were a hard period for us. We have been facing the pandemic in one way or another since February. Perhaps March, April and May were among the most difficult ones in my career at the bank. And, of course, we have fully felt the impact of the crisis and had to form a lot of reserves in terms of financial indicators. We have decreased the net income by 25 percent and formed about thrice as many reserves as last year.
Of course, during this entire period we have been working hard on restructuring loans. We restructured around 1 trillion rubles in loans to legal entities and around 120 billion rubles in loans to individuals. The scope of restructuring was unprecedented – so, of course, the entire team has been under a lot of pressure.
We underestimated the volume of customer traffic slightly because, when the pandemic started, we reduced the number of open offices by 30 percent. After the first three days, we realised that people were queuing. We had to increase the number of open offices, first to 60 percent and then to 90 percent. In fact, for this entire period, around 150,000 employees have been working on the frontlines.
Of course, I would like to say thank you to all the employees and workers who have helped our customers throughout this period. We managed to prevent any interruption. We did not have any queues. We reduced the number of products offered via our offices in order to prevent crowds and the spread of the infection. Overall, this pandemic has been a challenge. These are the difficulties.
Now, more importantly, what we see today. We can see that, despite all these difficulties, June is showing better results than we expected. Today I received a report on the number of POS terminals operated by small businesses for the previous week. We can see small business activity from the number of operated terminals. Currently, only 10 percent of the terminals are out of operation. During the crisis, only 25 percent of the terminals were in service and the current share is 90 percent. Week by week, we are noting fairly fast recovery across a number of regions. The recovery is almost complete. We even introduced a regional recovery rating. There are three regions that have already achieved 100 percent. We see that this is happening faster.
Second. Small businesses are recovering slightly better than we expected. It’s surprising, but over five months, under the adopted programmes we have expanded our small business portfolio by 10 percent and issued 16 percent more loans than over the same five months last year. Of course, during the pandemic, this can only be explained by the availability of the concessional programmes that were adopted because, of course, there was a drop in lending services.
In general, the situation now looks slightly better than we expected. We expected a preliminary slowdown in GDP of about 6–7 percentage points this year; however, today our expectations are slightly higher than the Central Bank and the Government’s forecasts. Our estimate is a slowdown of about 4.2–4.5.
Vladimir Putin: Down?
German Gref: Down 4.2–4.5 by the end of the year. I mean, it is much better than originally expected, of course, provided there is no second wave.
Vladimir Putin: Our colleagues in Europe expect it to decline about 14 percent, as far as I know. Right?
German Gref: They expect a 7.5 percent contraction over the year.
But yes, over this period it could be even worse, as they saw a drop of more than 20 percent in three months. We expect the Russian economy to do better than the European and American economies. The Americans are also expecting an approximate 6 to 7 percent drop in the annual average. This is why I would say ours is good news.
My second news is the demand for mortgages. We never expected such a quick recovery in demand here either. The mortgage programme we adopted featured 6.5 percent interest, but we added a special discount, down to 6.4 and even 6.1 percent for mortgages applied for and approved online. So we are now approving 50 percent of all mortgages online. Mortgage loans are at 6.1 percent – this has never happened in Russia, historically. Without state support, the mortgage rate is 7.7 percent, on average, which is also quite low.
We can see, of course, that the Central Bank has made the right decisions. During the most difficult period, they decided to lower the refinancing rate, which, in general, resulted in lower rates in the lending market, and this greatly helped the recovery of all enterprises. And I should add that the Central Bank adopted very timely programmes for supporting banks – lowered the requirements for risk-weighted assets, and essentially, all this was done at the right time, and this helped us address the problems. So, in general, I believe we should close the year much better than expected, provided, of course – I really have to mention this – we don’t know whether there will be a second wave, and what will happen this autumn. But in general, as I said earlier, regarding the difficulties that we struggled with in the past three months, the situation is better than we expected. That is, our forecasts were somewhat more pessimistic.
Our online services have predictably enjoyed demand during this period. We have increased the volume of transactions online to 60 percent for a variety of products. For example, for three months we approved mortgages only online, and we connected other banks that did not have fully electronic platforms for mortgage, and we actually organised the registration of contracts through the Rosreestr service for state registration and provided our electronic channel for applications and submissions. So everything we previously invested in proved helpful during this time.
And, probably, the last thing I would like to say in this part of my report is that Sberbank was recognised as the world’s best bank over the past five years in terms of creating shareholder value. That was very important news for us this year. We are among the top ten companies in the world in creating shareholder value. This is certainly the result of the entire team’s contribution and effort. We have 300,000 people on board. This was a very important achievement for the whole team. And we do hope that we will also come through this period unscathed and help our customers deal with the difficulties that they have had to face.
Vladimir Putin: Mr Gref, my congratulations to you and all Sberbank employees on this achievement. This is an objective assessment of what you have done. But the most important assessment is the one your customers make in Russia and abroad, those who are served by your foreign subsidiaries. I am sure that their ratings are also high.
I know that our main financial institutions, including Sberbank, have a difficult time meeting today's challenges. You also said so, that our financial institutions, with the support of the financial authorities, primarily the Central Bank, and partly the Government of the Russian Federation, are working very efficiently, smoothly, without disruptions, modelling both financial discipline and governance patterns, providing new services to their customers.
In general, I see a very balanced, steady, and I would even say somewhat conservative, but reliable work in the country’s financial system and its main financial institutions. Your bank serves a large number of enterprises in various industries, many of them, and their economic and financial well-being depends on how well you do this, and this is very important. And, of course, you serve retail customers, not only with mortgages, but also consumer loans, as Sberbank has the largest network. This means people’s financial and political sentiment to a large extent depends on how well you perform your job, your management objectives. Much depends on how the bank treats its customers, what services it provides, and the quality of service people get, of course. So I wish you all the best, and I would like to thank you for your work in the previous period.
German Gref: Thank you very much, Mr President.
Vladimir Putin: Keep in touch.
German Gref: Thank you.