In March 2005, your Association addressed Russian President Vladimir Putin with a request to hold a special meeting with Russia’s leading bankers. The president supported your initiative, and on December 14, 2005, a meeting was held in Novosibirsk. Would you call the meeting crucial for the banking community? Undoubtedly. When we asked the President for a meeting, the banking community was finalising its Strategy of Raising Competitiveness of the Russian Banking System.
The corporate document was later approved at the 16th congress of the ARB on April 5, 2005.
Last September we started working on the midand long-term programme called The National Banking System of Russia in 2010-2020.
Therefore, we did not come to the president empty-handed, and there was practical and comprehensive discussion that was bearing on state interests in Novosibirsk. We targeted the role of the banking system in attaining the objectives of regional socio-economic development.
Summing up the meeting in Novosibirsk, the president instructed the Russian government and the Central Bank to use the assistance of the Association of Russian Banks to work out and implement a range of measures to improve the legislation, raise the efficiency and competitiveness of the Russian banking system, and create a positive legal environment for protecting the interests of creditors and consumers of banking services.
So, there was understanding? Fortunately, yes. At the meeting we focused, in part, on the need for improving the lending system, a key element of the financial market crucial for implementing Russia’s priority national projects and spurring economic growth. The president approved the approach and said the financial system, the banking system, was the “circulatory system of the economy,” not just its separate sector. We would like the Russian economic growth to proceed in that direction.
When a bank develops its infrastructure, its network of branches, it undertakes a costly project that will last years. But we understand that it will pay off in the future, providing there is at least minimum support from the government. Today we are doing so at our own risk. Therefore, we consider it a priority to develop legislation that would heed the interests of the banking community and its clients. We are not sure there will not be another uncultured official bureaucrat saying his sanitary inspection believes there should be no banks in his town because there may be cockroaches there, all of a sudden. And cockroache are harmful for cashiers because they spread infections. I am not dramatising the situation.
Here is an example to prove my point. A bank office was opened at a nuclear power plant in the Tver Region, where access control is extremely strict even for the plant’s employees.
So, the local police demanded that the bank build three-meter thick walls around the cash register to ensure the safety of the bank’s employees and assets. And this at a nuclear power plant where unauthorised access is virtually impossible. Many requirements reek of idiocy.
People in the regions fail to understand that no national or social programmes will be implemented unless banking services are made accessible to potential and real clients.
In a developed economy and, correspondingly, in a wealthy society, banks have long ceased to be viewed as something strange and alien.
Banking services are among the most popular in developed societies. Various surveys show that 80% of Russians use banks only to pay utility bills, and the other 20% also know about deposits. Only 7% can operate credit cards, 3% use consumer loans and 0.01% have made use of mortgage loans. This is ridiculous and tragic.
When a community has such a notion of banks and their services, the financial system is underdeveloped. Stock markets fare even worse.
How many people here know about shares, stock exchanges and IPOs?
Is this why you have advanced the initiative of nationwide “bankisation”? How do ARB members intend to implement the programme? The “bankisation of all Russia” is a strategic goal I mentioned in the ARB’s programme on the national banking system of Russia in 2010- 2020. Russia’s “bankisation” can be considered from two angles. Firstly, we should continue developing Russia’s national banking system for the next 15 years. We have decided to look ahead, proceeding from the country’s demand for banking products, the demand for housing that cannot be met by government funding, and programmes related to education and development of small businesses. These programmes require credits. Corresponding sources and incentives, legislative, economic and political measures, and regulations are needed to find and provide these credits. We have decided to draft an action plan for the next five, ten, fifteen years to achieve certain results, for example, to ensure affordable housing for the people. Canada did this in 1954 when it adopted a programme on mortgage credit insurance. Canada approved a long-term programme, reduced the first premium and started to lower interest rates. As a result, a third of Canadians, the most vulnerable share of the population, have obtained housing. The rich can do without mortgages. We used the Canadian experience to offer a systematic programme approach. We set deadlines for every goal, and compared our results to those of developed economies to define the parameters of the banking system needed to guarantee the people an appropriate level of banking services.
This is an indispensable factor that directly affects other macro indices, including GDP, renewal of basic assets, etc.
They say we do not have to catch up with and overtake the United States. But this has nothing to do with the US. There are economic laws. If your capitalisation is insufficient, you will have a low GDP in a country that has the world’s richest resources. And you will have low living standards. Everything is interconnected.
When people are homeless and jobless, they cast caution to the wind, indulging in crime, drugs, prostitution and terrorism. Poverty is when society falls into decay, which can split society and, worse still, the country. That is why the development of Russia’s banking system is ultimately linked with national security. These are serious issues indeed.
Let us be frank, the reasons for Russia’s economic underdevelopment can be rooted to one supreme cause – the backwardness of its financial system.
Unless we raise our national banking system, we will be thrown to the outskirts of global development and stay outsiders forever. Everything else is fantasy from ads, like “we will raise the country during the coffee break.” Here even people with authority sometimes view macroeconomic problems with unbelievable naivety.
Once a high-ranking official told me, “So why are you so worried about a 42% depreciation of fixed assets? What's the problem?” I asked whether he was mocking me or being serious.
He did not understand that and asked, “What have I said wrong?” I told him, “Don’t your children travel by air? Are you not worried when a Tu-154 (model of the plane) that has served three times its warranty service period takes off with your relatives on board? Are you not worried when driving along Bolshaya Dmitrovka Street (one of the main streets of Moscow), where cars disappear under the ground?” These issues are too serious to be overlooked. Our macroeconomists, who are so fond of talking about the needs of the real sector, sometimes fail to see the most important macroeconomic infrastructure – the national financial system – behind meters of pipes and rails. Yet this system can be the major energy supplier for building any stone or metal infrastructure. It does exist in this country and it is developing fast, but it is still rather weak and, unfortunately, uncompetitive. If tomorrow we open the doors to branches of foreign banks, it will crumble.
This is why, working on our programme for the country's bankisation, we thought of how it could be implemented in a short time. I sense huge power in the word “bankisation”. It implies offering banking services and products all over the country by creating a healthy financial circulatory system, about which President Putin spoke at his meeting with bankers in December 2005.
The new national banking system should be adequate to the country's size in the amount of funds, which are the “blood” of the state and society, but, more importantly, in the network of “capillaries”, which is the ability to reach every part of the “body” – a remote region, a sector that is not a current priority, or a small business that is very far from big-time economic policy.
That is the meaning of the word. Without it, our economy will never follow the normal track.
What does the Association do to develop mortgage loans? So far, a mortgage is expensive in Russia. Are we inferior to banks with foreign capital working in Russia in this respect? As of now, we are not inferior to anyone. Banks with foreign capital operate exactly like Russian ones and are Russian according to their legal status. It is not bad that they set terms of competition in some areas, as long as this is sensible.
What does the Association do in this area? The development of mortgages hinges on the development of legislation that creates incentives for it.
In the past, we greatly contributed to amending Article 446 of the Civil Code of Procedure, which deprived banks of any incentives to issue mortgage loans. Then another “smart” legislative innovation was advanced: joint responsibility during construction, which again puts banks at risk of losing loans they have given. This provision is finally being revised now. But it is still one step forward and two steps back. As for legislation, we have developed a list of measures and are gradually carrying them out. We are using relevant Canadian experience – we had been to Canada to study how they promote awareness when working with lawmakers and the public to rally support for the proposed bills. In this country, many just do not understand what we are talking about. In the Soviet Union, no one knew what the banking system was. Nor did we know such words as mortgage. Here is another example related to financial infrastructure development. The Association, acting together with Vneshtorgbank, has initiated the establishment of a National Credit Bureau, which will keep borrowers' credit records to expose swindlers.
Of course, the Bureau is more oriented towards consumer loans now, because the system of pledges in mortgage is more substantial than the system of records. But mortgages will not develop without such bureaus.
Some people say we have too many of these credit bureaus. Do you agree? Yes, there are many of them. But the National Bureau, which we co-founded, is an absolute leader. It is the only bureau Sberbank has signed an agreement with. The number of its agreements with banks is many times higher than all of the other credit bureaus put together. By mid-May, it had agreements with 520 banks, 70% of which are among Russia's top 100 banks in terms of the amount of consumer loans.
What do you think of Russia's accession to the WTO in light of the United States' demand that foreign banks should be allowed to open branches in this country? I have a negative, absolutely negative, attitude.
This is it. There will not be (foreign) branches here, at least at the present stage. Moreover, no one should dictate to us what to do. I would not say that we do not need WTO membership. But the fact is that accession on any condition, the surrender of all our positions, is advocated by those who want to export our resources, not industrial goods. Why export oil to set up a stas bilisation fund? As somebody correctly put it, “The best stabilisation fund is oil underground.” Then why produce it in order to place revenues in foreign securities? If we export oil and other resources, we should at least spend revenues on something that is vital for the country – the development of infrastructure, health care, education, road networks and the stock market.
How do you see the future of Russia’s banking sector? I am an optimist. But unless we change our way of thinking and restore elementary common sense in the approach to developing the national finan - cial system, we risk losing a lot. I hope the state’s instinct of self-preservation will eventually take the upper hand. We believe society and the authorities will heed our call for the “bankisation” of the country. If we attain this goal, we will see a rapid growth of not only our banking sector, but also of Russia’s economy as a whole.
If not, the developments will take a pessimistic turn, which I would not like to talk about. Now and again we are reminded of Japan, which surrendered to the mercy of the Americans. Did the Japanese lose much, pragmatic as they are? Not at bit. They have scored an outstanding success.
But Russia is different. We have boundless expanses and abundant natural resources. We should not surrender to a rival, let alone an adversary. Russia has no right to be so unthrifty in using its riches. This is impermissible.
You have a long record of operating in the banking community. Do you think Russian capital will continue its flight abroad? Or will it start coming back? What prevails in the banking community – patriotism or a longing to operate outside Russia? Such moods change fast and depend to a great extent on a policy pursued in the country. Once it seemed that the flight tendencies had stopped and would be reversed. But it appears that time has not yet come for that. Many decisions were made that again scared capital out of the country.
Those who work in business and in banking began making long-term deposits. Many were investing in the infrastructure, developing it, always having a reserve scenario in mind – to develop and sell at a higher price. We haven’t gotten rid of this fear, of the wish to play safe – hide money and re-emerge on the Russian market with a foreign brand. This is very serious. The state and politicians should work hard to make people believe in their country, so that they can be certain that no one will impose a regime on them, in their region or in the country as a whole, under which they would become desperate to leave the country.
I hate to recall unpleasant historical parallels, but I cannot forget that this has happened here and in other countries. Whole ethnic groups suffered from genocide, social and national. People cannot be sure that history will not repeat itself some day. Society should be relieved of these fears. When it is put under stress, it becomes sick and cannot develop normally. The 1990s were also marked by euphoria, when people thought everything had changed. But those who were directly involved in business realised that, in fact, nothing changed. True, currency operations were allowed, but at the same time those conducting such operations faced the danger of criminal penalty.
In general, one has to be very cautious about legislation. Today businessmen are scared again.
It would seem there is no direct threat. But officials want to restore the confiscation of property.
Why? It may create problems that affected many in Soviet years, when people would be cornered and told: here is a cup and a spoon and nothing more for you and your family. Only property acquired in a clearly fraudulent way may be confiscated.
Perhaps the new confiscation law would have such a provision. Anyway, business instantly reacts to all, even potential, threats to its existence, and acts accordingly. But believe me, no one wants to roam around the world in search of a better life. We all want the best life here in Russia for everybody, not just for a chosen few. And so it will be some day.
