VTB Group CEO Kostin Speaks in Davos TV Interview (Transcript)

(Bloomberg) –- VTB Group CEO Andrey Kostin speaks in an interview with Francine Lacqua and Guy Johnson on Bloomberg Television’s “Countdown” at the World Economic Forum’s annual meeting in Davos, Switzerland.

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy. Mandatory credit Bloomberg Television)


Guy Johnson (GJ): Good morning. Your 20th Davos, I understand. Was it a good party last night?

Andrey Kostin (AK): I hope so.

Francine Lacqua (FL): Andrey, it is amazing. 20th. So, the first time you were here was back in ’96, you were telling us, the situation now is so different. What is one thing that people ask you the most? I guess, what is Russia going to go through? How is growth going to pick up? And, what you are most worried about?

AK: People are most asking whether we feel isolated or how do we feel under the circumstances. First of all, we don’t feel isolated. We have got our partners, we have got our friends. That is why we come here to discuss business relationships, to discuss what is happening in the world and how we can go further.

FL: But you are taking a lot of pain in business, even if you don’t feel isolated.

AK: We do.

FL: You are taking the big hits. It’s tough.

AK: We have to adjust our business to new conditions, yes, but that is life. I mean, we are, under the circumstances, we have to change our strategy, or rather to change strategy to tactics, I would say.

GJ: Did you think twice about coming?

AK: Not at all.

GJ: Did it even cross your mind?

AK: You know, Russia, starting from the very top and back down to the business community, we are all saying we are not going to be isolated. We want to be part of the world. And, so, for us, it is vital to continue our relationship with our partners.

FL: What, to sign deals, to look for investors? I mean, this is a conversation that we have had. If you are a Russian sanctioned bank, what is the benefit of coming to Davos?

AK: Well, first of all, for us, it is important to conduct business with other banks. Not only investment but just regular business. To see investors as well. We see a lot of our, already shareholders, large shareholders over in France, private investors, and meeting press as well, explaining our position and what we are willing to do and explaining what is happening in the Russian economy and so and so forth.

GJ: Is the expectation amongst the people that you are talking to that Russia is going to stay in a tough place for a long time? There is a sense that Russia is going to be an issue for business not just in 2015 but in 2016 - this is a new normal - or is there as sense that this is something that is going to be temporary and it is going to pass and the political situation will alleviate itself.

AK: I think economy is like a human body. I mean, sometimes you are healthy, sometimes you are ill. When there is illness, sometimes it is a virus which will end sooner or later - hopefully sooner rather than later - some of them are chronicle [sic.] diseases. Russia and the economy has both. I think, such things as the sanctions for example, or oil prices, I think they will end. Maybe one year, two years. Some, which are structural changes, will have to do. That is the more chronicle disease I would say. So, we have to tackle both issues. But, the situation will improve sooner or later. Everything has ending. I think there will be another cycle so we are just working how to protect our economy from the most negative effects or the latest development.

FL: And of course, the problem depends on how much of a bottom you touch. Give us a sense. First of all, the sanctions were imposed in July of last year. They are up for review again this summer. Do you think that they will be lifted and what is your prediction for the price of oil?

AK: It is difficult for me to say when they will be lifted but we definitely see no reason why they should be strengthened or why they should be kept. I am not a politician because there are definitely geopolitical reasons for this, there is no economic reason for this. But we will very much hope that they will loosen or they will soften and they will allow banks like us to come back to the capital markets and the bond markets, and they will be very important for financial institutions. What about the oil price, again it is difficult to say but I think if the price of oil will fluctuate between 60-80 dollars that will be acceptable for the Russian economy. I don’t think why we should always expect that the prices will be above 100. That is another extreme probably. Russian economy should accept a certain level of prices and try to adjust to the new reality.

GJ: You talk about the bond market; you talk about the capital requirements. You received, it was 100 billion in December. I think that there is another 150 coming in the first quarter.

AK: Probably 300 billion more.

GJ: Probably another 300 billion more. O.K., has that number gone up recently and is that going to be sufficient capital for the time being?

AK: Definitely it will be enough capital. There will definitely be enough liquidity, the problem is that they all come from the government sources, central bank sources, and that will… what sanctions led to, our process of prioritization, our process of going to the open national markets has been stopped. We have to reverse now to the only source which is the Russian government or the Russian central bank. Of course, this is not the way which we are dreaming about but we have no choice at the moment.

FL: What forecasts do you have for economic contraction? How long is the recession going to be? How much of a contraction are we going to see in 2015?

AK: For me, it seems that this year might be the most difficult for the Russian economy. We definitely have, as we expect, the negative growth. Maybe, around -3% of GDP growth. Inflation might exceed 10% or definitely will be double-digit, but we still feel that probably our clients, the Russian companies, feel still better than probably they felt in 2009 when there was a global crisis and we already have a lot of experience, how to deal with a crisis. I very much believe that, though this year will be painful, I think our economy and our businesses know how to deal with the stress and I don’t think that it will be the end of the world for the Russian economy. I think we can survive and I think, starting from 2016, the Russian economy will start to pick up.

GJ: SNP. Let’s talk about the possibility of a downgrade to junk that could come by the end of this month. I think everybody is on tenterhooks waiting to see whether or not that is delivered. Have you been pre-positioning the bank in advance of that, precautionary deleveraging? How does it actually work in advance of such a move?

AK: Only speaking for us, it is not a very big concern because, as I said, international markets closed for us and we don’t have any covenants for previous borrowing which led to a situation where we have to pay early our debt. In any case, I am quite sure that all the external debt will be paid by Russian companies. For example, VTB, this year, have to repay only 3.5 billion dollars of external debt. That is only 2.5% of our liabilities. We have no problem. And then central bank will help other private Russian companies with hard currency if necessary. At the moment, we feel that Russian reserves allow Russian companies to repay the debt and that is definitely the intention of the Russian government to provide support. There is no discussion that we will not repay to the West. That we will punish the West. That is not the issue of course.

FL: Andrey, you seem very optimistic that this, I guess, is a cycle that you will get out of. What do you worry about the most though? There must be something, if there is escalation in Ukraine, is there something that you say, is completely out of my control, like most of the situation and that you are concerned about?

AK: You see. There should still be the voice of reason because, O.K., there is a political situation, a political problem. You know, every war stopped in the history. There definitely should be some reason for optimism and at the end of the day, we should overcome this crisis.

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