VTB's Andrey Kostin: Bank of Russia's tough approach ''better than the weak-willed and spineless supervision''

The Russian Central Bank continues to cleanse the national banking sector. Not only small banks but also the country's key and state-related players such as VTB are checked up. Russia's second-biggest bank was recommended to study how certain loans perform and to set aside additional $900 million to cover non-performing loans.

Russian bank VTB increased its reserves intended to cover potential loan losses and agreed to monitor a number of higher risk loans with the Central Bank, reports Reuters citing Andrey Kostin, VTB's chief executive. ''We set aside around 50bn rubles at the end of last year, of which around a half was recommended by our risk department and around the same amount was set aside based on the Central Bank's recommendation,'' said the banker in an interview. The checks on the bank's financial health have lasted for 10 months.

The Central Bank has been inspecting the Russian banking system since 2013 when Elvira Nabiullina became the governor. Last year, the regulatorhad to rescue three big private banks, while 46 banking institutions lost their licences. According to Kostin, in some cases, the Central Bank acted ''a little too harshly'' towards the banking sector. However, VTB had no problems in its dealings with the regulator, stated the banker, who considers the current tough approach to banking regulation to be ''better than the weak-willed and spineless supervision that took place under Elvira Nabiullina's predecessors''.

The additional provisions did not prevent the bank from hitting its profit target for 2017. VTB's net profit for 2017 will exceed 100bn rubles, half of which is supposed to be paid in dividends. The bank's net profit should see a twofold increase in 2019. VTB was not planning to raise capital from outside over the next two years, said Kostin. Besides, the bank thinks of merging its pension business with other players in Russia once new rules for the industry areintroduced by the Central Bank.

President and Chairman of VTB Bank Management Board Andrey Kostin and Governor of the Central Bank Elvira Nabiullina. Photo: finparty.ru

The national banking sector is constrained by sanctions against Russia. As for VTB, the existing restrictions hampered the bank's privatisation plans and complicated its international activity. In a few days, the U.S. government is expected to expand its blacklist of Russian businesspeople close to the Kremlin. Kostin, as one of the country's most influential bankers, finds the risk of him being on the new list to be ''quite high''.

Inclusion in the sanction list could make foreign politicians, banks and officials reluctant to deal with the bank's head. It can implicitly affect the financial institution's business activity as well. Asked about possible consequences of the new sanctions, Kostin said: ''I can not predict, foresee, avert or… influence decisions by the U.S. government but I can impact the share price from the profitability and (the bank's) financial result point of view.''

By Anna Litvina

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