Transcript:

Question: What did you discuss there? What did you agree to do?

Igor Shuvalov: We discussed many issues. What would you like to know in particular?

Question: I would like to hear about Cyprus.

Igor Shuvalov: What in particular? What questions would you like to ask?

Question: The Prime Minister has said that there are money of state corporations there. What volumes are we talking about and which corporations own them?

Question: We have information that the authorities want to write off 30% from deposits over 100,000. Does this only apply to the Bank of Cyprus so far?

Igor Shuvalov: All right. Regarding the problems in Cyprus, the Government of the Republic of Cyprus started requesting additional financial assistance from Russia more than a year ago. Russia had previously issued them a $2.5 billion state loan. Cypriot banks found themselves in a dire situation when Cyprus faced major problems after Greek debts were written off. As you know, many Cypriot lending institutions used to buy Greek liabilities and debentures. After Greece defaulted on its payments, the European Union adopted a consolidated decision on Greece. As a result, the current situation which we are witnessing now was not because the Cypriot banking system was poorly regulated or because the system of oversight was in a terrible state, but because of their huge investment in Greek debts. However, all decisions on Greek debts were made without Cyprus. As a result, all the current problems now facing Cyprus were essentially caused by the adoption of all the EU decisions.

We have been monitoring developments in Cyprus closely. We have met with representatives of the banking community. The Minister of Finance and the Minister for Energy, Commerce, Industry and Tourism have recently visited Russia. We have discussed various projects, and have assessed the overall situation and national developments in great detail. The Minister of Finance, the Russian Ministry of Finance knows the situation very well. In these conditions, we have decided that Cyprus and the European Union should first agree on a package of decisions. These decisions should be formalised at the EU level, at the level of the European Commission and the European Central Bank. Furthermore, some of the decisions should be formalised by the Parliament and Government of Cyprus. The Bank of Cyprus should also take the necessary decisions.

We considered the initial approach announced by Cyprus to be extremely unfair with regard to those healthy financial institutions which did not haveproblems. The two largest Cypriot banks, Laiki Bank and the Bank of Cyprus, create most risks for the banking system. Most of the problems have accumulated at these two credit institutions. At the same time, the Russian Commercial Bank with VTB capital is the largest local bank with Russian investment. This is a healthy bank and is probably the healthiest bank in Cyprus which and doesn't have any problems. But the very same measures were suggested with regard to this bank as those proposed for all the other lending institutions.

When the Minister of Finance was in Moscow, we told him that it was unfair to adopt the same approach towards banks that are in trouble and those which have virtually no problems with liquidity or current operations. Consequently, we said at a meeting with the Minister of Finance and the Minister for Energy, Commerce, Industry and Tourism that we will wait for final bilateral decisions that are due to be made by the EU and Cyprus, and then we will see whether it is possible and necessary for Russia to provide assistance.

This package decision is currently being modified and we are following it closely. These decisions have not yet been finalised, they are still under discussion. The two largest banks will be reorganised. The healthy and bad assets will be divided. Moreover, it will be suggested that these two banks write off 30-40% of their respective deposits. But all this is still in the discussion stage and we have not seen any final decisions. The relevant proposals concerning other republic's banking institutions are still under discussion. Once this decision has been taken we will find out whether a small share of deposits will be written off or not. Nevertheless, we are following the situation closely. It is our opinion that, regardless of any overall decisions in Cyprus or between Cyprus and the European Union, the Russian Commercial Bank will not be affected, or if so. the losses will be insignificant. Together with senior VTB executives we have carefully studied the entire structure of the bank’s assets and liabilities: the bank’s situation is good and stable.

As for the discussion of Russian capital in Cyprus, it should probably be divided into two categories. The first category includes all those negative aspects which are being discussed all the time, including money which has been taken out of Russia and on which no tax has been paid. We believe that its share is entirely negligible and that official assets which have been officially deposited in Cypriot banks under Cypriot jurisdiction and legislation to prevent double taxation account for the bulk of the assets. This legal framework is being used to officially minimise taxation as part of various transactions, and purchases of assets or securities. We currently lack accurate records about potential losses for Russian investors. We only know which investors have deposited their assets with the Russian Commercial Bank, and we can confirm that this bank has no “grey” (semi-legal) or illegal assets. This is a good and healthy institution with perfectly legal and open schemes.

As for other banks, we don’t know whether these two highly sophisticated banks which are subject to reorganisation have Russian assets or not. Various conjectures are being made and various statistics are being mentioned but we have no documentary evidence that can confirm whether there are any assets there or  estimate their volumes.

On the whole, I believe that this is an extremely unhealthy situation, and that this situation was initiated by a discussion of the first approach. The active discussions in Cyprus of this EU-sponsored approach were to no avail. You also know that the Cypriot Parliament has voted on this issue. And all investors are scared because, in essence, a confiscation payment was suggested, that a certain share of assets be confiscated from depositors or legal entities, including absolutely legal depositors operating within the format of credit agencies which do not have to be restructured in any way. And when we said, including during negotiations with representatives of the European Commission, that the Russian Federation had repeatedly undergone similar procedures, including in 1998, we were told that this was the same thing. No, this is not the same thing. The rouble was devalued in 1998 after all bank deposits became devalued. The approach suggested to Cyprus was motivated by the fact that many depositors were reportedly not paying taxes. Although this approach was considered fair, we see nothing fair in it. If the Republic of Cyprus really believes that many depositors have failed to pay the required taxes in their respective states and economies, then its authorities should have charged the appropriate tax on these incomes. But, in effect, what was proposed was a confiscation of property rights.

What does this mean for Russia in the medium and long term? Speaking of Russia and all those working with Russia, it means that all those constant reproaches about an unfavourable investment climate in Russia … And we often hear from the EU and European countries that we must work hard to improve the investment climate. And this is true, we have to carry out this work, we have the required agenda. But no investor should forget that the EU has a 100% guarantee of property rights, and that current developments are a positive message for those who are ready to transfer their capital under Russian jurisdiction and into Russian banks. We have very stable banks. In fact, not a single major Russian bank has suffered a systemic crisis during the financial and economic crisis which began in 2008. It is possible to transfer all these capitals to Russia and to pay all the required Russian taxes because it is now perfectly clear that the Russian banking system is in fact much more stable than many European banks. In terms of future prospects, those investors who cooperate with Russia and those Russians who work in Russia and who invest abroad should think about the best options for preserving their capital. And they should also think about which institutions they should use. Not everything that is foreign is that good, it turns out.

Question: And what will we do about the $2.5 billion loan?

Igor Shuvalov: We will make the final decision after we see the entire package of decisions by the EU, the European Central Bank, the Government of Cyprus, the Bank of Cyprus and the legislature of the Republic of Cyprus. Once we have studied the entire combination of these decisions, we will propose our own assistance measures, including the restructuring of this debt or some other options. But it is still too early to talk about this today because the current situation means that the Russian Government will not have to make any additional decisions. 

Question: Is it possible that we will refuse to help?

Igor Shuvalov: We have said that no Russian assistance is currently needed while we are negotiating with the Government of Cyprus. This country is part of the eurozone and the European Union. And, on the whole, we regret that such problems are occurring because this is not a problem of Cyprus, this is a problem … Regardless of all the assurances on the part of the European Commission, we fear that this may affect the stability of the euro, the stability of the eurozone, and that the crisis may gradually aggravate the entire situation. Russia has an export-oriented economy so we have to take note of this. In other words, we fear this is a problem which transcends far beyond the boundaries of Cyprus.

That will be all. Thank you.