February 20, 2013, 00:38 / Interviews and profiles

Sergei Ignatiev: Interview - Sergei Ignatiev, Chairman of the Bank of Russia

Russian banks can be freed from most dubious transactions: one-day firms can be removed from shadow circulation, and asset theft should not be allowed to get away with, Sergei Ignatiev is convinced Olga Plotonova

Sergei Ignatiev, Chairman of the Bank of Russia / D. Abramov / Vedomosti

Sergei Ignatiev, who led the Russian Central Bank for a record 11 years and will soon leave this post, believes that he did not make any serious mistakes. The legislation does not allow Ignatiev to hold the post of head of the Central Bank any longer - his contract has already been extended twice. In an interview with Vedomosti, Ignatiev refused to discuss possible replacements; he assures that he himself has not yet decided on future plans. But he offers recipes for improving the situation in the economy. The main one, according to Ignatiev, who was considered a liberal, is that the state must establish greater order.

1991

Deputy Minister of Economy and Finance

1992

Deputy Chairman of the Bank of Russia

1993

took up the post of Deputy Minister of Economy

1996

Assistant to the President for Economic Affairs

1997

First Deputy Minister of Finance

2002

took over the post of Chairman of the Bank of Russia

Where have the currency speculators gone?

In 2007 - early 2008, when the exchange rate was very strictly controlled by the Central Bank, expectations arose that the ruble should continue to strengthen. Indeed, it was profitable for foreigners to buy Russian ruble assets; they were relatively profitable compared to other countries, Ignatiev recalls: “There were strong investor expectations regarding the strengthening of the ruble, and there was an influx of capital, in my opinion excessive, which further strengthened the ruble” . The mechanism of a floating currency corridor has been in effect for four years now [the levels of Central Bank interventions and their volumes depend on the market situation, the exchange rate of the dollar and the euro is taken into account simultaneously]. Ignatiev considers his work successful, since speculators are now unheard of: “I am completely satisfied with him. He is very transparent. Almost all parameters are known to the market.”

Troublesome farming

49.5 trillion rubles. The assets of 956 Russian credit institutions (as of January 1) amount to $532 billion in gold and foreign exchange reserves, of which $51.96 billion are in gold (as of February 1) 79.5 billion rubles. expenses for maintaining 66,452 Central Bank employees (in 2011)

– In 2012, we did not meet the inflation forecast; in January it is still high. Is the situation under control?

– In recent years the results have been good. In 2010, it was planned to keep inflation in the range of 9–10%, but in fact it turned out to be 8.8%. In 2011, it was expected that inflation would be reduced to 6–7%, but the actual figure was 6.1%. For 2012, the target interval was 5–6%, but in fact inflation turned out to be higher – 6.6%. The impact of a poor harvest and rapid rise in grain prices had an impact. In 2013 it is expected to reduce inflation to 5–6%, and in 2014 – to 4–5%. I think that the task is quite realistic. There is 90 percent confidence that inflation in 2013 will be in the range of 5–6%. Yes, as long as inflation continues to rise. At the end of January, annual inflation rose to 7.1%. The main reasons are the continued rapid rise in grain prices and a serious increase in prices for alcoholic beverages as a result of increased excise taxes. I really hope that in the coming months the inflation rate will begin to decline and, perhaps, we will begin to reduce interest rates of the Bank of Russia. But I cannot make firm promises. Specific decisions depend on many circumstances.

– Dmitry Medvedev proposed including spending on communications and the Internet in the calculation of the consumer price index. Whether it is necessary?

- A normal offer. If these services occupy a significant place in the population's budget, they should be included. For city residents, for example, this is a serious expense item.

– With the introduction of inflation targeting, are there any concerns that the Bank of Russia will have to be more strictly responsible for failing to meet the established inflation target?

– I’ll explain how this happens in the UK: they have a target interval of 2% plus or minus 1 percentage point. If inflation falls outside this range, the Governor of the Bank of England writes a public letter to the Chancellor of the Exchequer. He explains why this happened and what needs to be done to bring inflation back to the specified range in the medium term. As a rule, this is all that is limited.

– Is inflation the only reason to cut rates?

– We make decisions on interest rates on a monthly basis. In doing so, we take into account the full scope of available information. Not only inflation and unemployment indicators, but also the growth rate of industry, investment, retail trade turnover, the dynamics of the money supply, bank lending, balance of payments indicators, exchange rate dynamics and much more. Recently, we have often been reproached for keeping the refinancing rate high (currently 8.25%), as well as other interest rates of the Bank of Russia, thereby limiting aggregate demand in the economy, which leads to a slowdown in economic growth. But we must take into account that the Bank of Russia issues the bulk of loans to commercial banks in the form of repo transactions at 5.6–5.7% per annum. This is below the current rate of inflation, meaning that “real” rates are effectively negative. I will add that unemployment remains at a record low level of 5.3% (in December 2012). It would be very strange to reduce interest rates of the Bank of Russia against the backdrop of rising inflation and record low unemployment.

– Do you consider it normal for real rates in the economy to be negative?

– Not all rates, but those at which we provide the bulk of loans to banks. Although in general this is not very normal. The rates must be at least non-negative. But in the current situation I don’t see anything bad. Because there are countries where there is a recession, where they are even more negative.

– What is the reason for the slowdown in economic growth?

– The main problem is not the limitation of aggregate demand, but what can be called the “clogging” of supply channels. I mean first of all the condition of our roads. To get from the near Moscow region to the center of Moscow, you need to spend two hours. Moreover, more than half of the time you have to stand in traffic jams. In other regions the situation is not much better. Now we are building much fewer new roads than in the 80s, and the number of cars has increased significantly. In a situation where you can neither leave nor come, nor take away nor bring, you cannot count on large-scale private investments in the economy. Therefore, it is necessary to increase government spending on the construction and repair of roads, and not only federal, but also intraregional and rural. At the same time, there is no need to get carried away with large-scale projects; the main attention should be paid to clearing out bottlenecks.

– Should the Central Bank also control economic activity?

– In 2009, when the crisis reached its maximum depth, I was personally very concerned about the low lending activity of banks. I was the initiator of one well-known government instruction at the beginning of 2009 - an instruction to our state banks to increase their loan portfolio at a rate of 2% per month. I believe that the initiative was correct and in some critical situations similar methods must be used to intensify economic life. For the economy to emerge from a crisis, sometimes traditional tools are not enough.

- And what is the result?

– State banks play a significant role in the Russian banking system - they largely make the difference, and then others follow. You know, then I actively asked and convinced bankers that they needed to increase their activity. I told them that they were too afraid of credit risks: “Yes, there are credit risks, the industry is in a bad position, but nevertheless, lend. It’s good for you and good for the economy too.”

- And now?

- Now everything is fine.

– But corporate lending is almost not growing, judging by recent months.

– It is necessary to take into account seasonality, and it is better to use data for the last 12 months. The growth of the corporate portfolio over the past year was 13.5% at the end of January, and the consumer portfolio was 39.6%. Overall, the portfolio grew by almost 20%. This is a normal pace. The fact that the growth of companies is small, and that of consumer lending is large, this worries us a little. The fact that, in our opinion, banks underestimate the risks and are actively increasing unsecured lending to individuals.

– Do you think 13% growth in loans to the real sector is not small?

– It’s difficult to name any optimal numbers. Maybe I would like it to be 15%, but the existing growth is normal.

– The Russian Direct Investment Fund proposed to evaluate capital outflows differently. The methodology developed with Ernst & Young records only direct and portfolio investments; the outflow in 2011 was half as much. What do you think of this proposal?

– I’ll say right away that I do not consider the definition of “net inflow/outflow of private capital”, which is used by the Bank of Russia, to be absolutely ideal or the only correct one. It contains a number of conventions, by the way, in the same way as, for example, such indicators as the price index or the industrial production index. Probably the main convention is that we include the entire amount of “omissions and errors” with the appropriate sign in the net outflow of private capital. The motives are as follows. Omissions and errors can also occur when estimating current account indicators, such as exports and imports of goods, or even when estimating capital transactions carried out by government institutions. But in these cases, the initial statistical base available to the Bank of Russia is much more reliable than when assessing the components of private capital inflow/outflow. Therefore, so to speak, omissions and errors are much more likely to be attributed to the outflow of private capital than to the current account.

Now what is net private capital inflow/outflow? It is the algebraic sum of a number of components. For example, a Russian company received a loan from a foreign bank. This is an influx of private capital. A Russian company repaid a loan to a foreign bank. By our definition, this is an outflow of capital. We are not assessing whether this is good or bad, we are simply stating: this is an outflow. A foreign company acquired shares of a Russian company from Russian owners. This is an influx of capital. A Russian company acquired shares of a foreign company from foreigners. This can be called an expansion of Russian capital, but by our definition it is an outflow. A Russian citizen transferred money from his Russian bank account to his foreign bank account and then bought a beach house abroad. This is an outflow. And one more example. The Russian population has increased its reserves of foreign cash. Cash currency is the liability of foreign central banks. The growing demands of Russian citizens on foreign central banks is an outflow of capital. The Bank of Russia regularly publishes very detailed information on the balance of payments. Anyone can give a different definition from ours of “net inflow/outflow of private capital” and, based on our information, carry out the necessary calculations. Experience will show which definition will be more in demand by experts and analysts.

– But in Russia the outflow is still large. Is it good or bad?

– In our country, after 2007, there has been an annual net outflow of private capital as defined by the Bank of Russia. In 2011 – $81 billion, in 2012 – $57 billion.

Over the past years - from 2005 to 2011 - countries such as China, India, Brazil, South Africa (all BRICS countries), as well as Poland and Turkey, had an almost continuous net inflow of capital. Germany, Japan, and France were characterized by a net outflow of private capital. The US and UK have seen both net inflows and net outflows of private capital in some years. The following explanation for this distribution of countries between exporters and importers of private capital is possible. Private capital flows from countries where the economy is highly saturated with capital to countries where there is a shortage of capital, so the profitability of capital is relatively high. This takes into account risks, administrative costs and everything that is covered by the concept of “investment climate”. The fact that Russia was not included in the list of capital importing countries seems rather strange, since in terms of the level of economic development and the saturation of the economy with capital, our country is comparable to such capital importers as Brazil, Poland, and Turkey. Apparently, our investment climate is not entirely favorable.

– Is everything explained solely by the poor investment climate?

– Of course, other, additional, but not alternative explanations for this phenomenon are possible. In recent years, the volume of purchases of real estate abroad by Russian citizens has sharply increased. In 2011, this figure amounted to more than $9 billion. Most people buy real estate in countries with a favorable climate: Spain, Montenegro, Bulgaria, etc. Perhaps not only the investment climate is important for the movement of private capital, but simply the climate. It seems that in Russia the process of changing generations of business owners has begun. Those people who created their own business in the early 90s are gradually retiring, selling the business to new owners, usually Russians, and investing the money received not only in Russian assets, but also in foreign ones. These are my personal thoughts. Perhaps some capital outflow occurred under the influence of the transition to a more flexible ruble exchange rate. Asset holders have strengthened their currency diversification. But I would especially like to note the position of the balance of payments “doubtful transactions”, which in 2012 in the amount of $35 billion were included in the financial account and in the net outflow of private capital.

– What kind of dubious transactions are these?

– The Bank of Russia classifies as dubious transactions in the balance of payments mainly payments by Russian organizations in favor of non-residents, the stated goals of which clearly do not correspond to the actual ones. This definitely violates tax laws. For example, a Russian organization, usually an LLC with obvious signs of a shell company, regularly receives payments to its accounts in Russian banks, including VAT, from a number of its Russian counterparties, allegedly for goods supplied. Then all incoming funds are converted into foreign currency and transferred to foreign banks into the accounts of offshore companies, ostensibly as payments for securities. At the same time, the organization does not pay any taxes or pays purely symbolic amounts. To supply a product, it must either be produced or purchased. However, the company does not make any payments for goods, raw materials, or electricity. A few months later, the company ceases operations on its bank accounts. Obviously, no deliveries of goods took place. This is the simplest example. Much more sophisticated schemes are also used using a large number of shell companies, many banks, and long chains of payments. At the same time, a “VAT gap” always occurs at some link, i.e., a certain company receives money from VAT payers, but it itself transfers funds to its counterparties without VAT and does not pay any taxes, i.e., it clearly violates tax regulations. legislation. It is possible to determine the original source of money and find “beneficiaries”, but only during a criminal investigation.

– What are the real purposes of such operations?

– This could be payment for the supply of drugs or other goods prohibited for import into Russia. This may be payment for gray imports. Such transactions belong to the current account of the balance of payments. These goals may include bribes and kickbacks to officials, with the money ultimately transferred to accounts controlled by them in foreign banks. Perhaps these include kickbacks to purchasing managers in large private companies with ineffective internal controls. Maybe these are tax evasion schemes. The Bank of Russia has accumulated significant experience in identifying them: in 2012, $49 billion worth of such transactions were identified. The relevant information is sent to Rosfinmonitoring, the Federal Tax Service, and law enforcement agencies. At the same time, we attributed $14 billion to the current account (for example, payment for gray imports), this figure is not directly in the balance of payments. We included the remaining $35 billion in the financial account and in capital outflows. This is an increase in foreign financial and other assets of Russian residents accumulated as a result of shadow, illegal activities. I estimate the damage to the budget system as a result of such operations at approximately 30% of the volume of the flow of questionable transactions - about 450 billion rubles. in year. If we add here internal cash-out operations, which are organized by the same people, I think the total damage to the budget system will exceed 600 billion rubles. in year.

– And all dubious transactions are carried out using shell companies, so-called shell companies?

– Fly-by-night companies are simply a problem for our economy. To understand the scale of the problem, I will give a few figures. In total, there are 3.9 million “operating” commercial organizations registered with the Federal Tax Service of Russia, of which 3.6 million are in the form of LLCs. Really operating organizations, i.e. those that make at least some payments through the banking system, are approximately 2 million. The rest - about half - are apparently waiting in the wings. Of the organizations making payments through the banking system, 11% of organizations do not pay any taxes at all, another 4–6% of organizations pay purely symbolic amounts.

I advise everyone to read the wonderful material in Vedomosti dated January 28, 2013, entitled “Joker with a certificate.” The reader will get an idea of how shell companies are created.

It comes to absurd situations. Tax officers and law enforcement often contact the nominee director of such a company. He states: “I don’t know anything, I gave the key for remote control of a bank account to some stranger, and received 500 rubles.” This is where the check ends. And the bank account of such a company continues to have an active life. However, even if the bank finds out that the nominee director is not a director at all, that the bank account is managed remotely by someone unknown, it has no legal right to either close the account or suspend operations on it. In these conditions, the fight against money laundering largely loses its meaning.

- What to do, how to fight?

“We urgently need to adopt the law developed by Rosfinmonitoring and submitted to the State Duma by the government, which provides, in particular, the right of a bank, generally accepted in world practice, to unilaterally sever relations with a client conducting dubious transactions. We must finally establish basic order in the system of registration of organizations. I am absolutely sure that it is possible to develop a procedure that would minimally burden conscientious people, but at the same time create serious obstacles to the creation of fly-by-night companies. Liability should be introduced for nominee directors who transfer control of a bank account to someone unknown. In addition, as our analysis shows, more than half of the total volume of questionable transactions is carried out by firms directly or indirectly connected with each other through payment relationships. It seems that they are all controlled by one well-organized group of people. With serious concentration of efforts on the part of law enforcement agencies, I think these individuals, as well as the beneficiaries of these operations, can be found.

– Is there a ban on opening accounts for new or existing clients?

– Banks should receive the right to refuse to open a new account if there are serious suspicions, and should have the right to terminate transactions on already open accounts. By the way, the bill spells out a fairly lenient procedure; I don’t think that banks will abuse their rights, since there will be no benefits from dishonest behavior.

– Do you hope for banking consciousness, because there is a demand for banking services from fly-by-night companies?

– Not only on consciousness. Since banks have such a right, then we can demand that banks behave accordingly. And we will demand that banks stop operations with such clients.

– Will the punishment for disobedience be up to and including revocation of the license?

- No, why? There are many ways to warn the bank. In some cases there may be an extreme punishment, but in most cases we will manage with mild measures.

– Is the banking community conscious now?

– The vast majority of bankers - yes. Moreover, we will have the opportunity to demand. Now we cannot say to banks: “Well, how come you have such a suspicious client, don’t you see, don’t you know?” To which the bankers respond that they see and know, but cannot do anything: “We can disconnect them from remote control, but they come to us with paper payments, and we cannot refuse the operation.” I think many will want to take advantage of the new opportunity.

– Is it necessary to introduce a special status for small banks? For example, the concept of a “regional” bank with special supervision conditions?

– I don’t think it’s necessary. We have a plan - from January 1, 2015, to increase the minimum capital to 300 million rubles, and I am confident that the absolute number of banks will cope with this. Even by European standards, 300 million is not a bad capital. There, the minimum capital, as far as I remember, is 5 million euros, that is, about 200 million rubles, that is, we have even more. And there's nothing wrong with that. Then you can increase it further.

– During the crisis, banks acquired a lot of bad assets. Do you think they have dealt with the main cargo?

- Basically, yes.

– What is the main problem for banks now?

– I think the main problem is criminal bankruptcies. We only have about 1000 banks. On average, we revoke about 30 licenses per year. By my estimate, three quarters of these bankruptcies are criminal. My colleagues have even higher grades. This means that the bank became bankrupt not because the managers took excessive commercial risks on the bank. No, they are simply deliberately bankrupting him and withdrawing assets for their own benefit. This is the main problem, I think. Of course, we are doing something in the field of regulation and supervision. For example, after identifying the so-called “Urin banks,” we increased reserves for securities that are accounted for in incomprehensible, unknown depositories. After bankruptcies such as Mezhprombank and the identification of problems at the Bank of Moscow, we increased the risk ratios for loans issued to technical companies that do not conduct real activities, but are a transfer link. This all helps in preventing criminal bankruptcies, but not much. The main thing is the inevitability of criminal punishment. Not even severity, but inevitability. It seems to me that many unscrupulous bankers do not yet feel this inevitability of punishment. Quite the contrary.

“But we haven’t been able to pass a law on criminal liability for many years now...

- Yes. This is a complex law. In general, crime in banking is very difficult to identify and prove. There must be specialists in law enforcement agencies, a lot of time is needed for the investigation.

– Did the Bank of Moscow really not have any bad assets under the previous shareholder, were there a lot of them connected with the owners of the bank?

– Lending to technical companies, including offshore ones, is a common practice. We look at this askance and discuss such loans with bank managers. Nevertheless, if there are collaterals, then this calms us down a little, but not much. For example, in the case of the Bank of Moscow, some collateral simply disappeared. And before the owner changed, we did not know about the scale of the problems at the Bank of Moscow. The Bank of Moscow, I admit, was a surprise to me. I looked at the previous inspection report, which was carried out under [Andrei] Borodin. I won’t say that the inspectors did a bad job. There were some things to notice there, but I just already knew what to look for. I already knew what came to light after the change of ownership, and before that I might not have noticed any special problems in the act. And the inspectors might not have noticed.

– But if the owner of the bank did not change, then there would be no problems?

- I won’t say this. They probably would have arisen later. When the owner of a bank is associated with borrowers, this is an unpleasant situation, because the risks are usually high. It is very difficult to prove the relatedness of the parties in a credit transaction. Therefore, we have been wanting to introduce the concept of motivated judgment for many years, at least regarding related parties. The corresponding bill is in the State Duma.

– It’s been lying there for a long time, by the way.

– I’m not commenting, but I hope that they will accept it.

– Was everything clear with Mezhprombank?

– This bank has been on our radar for a long time: it provided loans to both offshore and technical companies. But, on the other hand, the owner also had a real business. Shipbuilding companies were real companies. And the project of the Yenisei Industrial Company was also quite realistic.

– But everyone is asking the question: why didn’t the license be revoked for a long time?

“They had the opportunity to return the money.” We were counting on this. But the managers and owners did not want to return it.

– Raising the limit for insured bank deposits to RUB 1 million. do you support?

- Yes. So far so good, we'll see later. Our prices are rising, wages are rising, deposits are growing. And therefore, sooner or later this amount must be increased. I calculated that the increase to 1 million rubles. approximately corresponds to the increase in the price level.

– What will you do after June 2013?

– I think about it, of course. But I don't know yet.

– What did you do best during your presidency of the Bank of Russia?

– I believe that during the crisis of 2008–2009. we acted correctly. I do not regret anything. There were no serious errors. There were doubts, the same unsecured loans. They doubted them. But more came back than we expected. I thought that I would return less, but only four banks out of two hundred were not returned.

– Banks are asking to extend the term of loans from the Central Bank, and they would like to receive foreign currency loans.

“I don’t see the need for either one.” This is all used in some crisis cases. This is not the norm. When there is a crisis situation, it will be different. And perhaps the mechanisms we used will not be sufficient and new ones will be required. After all, crises do not repeat themselves. It's new every time.