December 13, 2013 / 12:51 PM / 6 years ago

INTERVIEW-Don't delay Russia's economic reforms, says Sberbank CEO

(Adds comments on Sochi Olympics, consumer lending, fiscal policy)

* Russian economy lacks growth drivers - Gref says

* Predicts Russian consumer lending will slow

* Says Russia needs more efficient budget spending

By Darya Korsunskaya and Oksana Kobzeva

MOSCOW, Dec 13 (Reuters) - Russia’s flagging economy is in urgent need of reform to unlock new sources of growth as the consumer spending boom that has driven its expansion runs out of steam, Sberbank Chief Executive German Gref said.

Sberbank, Russia’s largest lender with $460 billion in assets, is widely viewed as a proxy for the country’s economy. While its profits remain strong, a recent deterioration in loan book quality may be an early warning of harder times ahead.

“In general, I do not see any disasters,” Gref, a 49-year-old former economy minister, said in an interview with Reuters.

“The most likely scenario is that economic growth will still float around two percent,” he added, referring to 2014.

Russia last month slashed its long-term growth forecast, predicting the economy would grow at an average of 2.5 percent through to 2030, lagging global growth and setting the stage for an era of stagnation..

While a shrinking workforce is keeping unemployment low, state-owned Russian Railways - which employs one million workers - has put many staff on short-time contracts to curb costs without resorting to layoffs.

President Vladimir Putin, in Thursday’s annual state-of-the-nation address, said for the first time that Russia’s economic problems were mainly home-grown, singling out a poor investment climate and low labour productivity as barriers to growth.

Yet he offered few proposals to boost Russia’s economic speed limit beyond seeking the return of billions of dollars in flight capital and improving education and training.

“I think we have only one risk - ourselves. The rest is just a product of it,” said Gref, who has transformed the former Soviet state savings bank into a profitable regional player by bolting on acquisitions in Turkey and Eastern Europe.


The bank, Europe’s third largest by market value and employing some 200,000 staff, has made an aggressive push into the consumer credit space but is seeing a deterioration in the quality of its loan portfolio.

“I do not see sources of further wage growth... Consumer lending is likely to gradually slow. Everything will be more difficult,” Gref said.

Consumer demand has been the main driver of growth in Russia since the 2008-09 financial crash, partly thanks to heavy budget spending before the 2012 presidential election that returned Putin to the Kremlin for a third term.

The economy has got a modest boost from projects linked to next year’s Winter Olympics in the Black Sea resort of Sochi, though the $50 billion being spent on facilities and infrastructure for the event which is unlikely to deliver meaningful long-term returns.

Gref warned of possible defaults on Sochi projects, urging the government to keep tax incentives in place after the Games to give the city time to attract tourists from both Russia and abroad.

“In my opinion, grace periods on loans would be needed, the preservation of tax benefits and a number of other measures,” said Gref. Sberbank has backed investments in Sochi, including a ski resort, but has not disclosed their cost.


Government sources have told Reuters that Russia’s budget gap could reach $300 billion by the end of this decade and that the country could exhaust its $90 billion Reserve Fund within as little as three years.

“We now see that there is no cushion ... The budget is very big. There are certainly some expenditures that could be made more effective,” Gref said. “The current situation is ideal for a number of very important reforms.”

“We should start in the kindergartens. If we want to build a modern society, we should begin there”.

Gref also told Reuters Sberbank sees no threat for now to its business from the political upheaval in Ukraine and will be able to absorb losses there thanks to its strong capital base.

$1 = 32.7290 Russian roubles Additional reporting by Katya Golubkova; Writing by Maya Nikolayeva; Editing by Douglas Busvine, John Stonestreet

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