— How do you assess the state of the Russian economy now? On the one hand, after the outbreak of hostilities and the imposition of sanctions, the fall was not as strong as many expected. On the other hand, analysts warn of a period of long-term stagnation, while the economy has not grown at high rates in recent years anyway. Do you share these fears, or are we at the stage of new growth?
“Everyone really predicted the more difficult consequences of last year. And we, among other things, were greatly mistaken in our forecasts. The economy went through this period with amazing resilience, and the fall in GDP by 2.1% (at the end of 2022) is probably the minimum that no one could have imagined even in the most optimistic forecasts. First of all, the test fell on the financial sector: we felt the full consequences of what happened literally the next day. And I can’t say that it was a pleasant walk – it was one of the most difficult years in our history. Nevertheless, we see that the market economy, its huge potential to adapt to new conditions and competition have done their job.
Our forecast for this year is that the economy will end up growing. It is still difficult to say how, but our forecast is about 2%, and this is a good result. Within two years, the economy will recover to its previous volumes and indicators of its development.
As for the future, I would not say that I am among the pessimists who say that stagnation awaits. There are two factors on which this will depend. The first is how the situation in the world macroeconomics will develop. And, of course, today there are signs that a recession is possible. Is it possible that we will face a global economic crisis in the coming years? Answer: maybe. And in this case, it will, of course, affect our economy. But if the declining rates of economic growth in the world still persist and we do not see cataclysms, then we will see that in the next three years the Russian economy will continue to grow, it has the potential for this.
Of course, there will be a difficult period of infrastructural restructuring, primarily export-import operations. We see that this process, no matter how painful it may be, is moving quite quickly. An additional incentive for development will be the potential to replace the largest suppliers of goods and services leaving the Russian market: in the next two or three years, Russian entrepreneurs will have a good opportunity to occupy the vacant niches. Some of them, of course, will be occupied by manufacturers from other countries, and some will be occupied by Russian ones.
— Last year, you spoke about the “pipe to the East” scenario, in fact, the reorientation of raw material exports. Now you say that the main factor is the development of import substitution. Have you changed your mind in a year?
– I said that such a scenario is possible, and, of course, it still remains. The Russian economy is generally very strongly integrated into the world economy, and it is neither possible nor necessary to rebuild it in a short time. We produce a number of goods in such quantity that it is impossible to master them on the domestic market. Therefore, of course, we will remain an export-oriented country. But how far we can arrange a second circulation, as the Chinese say, that is, use the potential of domestic demand, including that released after the departure of traditional suppliers from our market, is still a question.
The government, we must pay tribute, is doing a lot today to stimulate the production of local already localized suppliers of goods and services. But over a short period of time, it is quite difficult to assess this. If this policy is developed, then we will have, simultaneously with the turn of exports from the West to the East, all the same, stimulation of the development of domestic production, not only goods, but also services.
– Russian officials and businessmen, including you personally, have been working for decades on establishing international economic ties, integrating Russia into global markets, including to attract “smart” Western investments. Given the prevailing realities, do you think that this was a strategic mistake?
– Of course not. In fact, the traditionally Soviet and then Russian economy has always been export-oriented. We buy a large number of technologies and goods with exactly the money that we receive from exports. Then external investments are not only money, but also technologies, training of personnel in the most advanced practices. And those sectors of the Russian economy where competition is well developed have been built over the years anew and are quite competitive. Remember what the USSR and Russia could produce in the 1990s! Therefore, of course, this economy built over decades and competitive on the world market cannot be considered a mistake. This is absolutely correct, and it gives us today a greater opportunity to exist under the external shocks that we are experiencing. Thank God that we have something to deploy from West to East. If this whole period had not happened before, this concerns not only our activities, but also the activities of our predecessors, we would have nothing to discuss today.
Therefore, no one has canceled international activity and the international division of labor, they will be preserved. There was a trend towards globalization, now it has changed. This is a global trend. Today we see a trend towards regionalization.
Therefore, we will have to change the area of our trade. If we used to sell our competitive goods on the world exchange and we didn’t care who was their buyer, now we are looking for sales markets, and all markets are divided into friendly and unfriendly. And not only for Russia. If you look at the statements of the United States Treasury Secretary (Janet Yellen), she also said that they will open technology to friendly countries. Of course, rebuilding foreign trade is much easier than creating it from scratch. Therefore, the years spent by our predecessors and by us have given us what we have today.
– And the current situation, when the countries for Russia are divided into friendly and unfriendly, does it carry risks and prospects for the formation of a system of new blocs and coalitions? And isn’t there a threat of dependence of one country on another?
“We all depend on each other. There is not a single country that would fully provide for itself. And no one sets such a task. Therefore, of course, we will depend on each other, and this has great advantages. We have the ability to supply the products we are competitive in to more markets. And this is a much more favorable situation for us than to engage in the creation of a kind of subsistence economy. The scale of a number of commodity markets is insufficient for building a full-fledged domestic production. In general, the economy of the future is built on global consumption, it is impossible otherwise.
“If you see something as a threat, then it is realized as a threat”
One of the favorite pastimes of economists and investors is to guess when the next global crisis will strike. Does Sberbank include in its scenarios the possibility of such a crisis? And if so, what will it mean for Russia, given that you said that Russia remains an important link in the global trade chains?
— I don’t like the word “guess”, because economists still do not guess, but predict, and under this lies a scientific approach. But any forecasts are based on certain assumptions. And these assumptions do not always work. And the world economy is cyclical in its development. Therefore, the crisis will happen sooner or later. The question is when? There are many jokes among economists on this topic. But nevertheless, of course, any large structure calculates such options in order to be as ready for them as possible. We are guided by the principle: hope for the best, calculate and prepare for the worst, get the most out of what happened.
And this is always in our strategic plans. We are currently working on a three-year strategy and will include such a scenario.
— It is clear from your words that a cyclical crisis is inevitable. Are there any more fundamental structural factors—technological explosions, technological shocks—that could shape the contours of a future such crisis?
– Technological shock is still from the realm of fantasy. I can’t think of a technological change that would cause an immediate shock. Still, the invention of technology is always a process. But an even longer process is their implementation. Implementation cycles are now very much reduced and now in a number of companies they take not decades, not years, but months. But in general, if we talk about structural shifts in the economy, it will still take years. We have to adapt to modern technologies much faster due to the reduction of these cycles. This is a big challenge for humanity.
The concept of future shock—and the theory of adaptation that derives from it—clearly suggests that there must be a balance not only between the rate of change in different sectors, but between the rate of environmental change and the limited rate of human response. For the cause of the future shock is the widening gap.
Do you see a threat even in the explosive development of artificial intelligence technologies? In the new strategy of Sberbank, how is the role of AI generally defined?
— You know, if you consider something as a threat, then it is realized as a threat. I prefer to always look for opportunities, especially in this case.
Artificial intelligence technologies are really booming. They have already become a universal tool, like electricity. Therefore, if earlier we looked at how to use AI to improve the efficiency of certain areas of our business, now artificial intelligence will become one of the main drivers of changes in the business model as a whole. It is not certain that we will be able to completely reinvent our business model within a three-year cycle, but this cycle will definitely be very significant for us in terms of creating the key prerequisites for a fairly radical change in our business model.
“Two are always better than one”
– At the end of last year, Sberbank reported that it had sent a package of documents to the Chinese authorities regarding the opening of a branch in China. Have you received any response from the People’s Bank of China? Is it worth waiting until the end of the year to open a branch there?
— We are in the process.
— After Visa and Mastercard leave Russia, is the possibility of creating another payment system alternative to the national payment system Mir being discussed in the banking community? What is the role of Sberbank in this?
“The fact that we have the NSPK in such a time frame is very cool. Thanks to timely decisions taken by the Central Bank and the government, we did not experience any shocks from the departure of Visa and Mastercard. We even often did not change the “plastic”: many of us still have Visa or Mastercard cards, and they work within the NSPK. That is, a consumption shock, an infrastructure shock, was averted. But if we want to give further dynamic acceleration to the development of payment instruments, of course, we need competition.
– Can such competition appear?
— We discuss it with market participants: two is always better than one.
– In what form can it be?
– Now I’m not ready to discuss, because there are no concrete plans. But in general, it would be nice if either the NSPK changed its status and was sold to market participants, as it was originally supposed, for banks to become its participants, or in the end, another market player appeared so that you could compare the quality of services and influence pricing .
— Does Sberbank have the resources to create such an alternative?
– I’m not sure that this is possible within the framework of Sberbank. This still requires the consent of market participants and the consent of the state, because now many mechanisms have already been created for one player. So I do not believe that we (Sberbank), if we want, will be able to create such an alternative. This should be, first of all, an installation on the part of the state.
– What circle of banks is involved in these discussions?
“I repeat, there is no specific plan. We just all realize that it would be nice to have competition. Just as I do not support the Sberbank monopoly. I consider it critically important to keep strong competitors for Sberbank. It is a complete illusion that it is possible to keep a company competitive in the absence of competition. I have no such illusion. I understand that it is critically important for me and for the whole team to see that competitors are not sleeping, “eating off” some pieces of the market from us, showing us weaknesses. And it’s very cool. This is the only institutional driver of our development. And not only ours.
The competitiveness of a company without competition is impossible. And it is impossible to build a competitive economy without competitive subjects. In this sense, it is critically important that there be competition in all sectors of the economy without exception.
— In China, you spoke about the development of a payment solution for settlements by foreigners coming to Russia in the Sbera acquiring network. How can this technology work?
“It is not very difficult, and it will be done one way or another. To do this, we need to slightly change the legislation, on which we are currently working.
– In what part?
— First of all, remote opening of accounts.
– Do you focus mainly on the Chinese, on the whole world or, for example, on all friendly countries?
– It can be any legal or natural person.
—… which remotely opens an account in Russia and will be able to pay?
– Certainly.
– In Russia, the assets of non-residents in the equivalent of tens or even hundreds of billions of dollars have been frozen. Is it possible to unfreeze these investments, and if so, on what terms?
– This question is not for me. This is, after all, rather a geopolitical question, and it is unlikely that anyone will answer it today. For this, serious geopolitical shifts must occur. Is it possible? Maybe. When? Don’t know.
– Russian banks have a legislative opportunity to remove assets and liabilities frozen due to sanctions from their balance sheets by transferring them to a separate legal entity. Deputy Chairman of the Central Bank Olga Polyakova said that the first case of such a reorganization took place. Is Sberbank taking steps in this direction? If so, how much of your assets and liabilities would you have to take off your balance sheet?
We are not considering such a possibility. In general, I must say that we managed to sell almost all of our assets in one way or another.
— Even European ones?
– Yes.
— Does Sberbank have an interest in buying any assets of foreign banks winding down business in Russia?
– Not interested.
– That is, rumors about interest in buying the Russian business of Raiffeisenbank or exchanging assets with it are not true?
– Not true.
— What profit do you expect from Sberbank in 2023?
— We do not advertise these figures, especially in the face of such volatility. We don’t know what else might happen. We have gone through the past year very steadily. They allowed themselves to pay record dividends. All of our shareholders received money in their accounts. And we know that many of the shareholders immediately sent money to buy our shares. All in all, we are looking forward to a good year. And it is quite possible that it will be one of the best in our history.
What’s going on with Sberbank
Sberbank, founded in 1841, is still the largest Russian bank with assets of 37.7 trillion rubles. according to the results of the first quarter of 2023, occupying about 50% of the market (the indicators differ depending on the segment). The main shareholder of Sberbank is the state, which owns 50% plus one share of the bank. Sberbank, being one of the largest Russian companies, has traditionally been of interest to foreign investors – at the end of 2021, they owned 44.4% of Sberbank, or 88.7% of the total free-float. However, after the start of a special military operation in Ukraine, the imposition of tough sanctions, the suspension of trading in Sberbank shares in London and the freezing of non-resident investments in Russia, this figure dropped significantly – according to Gref, the share of foreigners in the bank fell to about a third.
Sberbank, like most Russian banks, came under Western sanctions in 2022 – it ended up on the blocking lists of the United States, the European Union and the United Kingdom, having lost control over many foreign subsidiaries (however, the bank was able to sell some of them). At the same time, the bank was able to finish the year with a profit of 300 billion rubles. (although it has fallen four times compared to 2021) and pay dividends in the amount of 565 billion rubles, that is, even more profit. According to the results of January-May 2023, the net profit of Sberbank amounted to 589 billion rubles.
“We are experiencing a currency shock”
– Last summer, when the ruble was strengthening strongly, you said that it would weaken soon. And so it happened. Can you now give a forecast of what will happen to the ruble?
This is a simple prediction. Obviously, this is how it should have happened. Further predictions are very difficult to make because it depends on the state of our trade and balance of payments. What will happen in the world economy, at what level oil prices will stabilize – this will largely determine the dynamics of the ruble exchange rate.
We see that the price of oil has lost about 35% over the past year, which, in fact, affected the dynamics of the ruble. Of course, another indicator is the restoration of imports. Last year, a shock reduction in these imports and a price shock in the market led to a very large increase in export flow and a surplus in the balance of payments. This year there is a new normalization of terms of trade. At what level the price of our main export commodities will stabilize is still difficult to predict. And today there is one more parameter – quantitative indicators (of exports) – also a thing that few people manage to predict with a sufficient degree of objectivity.
— According to the statistics of the Bank of Russia, the yuan has predictably strengthened its positions in Russia’s foreign trade settlements at the end of last year. In your opinion, in general, the yuan and friendly currencies in general can become a full-fledged replacement for the euro and the dollar for Russia?
– The word “full” here confuses me. Because today the dollar absolutely dominates in world settlements. Up to 80% of all international settlements are in the dollar. And only 20% is the euro and everything else put together. Therefore, the word “full-fledged” is probably superfluous here.
Can the yuan be a replacement? Gradually yes. Because both the dollar and the euro have become toxic currencies for us. And to the question whether alternatives will be found and whether the largest of them will be the yuan, the answer is, of course, yes.
– Does Sberbank have any obstacles in working with friendly currencies, for example, with the same Arabic dirham, which is becoming more popular now?
— Previously, we operated with currencies that were in demand by our clients. Therefore, we are all now also experiencing a structural currency shock. And not only us, but also the issuers of the currencies of friendly countries, because the Chinese authorities did not plan to make the yuan an international means of payment so quickly. But the situation is developing in such a way that they are forced to do it at a fast pace, and we are creating the appropriate tools too. In a year or two, we will have to adapt to the new situation. But there is no doubt that we will create all the necessary set of tools.
— The line of foreign currency deposits is actively expanding, including yuan deposits, deposits in dirhams. In your opinion, will such deposits remain exotic or will there be an increase in demand for them?
“Of course there will be growth. All the same, currency risks will be hedged by both individuals and legal entities. Obviously, the dollar and euro can no longer be used to hedge these instruments. Therefore, last year we saw a rapid growth in demand for the yuan and yuan instruments. And this year, I think, and next, we will see the same rapid growth – both in terms of market depth and in terms of the variety of instruments. We will do our best to provide the market with such instruments.
“Problems can definitely be solved by selling pieces of state property”
— Your colleague, the head of VTB, Andrey Kostin, recently said that Russia needs a new wave of privatization, and that the state has large resources to increase its public debt. Do you agree with these ideas?
— Privatization always has one of two goals or two at the same time. The first is the restructuring of the economy and the second is fiscal goals. I think that today there is a need to solve both of these problems. First, there is a budget deficit and the task is to fill the budget. In recent years, the president and the government have been actively pursuing a policy of reducing social inequality, which, I think, is certainly supported by everyone. And this requires an increase in social spending. And there is another big cost item – it’s infrastructure. Of course, this requires appropriate funding sources.
With our debt-to-GDP ratio of less than 20%, of course, quite significant amounts can be raised. But, probably, there should be combined sources. Actually, there are not so many of them left: the first is an increase in the tax burden, the second is the sale of some enterprises. I think that some combination is rational in order to completely and completely pass this period of time. Precisely, these problems can be solved, including through the sale of some pieces of state property. In this sense, both to maintain the stability and competitiveness of the economy, and from the point of view of the fiscal component, this could well be considered. But this is a matter of government policy.
– Is the option of issuing some special OFZs to compensate for the budget deficit being discussed? Maybe some targeted participation of state banks in its financing?
– No. In my opinion, it is fundamentally important that the Russian economy remains a market economy. All market institutions retain their importance. And the Russian budget has not been subjected to some kind of artificial constructions, which ultimately greatly reduce the stability of the macroeconomy as a whole. And such a very qualified approach of the entire government economic team has led to the fact that today we have a fairly stable situation in the economy. It is very important to maintain macroeconomic stability and marketability of all institutions. Only this can give us stability.
The Ministry of Finance behaves like an absolutely market player. It places market loans on market terms. And market players are buying OFZs, including us, as the largest buyer. And we are going to do it in the future. The budget has set a limit on borrowing to cover the deficit, which this year will not be very significant: according to our estimates, between 2 and 3% of GDP. For such a year, this is very little. And attraction as a source of covering the deficit is an absolutely normal market practice.
— Have the Russians become worse at servicing loans?
— We have learned to manage our risks quite well, and the Russians have learned to manage their obligations. We see that during such a difficult period of time that we all experienced, there was no surge in non-payments. And the stability of bank portfolios confirms what I said. Regulatory changes of the Central Bank played a very serious role in this. The banking system has maintained stability, we have not seen bankrupt banks. Yes, the banks had a hard time last year, a number of banks suffered losses, but all of them went through this very hard and painful shock for the financial sector.
Therefore, in general, all portfolios of credit cards, consumer loans, auto loans and mortgages behave more than positively, and we do not see large portfolios with bad debts. Behind this stability one must see a great work of the regulator.
– Mortgage issuance is growing, but are you not afraid that people will become more careful and this source of the most reliable income for banks will begin to decline?
— Last year we saw the volatility of demand for mortgages. At first, people tried to invest in real estate, and this led to a surge in demand, then, on the contrary, there was a rollback, a drop in demand for real estate, prices fell sharply. This year we see that the situation is recovering. Now if we take volume indicators, then we are growing. This year we issue mortgages two to three times more than in the corresponding shock months of last year. Again, government support played a big role here. Appropriate decisions were made in time, which did not allow the market to fail. This supported both developers and the market as a whole.
Another factor this year that could lead to record mortgage disbursements is individual housing construction (IZHS). As a matter of fact, in 2020 there were experiments, in 2021 we began issuing industrial mortgages for individual housing construction. But this year we see that, quite likely, hundreds of billions of rubles will be issued by the end of the year. In our portfolio, this may be more than 200 billion rubles. These are significant figures and a huge help for people in the construction of individual housing. Therefore, in general, the mortgage market shows stability, and this is a very serious basis for both the construction sector and the building materials sector and further down the chain.
“The problem of iron, unfortunately, is not so easily solved”
— Has Sberbank’s approach to ecosystems changed in the new realities? Some of the ecosystem assets no longer belong to you, some have run into difficulties due to technological sanctions. What results does the non-financial part of Sberbank show?
– The approach has not changed, and the trends in the market have not changed at all. On the contrary, they probably became even more evident and became obvious. But, of course, everything that happened forced us to adjust the strategy. We will now develop a number of companies not as subsidiaries, but as partners. And now we are building a new type of relationship, looking for mutual, including legal frameworks, how this can be done in order to ensure or guarantee the appropriate quality of services on a longer horizon. Of course, our sanctions have left a serious imprint on this.
Therefore, the model has changed somewhat, we have also changed the scope and focus. But in general, everything goes within the framework of our forecasts, and I think that most of the indicators, including non-financial services, will be within the framework of the strategy that we planned.
— Sberbank is developing many products related to artificial intelligence. These are neural network models, Kandinsky, GigaChat, which was recently launched. To what extent do restrictions on access to technology affect these developments of Sberbank? And in general, do you see the risks of Russia’s technological backwardness?
— As for our developments, I often read that cataclysms will happen, that we are sitting on some imported products, etc. But it’s not. All our work for the last ten years has been aimed at building our own independent platform. And today, in the vast majority of our services, we have localized our own developments by 100%. The same goes for artificial intelligence. Everything about our developments in terms of large language models and large transformers is our own development from beginning to end. And we do not depend on any foreign vendors and in general on any other vendors.
– But you, for example, cannot replenish the same artificial intelligence, to put it simply, with a knowledge base from outside Russia.
— It is both so and not so. Because when we published our Kandinsky neural network, approximately 35% of its users were foreigners. And including not only from India, China, etc., but also from jurisdictions that have traditionally cooperated with us. There are users, there are many of them, and we get a data stream.
You are probably right, we cannot freely use the data that we used to use. But today the whole world is moving towards limiting the circulation of data only to national borders. See what is happening even in the so-called friendly areas. Since ChatGPT was launched, a number of countries have imposed restrictions on its use, and rightly so. If someone wants to operate today in the markets of other countries, he is forced to localize in the markets of these countries, which is very costly and not always rational. So one way or another, you are right in the sense that we do not have access to data from other markets. But this is a trend today. And everyone will have to learn from their own data.
We have enough data to train our models. And the only limitation that is currently visible is what we call “iron”. For tasks primarily of artificial intelligence, specialized chips are needed, the so-called ASIC (application-specific integrated circuit, “integrated circuit for a specific application”), and a number of other specialized tools that are produced by several companies in the world. This is a challenge today.
But even here I am not a pessimist: in previous years we included such options in a black scenario, as you say. We have taken steps to prepare for situations like this. But, as always, the risk comes before you are ready for it. But it is not to say that we are absolutely not ready for it. We are now working with the government on how we can solve this problem – the problem of “iron”, which, unfortunately, is not so easy to solve.
But this is probably the only limitation we can feel. We and Yandex have everything else. Probably, these are two Russian companies that have a full stack of technologies for the development of artificial intelligence. We will help the rest.
Yes, artificial intelligence was once the most open technology. Today it is one of the most closed technologies. And we have built our technology stack over the years. Both architectural and component. Therefore, I cannot say that there are some areas in the field of artificial intelligence that are inaccessible to us. We create the entire technology stack ourselves, there is a slight delay. And this delay today is calculated not in years, but, perhaps, in months. Therefore, the situation here for our country is not so sad.
“I still have time to think”
— What, in your opinion, is the future of the Russian financial market? Will we follow the path of conditionally Iran, where people have very few alternatives but to invest in their own stock market, or do we have some other path?
— Firstly, we have many public companies and great opportunities for investment in our own stock market. This is the first. Secondly, we are now actively working to provide our customers with opportunities to enter friendly markets. It seems to me that the markets of friendly countries cover all the most demanding needs of our customers. You may not be able to invest in your favorite brands like Tesla or Apple, which used to be hugely popular. But there are excellent alternatives in the East and within our country. In general, it is necessary to invest in Sberbank in the first place. We are showing very good growth.
– What is the most important change in your life, in your worldview, has occurred over the past year?
“Probably learn to plan and live short. Because I am a long-term player by my institutional nature. And today long forecasts are very difficult. They are multivariate, and there are a lot of uncertainties that can trigger one or another development option. I learned to realign myself and my thinking for a shorter planning horizon while remaining optimistic. This is probably the most important shift. I think I’ve been able to keep up with it so far.
– Will your personal future be connected with Sberbank in the coming years? Has your contract expiring at the end of 2023 been renewed?
– Let’s live first until the end of my contract, it has not ended yet. And this is a bilateral contract – mine and my shareholders. So you have to ask both sides.
– Well, let’s ask your side: would you be interested in continuing to work at Sberbank?
I still have time to think about this topic.
What is German Gref known for?
German Gref was born in the village of Pamfilovo in the Pavlodar region of the Kazakh SSR in 1964. He first studied at the Faculty of Law of Omsk State University, and then, in 1993, completed his postgraduate studies at the Law Faculty of St. Petersburg University. In the 1990s, he held various positions in the St. Petersburg city property management committee, and it was while working at the city hall that he met future president Vladimir Putin.
In 2000, Gref became Minister of Economic Development and Trade. In this position, he, in particular, dealt with Russia’s entry into the World Trade Organization. In 2007, he left the government and headed Sberbank. After his appointment, Gref promised to “teach the elephant to dance”, and soon completely changed the structure of the credit institution. In 2019, evaluating the results of his work, he stated that “the elephant has grown very much and there are a lot of them,” by that time the bank was already actively building an ecosystem, trying to develop not only in the financial sector, but also in technology industries.
Gref is traditionally referred to as “systemic liberals”. “I am a liberal, and I am not ashamed to recognize myself as a liberal. I am an absolute liberal in the economy and I don’t know any other economic system that is not built on liberal principles and gives an effective result,” he said in 2019. At the same time, the head of Sberbank has repeatedly stated that he does not want to return to the government. In the event of leaving Sberbank, Gref would like to engage in technology entrepreneurship.
