Interviewed by: In the interview of Aleksey ULYUKAYEV, First Deputy Chairman of the Bank of Russia, he told NBJ about why he believes that Russia may end this year without any budget deficit, meet the government's inflation forecast of 6-7%, regulations in the national banking sector and the future of Russian “too big to fail” banks.

“80 DOLLARS PER BARREL MEANS THE BALANCE OF INTERESTS OF OIL MANUFACTURERS AND CONSUMERS”

NBJ: Mr. Ulyukayev, in your speech at Gaidarovsky Forum you said that Russia has chances to end 2011 without any budget deficit. Your forecast is by far the most optimistic, comparing to similar forecasts of the Ministry of Economic Development and the Ministry of Finance. What is your opinion based on and what are the conditions for achieving budget surplus?

A. ULYUKAYEV: I do believe that there are chances for this, and that they are quite high. I am just extrapolating the current income flow. The average annual oil price calculated for two and a half months of this year is 101 dollars per barrel. If we assume that the price remains the same during the whole year - and there are good chances for this -the federal budget will receive additional 2 trillion rubles in income. Nearly all of this money except some 200 billion rubles is oil and gas income. There is a clear policy of the government that in this year we should not spend the oil and gas income on expenditure items. So, the 2 trillion rubles is about 4% of the GDP. The planned budget deficit is 3.6% of the GDP. By doing simple maths, we see that if the current situation is maintained, there will be no budget deficit and we may even have a small surplus.

Of course, this forecast, as I have already said, assumes that the current average annual oil price remains the same. If the global situation turns for the worse, there likely will be some small budget deficit. To understand it better, suppose the average annual oil price is 90 dollars per barrel - this means that in the remaining nine months, the price as small as 85 dollars per barrel will be enough. To achieve a 80 dollars per barrel average annual price, the oil should remain at 70 to 73 dollars. With the latest developments we see - changes in the global political situation, tensions in the Middle East, growing demand for energy from the key consumers (China and USA) - this sharp drop in oil prices is very unlikely. This is why I can reasonably assume that Russia will have no budget deficit this year.

NBJ: Although the oil price has not yet reached the historical high, it is still very high. In your opinion, what oil price is the best for the Russian economy and can there be such “best price” at all?

A. ULYUKAYEV: You are right, the price has not yet reached the historical high. On the other hand, however, it is highly likely that the average annual oil price in 2011 will reach a historical high. We did have some local price surges in 2007 and 2008, when the rates in oil contracts exceeded 130 dollars per barrel in some months. Even then, the average annual price had not reached 101 dollars per barrel.

Speaking of the best price for the Russian economy, the following should be taken into account. Of key importance is the balance of interests of the manufacturer and consumer of any given product. If the manufacturer takes no account of the consumer's interests, it risks sound demand. The consumer will look for substitutes. We have seen this in 2008, when the oil prices peaked and people started looking for something to replace the black gold. What can replace it? Biofuels, heavy crude, oil shale and oil sand.

Development of the technologies to produce such substitutes requires, of course, tremendous efforts and costs, but both are reasonable when the oil price exceeds 100 dollars per barrel.

For this reason, I believe that the oil price equally acceptable for the consumer and the manufacturer is 80 dollars per barrel. This price creates a good incentive for the manufacturer to increase its capacities, perform geological surveying etc. On the other hand, the consumer does not have to look for substitutes or alternative sources. That is, 80 dollars per barrel, in my opinion, is exactly the price that achieves a balance of interests.

NBJ: High oil prices mean a stream of petrodollars flowing into the country, resulting in the growth of money supply, which, in turn, causes faster price growth. Assuming that the average annual oil price may reach 101 dollars per barrel, will the inflation remain within the 6-7% as forecasted by the government?

A. ULYUKAYEV: I believe that there are chances for this, if the financial/monetary policy indicators that we approved and maintain are met. Namely, all additional income (the federal budget currently retains 65 to 70% of it) should come into the economy from the system of export duties and minerals tax.

So, if this income that “fell out of the sky” is accumulated in the Reserve Fund and the National Welfare Fund, we will safeguard against this factor of pressure on the money supply. Moreover, both the Ministry of Finance and the Bank of Russia have tools to neutralize excessive money supply: the Ministry of Finance may issue federal bonds and the Bank of Russia may issue Bank of Russia bonds, deposits etc.

After all, Russia is not the only exporter of energy resources, and we know that in some countries oil income has a much larger share than in the balance of payments than in Russia. And these countries do not have double-digit inflation rates: although they are quite high, the inflation problem there is manageable. I am convinced that it is also feasible in Russia. It all depends on political decisions, professionalisms and following the policies declared by the government.

“THE CENTRAL BANK'S INFLATION FORECAST FOR 2011 NO LONGER REGARDED AS UTOPICAL”

NBJ: Let me refer again to one of our recent statements: you said that inflation expectations are now decreasing. How do you determine this and what is the basis for these conclusions?

A. ULYUKAYEV: First of all, they are based on the forecasts of analysts, financial and non-financial companies. If we take a number of such forecasts and produce an average forecast, we see that in December 2010 and January 2011, basic inflation expectations were double-digit. Analysts predicted that the inflation rate will exceed 10% as early as in Q1, remaining double-digit within the whole 2011, and may even increase further by the end of the year. There were a few exceptions: some believed that the inflation rate will not be double-digit, but will still exceed 9% by the end of the year. There were no analysts who would agree with the Central Bank's inflation forecast or at least recognize it as possible.

NBJ: Is it different now?

A. ULYUKAYEV: Yes. If we take a look at the forecasts made by analysts in March, we see that most of them do not contain double-digit rates. The most widespread opinion is now as follows: the 7% inflation rate is, of course, impossible, but 8.5-9% is quite realistic. So as you can see, the inflation expectations among analysts have indeed changed - towards lower inflation rates.

Another point: the behavior of the population as for the savings/consumption ratio. The general rule is that when the demand for money is high, the consumption reduces, and when the money has to be disposed of, the consumer demand grows. In December 2010 and January 2011, we have recorded a growth of the demand, and even the total amount of deposits in banks has reduced. This behavior meant a surge of inflation expectations. In February and March, the situation has stabilized; people were no longer willing to get rid of rubles as soon as possible and buy consumer products. This means that their inflation expectations have decreased.

And the third factor that proves that the inflation expectations have reduced is the inflation rates themselves, compared between years. We see that the inflation rate in February this year is slightly better than in February 2010. Inflation in March was also slightly lower than in the last year. This also means that the inflation expectations are indeed decreasing. If we reinforce the expectations of businesses and people by proper action, this positive trend will remain.

NBJ: Mr. Ulyukayev, economists often say that the inflation has monetary and non-monetary sources, and that the inflation in Russia is driven more by the non-monetary factors, such as increased tariffs of natural monopolies, and the term “tarflation” (tariff-related inflation) has been recently coined. Do you agree with this term and that such phenomenon indeed exists?

A. ULYUKAYEV: In my opinion, discussions about the monetary and non-monetary nature of inflation are scholastic. From the fundamental point of view, I believe that there is only monetary inflation and no other. Let me, however, state two exceptions to this statement. First: time space. The inflation proves its monetary nature in the long term, one year or more. In the short term, we see how shocks related to the offer of products and services affect the prices; but this is noticeable within short periods, while in the long term what matters is the money supply and liquidity that the Central Bank and banks in general inject into the economy.

Second exception: there are local and global levels. What looks like inflation of costs due to changes in demand for some products within one country, is still due to changes in the money supply on the global level. For the Russian economy and our monetary system, this connection between the money supply and inflation is what really matters. If we look at the correlation between changes in M2 money supply (or even better -M2X, money supply including deposits) and the inflation rate, we see that the inflation rate closely follows the M2X indicator for 9 to 11 months each year.

This is just one side of the coin. On the other hand, I do not think that tariffs should not be regulated for the above reasons. On the contrary, they have to be regulated, and not because they strongly contribute to the inflation, but because it is a mechanism of redistribution of the community resources from sectors related to consumer products, innovations etc. to budgets and accounts of companies providing applicable services. And of course, if the tariffs of natural monopolies are continuously growing, and growing 2, 3 or 5% faster than the inflation rate, it should be thought over. If the community believes that it can regulate the tariffs of natural monopolies, it should do this carefully and correctly. For example, it should be identified why natural monopolies always lack funds, since this is the reason they state as an excuse for another tariff raise - they have insufficient funds to cover their operational costs. Operational costs include current costs plus investments, and if the non-core assets of such companies are analyzed, we see that they accumulate non-core assets even to a larger extent than in the 90s. Why should the community be the one paying for this?

To sum up my answer, I would like to repeat that the community should, of course, regulate the tariff policy of natural monopolies. But in any case, this is not an inflation issue - it is an issue of redistribution of financial resources between various segments of the economy and the society.

“THE REGULATOR HAS TO ACT PREDICTABLY, NOT RANDOMLY”

NBJ: It is normally believed that if the inflation rate goes down or remains unchanged, the refinancing rate of the Central Bank also goes down or remains unchanged. Now, however, the inflation rate goes down, however slowly, but the regulator has increased the refinancing rate to 8% per annum in February. Even though the 0.25% increase is not very big, why did the Central Bank decide to do this?

A. ULYUKAYEV: This is because of the time lags I have already mentioned. The Central Bank doesn't have to lag behind the inflation rates, decreasing the refinancing rate when the inflation goes up, and vice versa. It has to be the other way round: the Central Bank, being aware of the trends, money supply forecasts and deposits forecasts, should act so that in 9, 10 or 11 months the inflation rate followed the expected indicators, that's what the regulator has to do.

Another point: in the last two years, we have seen negative real interest rate in nearly all countries around the world, i.e. the interest rate is lower than the inflation rate in these countries. This is due to the consequences of the crisis and the need to support economic recovery. This, of course, is not a perfectly good thing to do, but at the current stage regulators have to resort to negative interest rates.

NBJ: Some experts feared that even a small increase of the refinancing rate will make banks feel undetermined, because this decision breaks the trend of continuous reduction of the refinancing rate.

A. ULYUKAYEV: I think that the regulator should act more or less predictably in these issues, and not randomly. At least this is how we try to act. The Central Bank did not just reduce the rate and then raised it all of a sudden. For about 10 months, from April last year, it kept the rate at 7.75%. Then we started saying that the raise is very likely and explaining why it may be necessary. That is, we kept the market informed and prepared it for this event. Afterwards, in December last year, we made the first move by raising the deposit rates but keeping the credit rates. Then, in January 2011, we made another move by raising the reserve requirements. And only in February we revised the refinancing rate and nearly all credit and deposit rates.

We made this in a sequence in order to ensure that market players expected the increase of the refinancing rate and to make our decision clear. One should never go against the market. Businesses, people and the Central Bank should always be clear about where we are heading next.

NBJ: So where are we heading next? Does the Central Bank have any plans to revise the refinancing rate in the near future?

A. ULYUKAYEV: Our next plan is to keep the inflation rate within 7%. It not an easy task and we have to use all of our tools consistently and actively. We have three groups of tools: interest rates, reserve requirements and exchange policy. Stabilization and even a small decrease of inflation in February and March 2011 is largely due to the strengthening of the ruble late last year, just like the increase of the inflation rate in Q4 last year is largely due to the weakening ruble in Q1 and Q2 last year. While the delay between money supply changes and inflation rate changes is around 3 or 4 quarters (or 9-11 months), the delay between exchange rate changes and inflation rate changes is much shorter, 2 or 3 months. This is why the rates that we have increased early this year have not yet produced their effect - it will manifest in Q2-Q3 this year.

NBJ: If more rate changes are needed, are you going to prepare the market again by informing it?

A. ULYUKAYEV: Certainly. We publish press releases and we consider the rates at the scheduled meetings of the board of directors. If a decision is made to revise them, we will explain why we believe it has to be done. Otherwise we will verbally indicate the direction which we are considering. Market players should understand our logic and act so as to take it into account.

NBJ: You said that there was a trend of a stronger ruble late last year. Will this trend remain and will the Central Bank take any measures to weaken the ruble?

A. ULYUKAYEV: Depends on the time-frame. Speaking of the short term, we have now achieved a balance: chances for the strengthening and weakening of the ruble are somewhat equal. As for the longer term, much will depend on oil prices, payment balance and capital account. Last year and this year we have recorded outflow of capital, but now the outflow seems to slow down. We have to study and understand what is going to happen next. If the capital outflow indeed stops, this may lead to some strengthening of the ruble.

“WE ARE NOT GOING TO REVISE THE CURRENCY BASKET STRUCTURE BECAUSE OF SHORT-TERM EXCHANGE RATE FLUCTUATIONS”

NBJ: Capital outflow last year was more or less understandable, but what do you think is the reason for continued outflow this year? The economy improves, but the capital is still being taken out of Russia.

A. ULYUKAYEV: This is a very complex issue. In order to give you a correct answer, one has to study not just the recent two or three months, but the long-term historical retrospective. Still, let me try to answer your question. When we speak of capital outflow, we mean the net share of foreign investment in the Russian economy. The net share means inflow minus outflow. As we see now, global funds quite actively invest into developing countries, including Russia, which is obvious from the trends of the national stock index.

At the same time, gross outflow indeed continues.

What are the reasons for this? First, this is due to large foreign currency revenue of exporters, and this revenue grew unexpectedly, since oil prices started changing suddenly from September last year. Now suppose you are an exporter. You have an investment program, the annual budget, and a certain business model. All of a sudden, in September you receive a lot of unplanned revenue. A significant portion of this money goes towards paying the export duty, but you still have to think what to do with the remaining money. Is there adequate demand for the ruble within the country? Not really. You decide that the best thing to do would be to invest this unexpected money into short-term foreign assets - on foreign accounts and deposits. This gives little profit, but this is not that important in the period of a few months, especially since you don't quite realize the market situation, because, as I said, the oil prices were rising suddenly and unexpectedly.

This is one aspect of this issue. Another is more important: you start hedging your risks within the country by purchasing longer-term assets abroad. Where are these risks coming from? There are elections coming, and you don't know how this may affect your business. Everyone in Russia, including the President, speak of bad investment climate in the country. You experience this bad investment climate in your daily business, and respond to it and other risks by taking your capital out of the country.

Generally speaking, capital flow is an integral indicator based on many circumstances, sometimes even reciprocal.

NBJ: Let us now speak about risks hedging with regard to the Central Bank's policy of gold and currency reserves management. The question is: will the Central Bank revise the structure of the currency basket, in view of unsolved economic issues in Europe and unclear future of the single European currency?

A. ULYUKAYEV: We are a conservative investor and do not tend to base our decisions on current profitability of any assets. Of key importance for us is the combination of three factors: reliability, liquidity and profitability. As you can see, profitability is only the third most important factor, and we pay much more attention to reliability and liquidity. Secondly, remember that the reliability of forecasts of currency exchange rates is limited. This is why global market players usually do not take into account fluctuations of dollar to euro or dollar to another currency exchange rates. They simply shape their decisions basing on the current situation, because the chances for exchange rate fluctuations in either direction are similar.

In the long-term, of course, we envision serious changes. We have seen the dollar to euro ratio fall to 0.8 from 1.2 when the euro was introduced, and it used to reach 1.6 afterwards, double its lowest rate. Suppose we decided to revise our investment portfolio when this ratio was at 0.8. What would we do when it reaches 1.6?

This is why we are not making fast decisions about our investment portfolio - there have to be serious grounds for us to do it.

NBJ: Being a conservative investor, you probably will not quickly change the share of Japanese yen in the gold and currency reserves?

A. ULYUKAYEV: We will not, you are right.

NBJ: What is the share of the yen now?

A. ULYUKAYEV: The standard share is 2%.

NBJ: There were rumors that the currency basket of the Central Bank may include the Chinese yuan.

A. ULYUKAYEV: How can we do that? The yuan is a currency with limited conversion capabilities. We cannot invest into securities on the Chinese stock market or deposits of Chinese banks. This is why China first has to follow a certain path to make its currency fully convertible, and only then we may consider it. Just like many other investors, we are interested in the Chinese yuan. Everyone has expectations related to its strengthening, because the Chinese economy is growing. But there are no tools, no access to these tools, and until we have them, the Chinese yuan will not enter our currency portfolio.

“40 TO 50 PERCENT GROWTH OF LENDING WILL OVERHEAT THE ECONOMY”

NBJ: In conclusion, let me ask you some questions more closely related to the banking industry. Excess liquidity in the banking system is now obvious, which may be due to increased savings of the population.

A. ULYUKAYEV: The same holds true for businesses - balances on corporate accounts are quite large.

NBJ: On the other hand, some experts say that in the near future, excess liquidity may turn into liquidity deficit. Do you agree that such risks exist?

A. ULYUKAYEV: Something has to happen for this scenario to occur. Somebody has to absorb the excess liquidity or the global market situation and our payment balance have to worsen suddenly. Or, there should be a sudden change from budget deficit to budget surplus. I already said that there are chances of having no deficit this year, but there should be significant budget surplus to absorb a large volume of liquidity. Alternatively, there should be very strong fluctuations of the exchange rate. In other words, there should be a considerable macroeconomic event, none of which are currently expected. This is why I believe that high liquidity in the banking system will remain.

NBJ: Banks explain high liquidity by the lack of good borrowers, and for this reason the lending indicators remain low. Meanwhile, the Central Bank predicts 15 to 20% growth of lending this year, and as far as I understand, it is quite happy with this forecast.

A. ULYUKAYEV: I think that forecasts of the Central Bank and banks in this issue do not contradict each other: both predict 15 to 20% growth in lending. The difference is that we believe that this growth is enough, while banks believe that it is too small. Their opinion is easily explained: lending is how they earn money, and they would like to see a 40, 50 or even 100% annual growth. However, we are convinced that 40 or 50% growth in lending will overheat the economy and accumulate undesirable risks in the banking system.

NBJ: Still, according to various opinions, Russian economy is undercredit-ed, it was so before the crisis and remains even more undercredited now.

A. ULYUKAYEV: In my opinion, the notion of undercredited economy means nothing. The economy is undercredited and underinvested, the people are underconsuming… This is all true, but it doesn't mean that we should give people a lot of money so that they consume more, or give a lot of money to the economy to make it well-invested. That way, we will just drive the inflation. We have to create tools to increase investments into the economy. At the same time, we should provide as much loans to the economy as it can handle, take into account the risks and the quality of investment and business projects that our economy creates. It's not a secret that both in Russia and elsewhere the quality of projects that obtained loans was too small, and that big money was provided without due evaluation. This has not done and will not do any good.

NBJ: Most likely, banks will forget the lessons of the crisis soon, and will increase lending, including lending to high-risk borrowers.

A. ULYUKAYEV: In this case, we require additional reserves. For example, we are now revising our regulations to cause better risks evaluation in case of substandard mortgages, when the downpayment is smaller than the standard value or when the interest rate is very small. In such cases, we may demand 150% reserves for these risks. The same applies to banks whose customers are in offshore jurisdictions, in which case we may also demand more reserves. In other words, we will cool down lending risks using our tools of prudential supervision and regulation.

NBJ: Is the Central Bank also going to cool down the risks by implementing Basel III standards?

A. ULYUKAYEV: In this way, too, of course.

NBJ: Do you think Russian banks are ready to follow these standards?

A. ULYUKAYEV: Formally, they are more than ready. Most of Russian banks already meet these standards, including the first level capital amount. We have prepared our banks for these standards beforehand: when Basel I was being implemented, we demanded our banks to perform better than as required by Basel. At that time, banks complained that capital sufficiency according to Basel I should be at least 8%, while the Central Bank demanded at least 12%. This was the right thing to do for the regulator, because bank requirements in developing countries should be stricter than in developed countries. We have a gap between regulation and supervision. That is, business reports of banks are, softly speaking, not perfect. We have to take into account that we have such phenomena as false capital, grey balance sheets and off-balance sheet transactions. This is why I personally believe that our bank requirements should be stricter than those dictated by the Basel Committee.

NBJ: Are stricter regulations an element of countercyclical supervision?

A. ULYUKAYEV: They are, to the extent that Basel III in general is aimed at countercyclical actions. Countercyclical actions means not just stricter supervision, it means stricter supervision when the market is growing and more relaxed supervision when the market is shrinking. That is, we should not allow any significant overheating to avoid a long fall.

NBJ: In principle, what is your opinion on countercyclical supervision?

A. ULYUKAYEV: The idea is absolutely correct.

NBJ: It is strange that while Spain was always cited as an example of efficient countercyclical supervision, Spanish banks are now having serious troubles.

A. ULYUKAYEV: The reason is that Spain has two banking systems. Normal banks have no problems indeed. But there are also so-called cajas, to which standard banking regulations do not apply.

NBJ: Something like microfinancing organizations in Russia?

A. ULYUKAYEV: To some extent - yes, although “micro” would be a misnomer. They have a limited license, i.e. they do not perform the full range of banking transactions, and they are subject to less strict regulations than banks, and they are the ones having problems now. Spain saw a fast-paced construction boom, and cajas actively participated, massively providing mortgage loans without due evaluation of risks. What happened in Spain may not be regarded as evidence of inefficient countercyclical supervision.

NBJ: Can the Spanish banking supervision practices be reproduced in Russia?

A. ULYUKAYEV: Possibly, but not literally copied - they have to be transformed.
“MOVES TOWARDS LESSER STATE INTEREST IN BANKS ARE THE RIGHT MOVES”

NBJ: Another issue that worries many banks now is that state-owned banks have recently been growing, including by way of new acquisitions. Because of this, it is believed that the banking sector moves towards domination of state banks and that two giant state-owned banks, Sberbank and VTB, will push smaller banks out of the market. In your opinion, how reasonable are these fears? Is the growth of state-owned banks and banks with state-owned interest a natural consequence of the crisis or is it a negative phenomenon?

A. ULYUKAYEV: Excessive state interest in the banking system is certainly a negative phenomenon. But this excessive interest has been observed even before the crisis. I would say that this issue is two-faceted. First of all, the opposite of growing state interest is decreasing state interest, which is what happens now. 10% of VTB shares have been privatized and 7.5% of Sberbank are being prepared for privatization. The next moves, according to the Banking Sector Development Strategy for 2015, will be to reduce the state interest in Rosselkhozbank to -75% and in VTB to 50%. I think that afterwards, we should act bolder, transitioning from controlling interest in the capital of state-owned banks to blocking interest. All of this are moves towards lesser state interest in banks, and these are the right moves.

However, as I said, there is another side of this issue. Suppose the state sells its share in Sberbank and VTB. Still, these banks will not cease to be giant - they will remain the same, just with another ownership structure. It is very likely that they would then expand even more aggressively than now. Do you believe that they would expand less if they were private now? Let me assure you, they would not! Owners such as the Central Bank or the government are more careful and conservative, because they act basing on global macroeconomic goals, and not just aim to maximize profit.

And one more point. One always has to consider how this or that action may affect the economy and the customers. If it leads to lower expenses and cheaper loans, that's great. If, on the contrary, it leads to more expensive services, that's bad. In this case the government obviously has to gradually sell its interest in the capital of Sberbank, VTB and other state-owned banks.

NBJ: Regardless of whether Sberbank and VTB are state-owned or not, aren't they the banks that are described as too big to fail?

A. ULYUKAYEV: I think they are. As the regulator of the Russian banking market, we have sent the information about them to the Financial Stability Council that now selects the criteria to decide that a bank is of global importance. It's not only about the size: even a very large national financial institution may communicate little with the outer world. Accordingly, it will not be among important banks from the global point of view. And on the contrary, a bank may seem small judging by its assets, but it may have a developed network of branches around the world and process a large volume of transactions with assets and liabilities of customers in other countries. In this case, it has more chances to be called a bank of global importance for the above reasons.

NBJ: Do you think Sberbank and VTB should be listed as such?

A. ULYUKAYEV: We consider them as possible candidates to financial institutions of global importance.

NBJ: But the whole world is trying to figure out what to do with too big to fail banks.

A. ULYUKAYEV: There are different attitudes. There is an extreme point of view that such banks should be split. There is a softer point of view that such banks should   be   prohibited   from   making investments. A special tax on too big to fail banks was also suggested. We have another opinion: a special mode of prudential supervision should apply to them. These banks are indeed too big, and if they have any troubles, the taxpayers would have to pay to resolve them. To avoid this, too big to fail banks should have large capital buffers and rehabilitation plans, to solve their problems independently rather than out of the taxpayers' pockets.

NBJ: These rehabilitation plans - are they a kind of last will that the regulator of the British banking market forces large banks to create?

A. ULYUKAYEV: The phrase “last will” is too pessimistic, but in essence, yes, they are similar. Large banks may have, for instance, plans for transforming debt into assets. In this way, the creditor, by sharing the risks with the bank, becomes the owner of such bank. This is one of the ways to solve this problem.

NBJ: You said that the state may transition from the controlling interest to a blocking interest in the capital of state-owned banks. Does it mainly apply to Sberbank?

A. ULYUKAYEV: Yes. At the moment, the government only considers reducing the share of the Central Bank in the capital of Sberbank to the controlling interest (50% plus one share). The Central Bank Law prohibits reducing the Central Bank's share in Sberbank below this level. I believe that we have to proceed further by making changes to the law that will permit us in the future to reduce the interest of the Bank of Russia in Sberbank's capital to the blocking interest (25% plus one share).

NBJ: If applicable changes are made to the laws, do you consider selling the Central Bank's share in Sberbank completely in the long term?

A. ULYUKAYEV: How should I put it… Personally I consider it, but not in this life. We have to set realistic goals. I can see the way to reduce the state ownership to the blocking interest (25% plus one share). And this may even happen during my employment with the Central Bank.