Russian President Dmitry Medvedev on Saturday told the head of state-owned bank VEB Vladimir Dmitriev that lending rates must continue to decline, Russian agencies reported.

We must consistently pursue lower lending rates for the entire economy and especially for small and mid-sized businesses, Medvedev told the executive on Saturday according to Russia's Itar-Tass news agency.

Dmitriev said that this would be possible in the future, Itar-Tass quoted him as saying.

Russia's central bank has cut the benchmark refinancing rate by 425 points since April, 2009, taking it down to a historic low of 8.75 percent.

But banks -- faced with still rising bad loans -- remain in a cautious mood, reluctant to raise overall loan portfolio levels and offering cheap rates only to the best customers.

In November, banks' lending rates to non-financial organizations averaged 13.6 percent, according to central bank data -- their lowest since September 2008 but still some 400 basis points higher than the 9.50 level at which the refi rate was for most of that month.

Dmitriev also told Medvedev VEB had earned about 100 billion roubles ($3.32 billion) from investing 175 billion roubles it received from one of the nation's sovereign wealth funds. The bank would use the funds to support mortgage lending, infrastructure projects and other matters, he said.

(Reporting by Alfred Kueppers; Editing by Jon Boyle)