The chairman of Moscow Bank for Reconstruction and Development, Sergey Zaytsev, tells William Cain that foreign interest in Russia remains very high and that he himself is already talking to a number of potential banking partners. His goal is to turn MBRD into one of the country’s top 15 retail banks by 2010.
Illustrating the continuing, strong interest in Russia, Sergey Zaytsev, chairman of Moscow Bank for Reconstruction and Development (MBRD) told RBI that three of Europe’s largest financial services groups – BBVA, Erste Bank and Eurobank – have recently been looking at acquiring banks or setting up greenfield banking operations in his country.
He said all three banks had contacted MBRD to enquire into which method was the best way of moving into the country. None of the banks confirmed or denied talks had taken place though Spain’s BBVA said it had no immediate plans to enter the market. Greece’s Eurobank, which set up a single branch in the country through its Cypriot subsidiary in March, would not elaborate further on any plans.
Zaytsev, speaking through an interpreter, said: “We do not know what they [BBVA] are doing in Russia exactly. We only met them and discussed their interest in doing some work in Russia, and we also discussed in what format they might want to work in Russia in. The bank wanted to hear our opinion or comments as to the possibility of buying an existing bank or setting up a completely new bank, but we have no idea what they decided on the basis of the information supplied.”
BBVA, Spain’s second-largest bank, said it would not comment on market rumours. But a spokeswoman said the bank’s main priorities were the US, where it is integrating a number of different businesses, China, where it has recently built stakes in two banks owned by the Citic Group, and India, where it opened an office last year.
On 30 June, just as RBI went to press, Erste announced it had acquired a 9.8 percent stake in Russian Bank Center-Invest, a regional bank headquartered in Rostov, in the Southern Federal District of Russia. At year-end 2007, Center-Invest’s total assets amounted to €1.1 billion with shareholders’ equity of €145 million. The bank has the second largest branch network (110 branches) in the region.
Bold moves into Russia
The Russian banking market has attracted a huge amount of interest from European banks this year. Barclays, Société Générale and HSBC have all made moves to reinforce or establish retail banking franchises in the country in 2008 (see RBI 588). Société Générale finalised its acquisition of a 50 percent stake in Rosbank, which, at 600 branches, boasts Russia’s largest privately-owned branch network; Barclays is still awaiting regulatory confirmation of its $745 million all-out purchase of 32-branch Expobank.
The market is seen to have tremendous potential, and some western banks, such as Austria’s Raiffeisen International, see it as an opportunity to pick up valuable retail deposits.
Aris Bogdaneris, Raiffeisen International’s head of retail banking, recently told RBI that there is a lot of money “hidden under the mattress” in the country, presenting opportunities for Western banks (see RBI 590).
Customers in the country have for a long time been underserved by domestic banks. Particularly in the mass affluent sector, there is a feeling among senior banking executives that there is an opportunity to pick up business by offering a more Western-style service – although Russian banks are now improving fast.
But Zaytsev did not fully agree with that view. He said that because of state guarantees extended to Russian banks, many offered savings rates as high as 13 to 14 percent. He did concede there was a super-rich segment in Russia, with liquid assets over $10 million, who had not been pampered by Russian banks or provided with the services they needed. But he added this was by no means a large market segment.
“At the moment, because of the liquidity crunch at Western banks, they have a growing interest in the Russian market,” he said. “Not for gaining deposits. The main reason is Russia is a growing market and it has huge potential in comparison with other markets.”
Ongoing talks with prospective partners
MBRD is itself is looking for foreign co-operation, particularly in its credit card division, and talks are ongoing with a number of prospective partners.
The bank, which is owned by Russian conglomerate Sistema, already has a strong cards proposition because it has relationships with the numerous retail businesses of its parent company, which has 68.5 million clients in Russia and the CIS. It currently has around 200,000 credit cards in issue.
Zaytsev said the card partnership market was not particularly well developed in Russia, with few links between other banks and enterprises, which meant MBRD could have a head-start on its rivals.
Sistema’s main retail business is Detsky Mir, a retailer of children’s goods. Another is Intourist, which runs package holidays and owns a chain of hotels. It also has numerous telecoms businesses including Mobile TeleSystems (MTS), the largest mobile phone operator in Russia and the CIS, with which it has launched an internet and mobile banking platform.
The credit card market is primed for significant growth in Russia with just 20 million cards in issue in a country with a population of 142 million, Zatysev added.
He said: “There are some products where we feel we could share our experience and some where we could learn from others, and here I mean credit cards. We are very aware of the fact that the Russian market has specific features. We have already achieved quite good results here as well, and I think we could be quite a good partner. Because one of our shareholders has very strong retail businesses, we think there are grounds for optimism where this is concerned.”
A top 15 bank by 2010
The bank’s broader plans are to increase its market share in key areas and establish itself as a top 15 bank in Russia by 2010. It has identified 15 regions where it wants to gain a market share of 3 percent, and it is aiming to increase its share of retail loans – a line where it is expanding rapidly, particularly in mortgages – by around 50 percent. The bank also said it wants to breach the one million-client level and take the number of self-service terminals to over 2,000.
Some of the bank’s strongest asset growth has been in its mortgage division, where it has targeted lending of $800 million in 2008. Zaytsev said MBRD was on course to surpass that comfortably, with lending for the year to the end of May already around $500 million. The overall aim is to finish the year with a retail loan portfolio of about $1.8 billion.
MBRD is also looking at extending its presence overseas, prioritising markets where it could occupy leading positions and where Sistema, its parent, is strong. It has $570 million earmarked for acquisitions which should be enough for two or three transactions in Russia or the CIS. It has identified Belarus, Uzbekistan and Armenia as high priority markets. The Ukraine, Kazakhstan and Turkmenistan are considered a low priority.
121 MBRD-branded branches
MBRD is a mid-sized Russian bank with 121 MBRD-branded branches, all in Western Russia. Including the recently-acquired Dalcombank, which operates in the Russian Far East, the group has a total of 129 branches and 320 ATMs. It also took a controlling stake in East-West United Bank, a private and wealth management business based in Luxembourg, at the end of 2007.
Its year-end 2007 figures, which were announced in June, showed it had over $5 billion in assets, up from $2.2 billion in 2006 (a 127 percent increase) and $4.7 billion in liabilities, up from $2.1 billion in 2006 (a rise of 129 percent). Net interest income was up 117 percent to $115 million, non-interest income came in at $40 million and profit before tax for the year was $36 million, up 140 percent year-on-year. The bank had an NPL ratio of 1.27 percent, down 23 basis points on 2006.
Zaytsev concluded: “The Russian market is at its very initial stage of development, and it has tremendous potential, not only in comparison with Western Europe, but the CIS as well.”
Who is winning the retail banking race in Russia?
PricewaterhouseCoopers (PwC) and Senteo, a multinational consultancy with a strong presence in Russia, published the results of a joint study of the Russian retail banking industry, Customer Experience Index – 2008: Who is Winning the Retail Banking Race in Russia, at the end of June. The study was focused on customer service and the ‘customer experience’ when interacting with a bank.
For the study, Senteo and PwC analysed 51 retail banks – in total, about 400 individual branches were surveyed by a mystery shopping team – measuring their performance in five areas contributing to the customer experience: Brand; Communications; Environment; Offering; and Culture. Scores were based on a five-point scale, with ‘5’ being the highest.
Foreign banks generally scored above average, due, said Senteo, to the fact they have experience of international best practices. Notable absentees from the top 10 list (see table below) include the three state-owned banks Sberbank, VTB and Gazprombank. Moscow Bank for Reconstruction and Development came sixth.
“[Russia’s] banks have clearly started to pay more attention to the customer-oriented culture of their employees – a positive development from last year’s study,” said Michael Ruckman, president of Senteo.
Comparing the average score with best practices among leading international retail banks, however, it is clear, added Ruckman, the customer experience in Russian banks still needs to improve in order for them to be competitive internationally.