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December 17, 2009updated 04 Apr 2017 1:12pm

Nordea looks to transform its Russian subsidiary

Swedens Nordea is already a retail banking market leader in Scandinavia and the Baltics, and now the bank is looking to transform its Russian outfit into a true retail bank via a branch transformation programme and a push on mortgages In November 2006, Scandinavian market leader Nordea purchased 75 percent of Orgresbank, a small Russian bank largely focused on the corporate sector, and in June 2009 the business was rebranded under the Nordea name, the Scandinavian institution by then owning 100 percent of the Russian entity.

By Dan Jones

Sweden’s Nordea is already a retail banking market leader in Scandinavia and the Baltics, and now the bank is looking to transform its Russian outfit into a true retail bank via a branch transformation programme and a push on mortgages. Dan Jones reports on Nordea’s ambitious objectives.

 

Thomas Neckmar, NordeaIn November 2006, Scandinavian market leader Nordea purchased 75 percent of Orgresbank, a small Russian bank largely focused on the corporate sector, and in June 2009 the business was rebranded under the Nordea name, the Scandinavian institution by then owning 100 percent of the Russian entity.

The rebranding process is now being expanded to encompass a more ambitious set of objectives, according to Thomas Neckmar, head of new European markets at Nordea.

“We changed the name from Orgresbank to Nordea, and if you go to Moscow now you will see our signs in the big streets – it was really to make the brand name familiar in the markets where we are operating,” Neckmar told RBI.

“Now we are looking at our product offering and our branch network.”

In this case, looking at the branch network is part of a wider plan to restructure an Orgresbank business model that previously had a heavy focus on the corporate, as opposed to the retail, customer.

Nordea currently has 49 branches across 15 regions in Russia, from which it provides a full range of retail services including current accounts, savings, loans, credit cards and mortgages, but the structure of those branches is not ideal for this purpose.

Consequently, the bank has begun renovating its branch network with the aim of having completed the process by the end of 2010.

As an initial move, two of its branches have been realigned with its more retail-oriented focus, but according to Neckmar the conversion will be organic rather than conforming to any one particular layout strategy.

“We realised three years ago that what we need to do is to change the structure of the branch network, and maybe only have one corporate branch in each of the regions, instead of all branches being corporate branches. Previously retail banking was confined to a small corner of the branch,” he said.

“We are intent on having real retail branches which are focused on serving retail customers and focused on acquiring retail customers. We will try different service levels, different types of branches,” Neckmar said.

Though he was keen to emphasise differences between the two markets, one such model will be that employed by Nordea in Poland – what the bank calls a ‘turbo branch’ as a result of the speed with which it can be set up.

An initial target of 50 per year in Poland has now been extended to a total of 115, and Neckmar believes similar turbo branches could work in Russia.

A full-blown expansion of the Russian network will only take place if the appetite for retail banking is seen to be “taking off”, however.

That will involve a change in mindset from Russian consumers, who have hitherto been used to long-term, fixed-rate mortgages lasting around 20 years apiece. Such a market “does not exist anymore”, advised Neckmar.

“Customers have to get used to the fact that maybe they can get a fixed rate for the first one or two years, and then there has to be a renegotiation,” he added.

It is nonetheless mortgage lending that Nordea is looking to as part of its attempts to engage more fully with the retail customer, believing that this segment is the easiest way to build a relationship with the customer and hence increase its cross-selling. The bank does not yet measure cross-sell in Russia but intends to do so as its retail plans develop further.

Said Neckmar: “The mortgage loans are what we are most interested in, because what we are trying to do is get a home bank relationship with a customer, and for that you need a mortgage loan – then you get a current account or salary account, then you get savings, and so on.”

Nordea now has 50,000 retail customers in Russia, but the situation was once very different with Orgresbank’s customer base having been largely limited to employees of its corporate customers.

The bank has moved from being the 77th largest in Russia in terms of total assets to a current position of 27th, and Neckmar believes the market is so large that Nordea can easily find its niche.

That niche will, it hopes, be within the affluent sector, as opposed to dominant, state-owned market leader Sberbank, which Neckmar describes as being “a bank for all Russians – rich and poor”.

The strategy here is much the same as it has been in the Nordics and Poland – focusing on providing a variety of different delivery channels in order to attract customers by any means possible. The geographic spread of Russia is such that direct channels will become “much more important” in future, with mobile banking being planned to complement Nordea’s existing online banking service.

As Neckmar concludes: “There is an enormous potential in the retail banking market in Russia, especially if we begin to see that people are accepting products that are not only good for the customer but also good for the bank. When that happens, we are ready for further expansion”.

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