Clive Woodger, the founder and managing director of
branding consultancy SCG London, says that the increasingly
competitive – and crowded – Russian retail banking market has led
to a growing awareness of the importance of branding in helping
domestic banks distinguish themselves.
Although many observers in the international business community
believe that Russia remains a particularly challenging place to do
business, a feeling strengthened due to its government’s
increasingly assertive political profile on the world stage, as
witnessed by its energy policy, our experience of working there
since 1998 is altogether more positive.
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An ongoing economic boom, low inflation, reduced levels of personal
taxation and annual pay rises of 20 percent (regarded by many as
the norm), have all helped fuel a rapid evolution of consumer
attitudes.
In such an environment, what does this mean for the country’s
retail banks? Russia has too many banks. In the 1990s, with about
3,000 banks quoted, it seemed anybody could get a licence. Today,
there are about 1,200 banks and, with strict controls for licences,
acquisitions are an inevitable consequence. This has led to an
increased awareness of the importance of branding and marketing to
help banks stand out and grab market share.
Initially, much of this could be seen as a cynical ‘repackaging’,
image-changing activity intended either to increase value in
preparation for a possible foreign or local takeover or as a
patch-up job to rebadge and unite disparate cultures and
operations.
Although a number of leading banks in which the Russian government
remains the majority shareholder are perceived by Russians as
trustworthy, they have also recognised the need to transform their
services, image and reputation.
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By GlobalDataThe country’s second-largest bank by assets, Vneshtorgbank, which
rebranded as VTB last year, argues that its “rebranding was an
important stage in the development strategy of the bank, which
would enable the group to compete on an equal footing with major
international banks”. VTB also claims to have enjoyed
faster-than-average market growth in the Russian retail banking
sector, where it has focused on higher margin and affluent retail
customer segments since its rebrand.
A number of the leading Russian banks are still at the re-imaging
stage, accepting the need to modernise their profile,
communications and brand design, but are still not taking on the
next key step of matching attitude and behaviour with the marketing
promise.
Changing employee and management style is difficult when many
companies still have a tendency to command-led structures and
suffer intensive staff poaching due to the lack of experienced,
professional candidates. Brand values are easy to sign up to –
trust, innovation and convenience are basics – but how that
translates into positive action, design and a change in management
ethos is not so readily embraced.
A problem and feature of the Russian approach to marketing
communications is the dependence on mass marketing awareness
campaigns, rather than a more balanced approach that also combines
strategic, focused and informed direct marketing.
Despite some recent early moves to limit advertising excess in the
city, Moscow is still dominated by billboards, plasma screens and
neon signs. There is no reason to think that Russian consumers are
less immune to a constant barrage of media messages designed to
encourage them to be more loyal to one bank or another. Brand
loyalty will always be difficult in a financial market of me-too
offers.
Raising their game
Since the entry into Russia of International Moscow
Bank (IMB), the first foreign-owned bank in the country – 95
percent owned by Italy’s UniCredit subsidiary Bank Austria – the
pressure and influence of international players that have followed,
such as Raiffeisen, Citi, Nordea, HSBC and Société Générale, have
resulted in the local banks raising their game. HSBC is aiming to
have ten branches open in Russia by year-end 2007.
For the foreign raiders, their challenge is how to promote their
global credentials and tailor marketing approaches to the local
mindset.
While transparency and corporate governance are recognised as
important factors in brand development by the domestic banks, the
level of real commitment is still variable. The view of many
Russian consumers has changed in recent years from ‘West is best’
to a Russia-first mentality in line with the rise in confidence
(and standards) of local operations and national pride.
However, international banks enjoy the advantage of being perceived
as stable, with strong management teams and broad international
credibility.
Following a raft of less-than-transparent marketing claims on
interest and ‘deals’, Russia’s central bank has produced a draft
set of rules for obligatory standards and procedures for bank
activities. From 2008, banks will need to employ independent
monitoring supervisors, another important step to achieving better
and more open marketing communications.
A number of the major Russian banks can already claim to have
transformed their brands, in particular the country’s largest
privately owned bank, Alfa-Bank, and Russian Standard Bank – both
of which performed strongly in consultancy Interbrand’s most recent
Top 40 Russian brands list.
Another example of a proactive Russian brand development strategy
is that of the Life Financial Group, a network of leading regional
banks with which we work closely. Its long-term strategy is ‘not to
be like a bank’. Its aim is to be truly different and it has a
sophisticated understanding of brand strategy and appreciates the
importance of effective, innovative delivery.
While it remains the case that branding is still seen as a ‘nip and
tuck’ exercise for many Russian banks, what starts out as a
cosmetic process can be transformed into a catalyst for real change
in thinking practices and culture. Enlightened management can
achieve ambitious, well rewarded and friendly staff – ultimately
the key for brand differentiation in all service industries,
particularly banking. Certainly, our experience in Russia has
confirmed the importance of branding being understood as an
integral management ethos, rather than as a ‘face lift’.
SCG London’s clients include Russian Standard Bank, Rosbank,
Ocean Bank, Alfa-Bank and Uralsib.
Tougher lending environment in Russia may hit bank
earnings
A number of Russia’s leading banks including Sberbank, VTB and
Alfa-Bank have all published interim 2007 results. Overall, the
figures were broadly positive, although it was not all plain
sailing: Alfa-Bank struggled to make a profit and Russian Standard
Bank’s growing loan write-offs caused ratings agency Fitch to
downgrade the bank’s long-term issuer default rating.
Sberbank, Russia’s largest bank, reported as at 1 July 2007 total
assets under IFRS were RUB4.28 trillion ($0.17 trillion) (retail
banking slice was RUB908 billion), up 47.1 percent across the
half-year period. Net profit hit RUB48 billion, up 29.6 percent,
while the return on assets figure was 2.5 percent.
Profit before tax for Sberbank’s retail banking division rose 51.5
percent, to RUB18.1 billion. Retail banking interest income was up
26.47 percent, and fee and commission income grew 51.3
percent.
State-owned VTB Bank’s net interim profit was RUB12.2 billion, a 46
percent increase against the previous year. Alfa-Bank’s total
assets were up year-on-year by 38.8 percent and 12.6 percent across
the half-year to $17.1 billion. But net profit after tax for the
first six months grew by just 0.7 percent to $115.6 million. Loans
to retail clients increased by 52.6 percent to $1.2 billion.
In early October, Fitch downgraded Russian Standard Bank on the
basis of what it called the “likely considerable and sustained”
reduction in the bank’s margins as a result of the tougher
regulation of lending charges being rolled out in Russia and a much
tighter funding environment. This was coupled with a marked
increase in loan write-offs at the bank to 14.6 percent
(annualised) in the first half of 2007 from 7.9 percent in
2006.
The agency noted that other Russian banks could suffer as the
potential for further regulatory restrictions on consumer finance
banks in Russia in the future increases, as well as the challenge
that is posed to the bank’s business model by the currently limited
availability of wholesale funding.
A good year for VTB as brand value rises by
40%
According to the latest Russian brand value survey by US
consultancy Interbrand, published on 29 October, the top Russian
companies have showed robust brand growth in 2007 – the top 40
brands gained 23 percent in value over the last year’s top 40. The
share of the leading ten brands in the top 40 was reduced from 80
percent to 77 percent.
Not all of Russia’s companies qualified for the survey:
Interbrand’s criteria excluded brands such as Gazprom, MGTS, Alrosa
and RZD, which are either monopolies, privately held or not seen as
market-facing brands with a wider public profile.
Of all the companies in the top 40, VTB, the second-largest
state-owned bank after Sberbank, is the biggest mover, up 40
percent since 2006. The group rebranded in November 2006 from
Vneshtorgbank to VTB, and renamed its retail banking business VTB
24 (see cover story, RBI 562).
According to Interbrand: “A single brand of the group was an
important tool for ensuring further business efficiency and bigger
share of the Russian and international banking markets… A
transition of all the members of the group to a common brand gave
them undeniable competitive advantages.”
