To judge by the number of international lenders beating a retreat from Russia, the country’s banking sector would appear to be in some difficulty. The real picture, however, is upbeat — and dramatically more positive than the situation in Kazakhstan. HSBC Holdings announced last month that it would shut down a fledgling retail banking operation in Russia and focus exclusively on corporate clients. The move came just three years after the London-based giant launched a push into consumer banking as part of a $200 million investment to expand its business in the country, one of the few emerging markets in which HSBC has lagged its rivals.
The bank is far from alone. In February, Barclays put its Russian retail business on the block and said it would concentrate on investment banking in the country. The decision represented another swift turnaround in strategy: In March 2008 the British bank spent $745 million to buy Moscow-based Expobank, which it hoped to turn into a major player in the consumer banking market. Now it says the business lacks the scale needed to compete; Barclays expects to sell Expobank by the end of this year. The two British banks join a number of other European lenders that have recently announced plans to scale back in Russia, including Banco Santander of Spain, Belgium’s KBC Group and Stockholm-based Swedbank.
Some analysts have been quick to blame Russian authorities, accusing them of choking competition by favoring the growth of national champions such as Sberbank and VTB Group, the country’s No. 1 and No. 2 banks, respectively. “Trends suggest that non-state banks are going to continue to be marginalized,” Eurasia Group analyst Kim Iskyan wrote in a recent research note.
If that’s the case, someone forgot to tell Russia’s big private banks. Alfa-Bank, the country’s largest private sector lender, posted a record profit of $553 million in 2010, a sevenfold increase from the crisis year of 2009. Assets jumped by 32 percent. Alfa, which is owned by billionaire Mikhail Fridman, noted that its retail unit became profitable for the first time, earning $208 million before taxes.
Nomos Bank, the eighth-largest private sector bank, raised $718 million last month with an initial public offering on the Moscow and London stock exchanges, a deal that valued the lender at $3.2 billion. The bank posted a 72 percent increase in net income in 2010, to 7.4 billion rubles ($270 million), and boosted assets by 35 percent. It also made a domestic acquisition late last year that promises to deliver further growth in 2011. This sort of energetic recovery is typical of the Russian banking sector, says Richard Hainsworth, head of Moscow-based bank rating agency RusRating. “By and large, the commercial banks are coming out of the crisis well,” he says.
The government’s involvement in the banking sector is undeniably large: Russia’s five biggest banks are all state-controlled. Yet their share of the market is steadily shrinking, at least on the retail side. Sberbank lost 1.7 percentage points of market share last year and now holds 48 percent of the nation’s individual deposits. In the mid-2000s that figure was about 65 percent. VTB’s share held steady last year at about 6 percent.
If foreign banks are reconsidering their commitment to Russia, it is not because the government has tilted the playing field. Instead, the reason seems to be more banal: Too many multinationals piled in during the fevered days before the September 2008 market collapse, and now some are dropping out. HSBC, for one, is in a consolidation phase under new CEO Stuart Gulliver. Since taking the reins in January, Gulliver has concluded that nearly half of the bank’s operations around the world are insufficiently profitable.
By contrast, multinationals that came to Russia earlier are well established and show no signs of leaving. UniCredit, Raiffeisen Bank International and Société Générale (via its Rosbank subsidiary) all rank among the country’s top 11 banks, and Citigroup is in the top 20. Austria’s Raiffeisen recently reported a 76 percent jump in pretax profits, to E267 million ($395 million), at its Russian subsidiary last year. Why are other banks leaving Russia when the Austrian lender is performing so well? CEO Herbert Stepic had a simple answer: “The wheat is separating itself from the chaff.”
