Russian Banking Sector – New Challenges

THIS POST WAS ORIGINALLY PUBLISHED MARCH 06, 2007

Russian Banking Sector – New Challenges

Recently we learned about Grant Thornton’s 14th Annual Survey of Bank Executives. When reading the paper one cannot, but think about many similarities. We know that sooner or later the global tendencies in financial markets arrive to Russia. Although GT’s findings are about the USA, I guess that we will see this in Russia. Some interesting points:

- One in three bankers (34%) says Internet banks are competitors of concern, a significant increase from the 8% who cited them as a concern in 2003. Four in 10 (39%) bankers are concerned about competition from brokerage firms, and one quarter (25%) say competition from insurance companies worries them

- 70% believe that the entry of Wal-Mart into the financial services business will be a threat to their bank

Russian parallel. Last week report: Surgutneftegas, one of Russia's largest oil producers, will buy 6.5% of the St. Petersburg-based Bank Rossiya's charter capital.

- There is a renewed interest among private and mutual bankers in taking their banks public.

Russian parallel. We know of some Russian private equity funds that are seriously mulling IPO options for them

I think that one of the most prominent changes that we witness with the Russian banks is the upsurge of IPOs. Last week there were a number of press reports that now due to new IPOs possibilities the Russian banks are not THAT much interested in working with the deposits. Because of IPOs the banks are expanding their resources, while deposits are a small part of them. On the other hand the clients are not very happy with the low interest rates. The Russian Deposit Insurance Agency evaluates that in 2007 the deposit growth rate will be about 27% only (as compared with 42.6% in 2006). The Agency reports that the drastic changes were witnessed by Sberbank – the clients’ deposits were down by 0.8% in December with 1.3% in 2006 as the whole.

At the same time the trust funds are prospering, and the market is far from saturation. Though as compared with the world markets the Russian one is relatively modest, but the growth is immense. The last issue of KOMMERSANT DENGI magazine provides the following data:

- trust funds managed volume increased twofold in 2006, and for the last four years – almost four times

- about 10 companies are managing assets of $ 1 billion; over 50 – above $ 100 million; with the total of 200 operating in the market.

So, let us watch the further developments…