"Russia is expected to remain the most attractive market in Central andEastern Europe", summarized Herbert Stepic, CEO of RaiffeisenInternational Bank-Holding AG and Deputy Chairman of RaiffeisenZentralbank ?sterreich AG (RZB), at a press conference held on 20th ofMay in Kazan. Stepic reported on the current trends and perspectives ofthe Russian banking market on the occasion of the annual meeting of theEuropean Bank for Reconstruction and Development (EBRD). According toStepic, the Russian banking sector had more than offset the lossescaused by the crisis in 1998 already by the end of 2001. Since then,local banking assets grew at outstanding levels. In 2006, the totalassets of the Russian banking industry grew by 41 per cent toapproximately 405 billion euros. This corresponds to 53 per cent ofRussia''s GDP. In 2005, the total banking assets reached 45 per cent ofthe local GDP.
Starting from total banking assets at year-end 2005, which amounted to285 billion euros, RZB''s analysts expect this figure to double by 2009and to quadruple by 2014. As a consequence, they are expected to exceedcombined banking assets of Central and Eastern Europe at the latter date.
The race for banking assets will go on
In 2006, no less than twelve international banks acquired stakes inRussian banks (see list below), pushing the market share of foreignbanks to around 11 per cent according to Reuters. Among the top-20Russian banks are three by majority foreign-owned ones. As of year-end2003, the market share of these banks was less than 4 per cent, a ratiothat increased to 6.8 per cent by the end of 2005.
Stepic expects a continuation of bank sales, especially by owners thatlook for a strategic partner or just consider the time favourable for asale. Massive expansion of the consumer finance business in the regionswill be a key to success in retail banking for any active market player.Consequently, the availability of a solid branch network will be one ofthe most important selection criteria for any potential buyer. Foreignbanks are very thoroughly screening the market for acquisition targets.Still, some major foreign banks are poorly represented in Russia.Therefore, they look for acquisitions in order to catch up with theirpeers. In addition, banks with a presence in Russia already couldincreasingly focus on growth via acquisitions.
Further acquisitions of medium-sized local banks by foreign groups arevery likely. The most attractive targets are those banks offering adeveloped branch network, a solid SME and retail customer base, anexperienced retail staff and previous involvement of international banks.
On the other hand, an Initial Public Offering (IPO) will become a morelikely tool for the top-20 banks to broaden their capital base.
Consolidation should continue over the next years. During the last fiveyears, approximately 100 banks vanished per annum. RZB''s analysts expectthat by 2015, the number of banks most probably will have decreased from1,345 to around 1,000.
Stepic considers the necessity for state-of-the-art risk management andproduct development as the main challenge for the future and a key tosuccess. Given the credit boom, it is certainly crucial to maintainprudent lending procedures and adequate risk management in order to keepthe percentage of bad loans in the credit portfolio on a reasonablelevel. Regarding products, he sees continued demand for mortgage andconsumer loans and rising attention to fund business as well as pensionand life insurance business.
Leading foreign bank in Russia and the entire CIS
After the acquisition of 100 per cent of Impexbank at the beginning of2006, Raiffeisen International, represented in Russia by RaiffeisenbankAustria and Impexbank, is the country''s seventh-largest bank in terms oftotal assets (according to Interfax-CEA).
Together, Raiffeisenbank and Impexbank are ranked third in Russia interms of consumer deposit volumes (79.5 billion rubles, approximately2.2 billion euros)* and fourth in consumer lending (48.6 billion rubles,approximately 1.3 billion euros)*, Interfax-CEA reported. The mostsignificant factor in the business development of RaiffeisenInternational in Russia is the constant expansion of the sales network,which is spread across the country, providing access to more than 140million people.
Johann Jonach, Chairman of the Board of Raiffeisenbank Austria, said,"During the past year, we have been working intensely on preparing thelaunch of our legal merger, increasing the charter capitals of bothRaiffeisenbank and Impexbank. The legal merger is expected to take placeby the end of 2007. The combined banks will work under the name ofRaiffeisenbank."
At the end of the first quarter, the combined assets of both banksreached almost 9.8 billion euros, they had 242 outlets across thecountry and employed a staff of 8,278. The bank plans to increase thenumber of branches to 369 by year-end 2009. Together with RaiffeisenBank Aval, the second largest bank in Ukraine, Priorbank, the thirdlargest bank in Belarus, and a leasing company in Kazakhstan, Raiffeisenis the largest western banking group in the Commonwealth of IndependentStates.
* Exchange rate of the Central Bank of Russia for 1 January 2007: 1 euro= 36.697 rubles.
All year-end data based on the Russian Accounting Standards. Firstquarter data based on IFRS.
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Raiffeisen International operates the largest banking network in CEE. 18markets are covered by subsidiary banks, finance leasing companies andtwo representative offices. Approximately 12.5 million customers areattended to through more than 2,900 business outlets. RaiffeisenInternational is a fully consolidated subsidiary of RaiffeisenZentralbank Osterreich AG (RZB), which owns 70 per cent of the commonstock. The remaining 30 per cent is free float, the shares are traded onthe Vienna Stock Exchange. RZB is a leading corporate and investmentbank in Austria and the central institution of the Austrian RaiffeisenBanking Group, the country''s largest banking group.
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