Battling with Sberbank - 4 July, 2005

Russia's largest banks determined to compete with Sberbank in the struggle for private clients

The fact of foreign banks opening their branch structures in Russia has caused too much headache to Russian banks.  Decades-long experience of technologies, access to inexpensive long-term resources, readiness to spend tens of millions of dollars for the development of new markets – these are all indisputable competitive advantages of foreign banks. If Russia meets the requirements of the World Trade Organization and grants foreign banks free access to the national bank market, Russian banks will run the risk of being pushed to uninteresting and unprofitable segments of the market. It is therefore not surprising at all that small and medium-sized Russian banks are willing to consider purchase offers from their foreign partners. One may say that they become the platform for foreign banks' expansion. As for financial institutions, which make the top ten of largest banks, they hastily conduct adequate preparations in order to be able to face equal competition with foreign colleagues.

Russia's Savings Bank, Sberbank, enjoys the most stable position in this respect. The absolute reliability of the bank and its presence in almost every city and town of Russia is a worthy compensation to unprofitable deposit rates, complicated crediting terms and the low-class servicing. Nevertheless, Sberbank's share on the retail market is reducing slowly but surely.

Several banks are doing their best to master at least one of retail products. As a rule, it goes about the consumer express-crediting system, where Russian Standard Bank takes the leading position. Experts believe, however, the situation in this segment is getting too intense: banks take serious risks despite extremely high interest rates, which eventually may result in a crisis.

Retail market-oriented banks, such as the Bank of Moscow, MDM-Bank, Alfa-Bank, offer complex servicing, although they are limited in their activities regionally. They only work in large industrial centers.

There are two banks, which can change the correlation of forces in the field of financial services of private clients. The state-run Vneshtorgbank and the private-owned Mejprombank chose similar directions for their activities: the banks will be developing the retail network on the base of their branch structures. Vneshtorgbank – Retail Services, which will be presented to its clients as Vneshtorgbank-24, is being currently established on the base of Guta-Bank, which was acquired after the crisis of 2004. Mejprombank shifts its retail network to Mejprombank Plus, which in its turn is based on the small-scale Preobrazhensky Bank.

Experts and investors have positive estimations about the split of the bank sector into the corporate and retail parts. It will optimize the corporate management structure, ameliorate the business transparency and give the management an opportunity to concentrate attention on one certain direction. Natalia Samkova, the managing director of Mejprombank, clarified that the retail activity would virtually develop on the vestigial principle, in the event a certain bank traditionally runs corporate activities. “One may not combine two banks into one,” said she. In addition, Mejprombank handed over its non-bank assets to the management of the Unified Industrial Corporation last year.

Vneshtorgbank intends to hand over 80 billion rubles of natural persons' accounts and deposits, as well as eight billion rubles of credits and a part of its subsidiary network to the retail department of the bank. Guta-Bank in its turn will move its entire corporate business in the mother structure: 12 billion rubles of credits and three billion rubles of deposits and accounts. Vneshtorgbank currently takes firm positions on the retail bank market, on the market of deposits, first and foremost, where its share is estimated at 4.3 percent of the market's total volume. Initial positions of Mejprombank Plus are a lot less impressive. Nevertheless, the Mejprombank management plans to take its retail market share to the level of five percent already in two years. It will most likely be achieved owing to the development of the regional activity, where there is no competition on the part of foreign banks, whereas people experience a growing need in banking services, especially when it comes to consumer crediting.

Vneshtorgbank currently ranks fourth among Russian banks on the number of subsidiaries. In the absolute expression, the bank has only 56 branch offices, 113 additional offices and 44 operation desks. Forty-two branch offices, 42 additional offices and 39 desks of the former Guta-Bank can be added to it too. These are quite modest numbers against the background of Russia's scale. Sberbank owns 1011 branch offices, 4,759 additional offices and 14,586 operation desks. Nothing is known yet about Vneshtorgbank's plans to develop the branch network. Mejprombank decided not to walk on the traditional path, when it started opening Mejprombank Plus's departments at first in Moscow and then in other cities with million-strong population. Spokespeople for the bank said that it was a rather lengthy and expensive process. That is why they plan to open a large client-serving center in Moscow, then establish mini offices in other cities and work through the agent structure, which has its representative offices nationwide. If the plan is eventually fulfilled, Mejprombank Plus will be able to compete with Sberbank on the availability of services.

A serious struggle for the retail bank market may thus occur during the forthcoming two or three years. In Moscow, St.Petersburg and other large city of Russia the struggle will be conducted between Russia's largest banks and branch companies of Western banks. Sberbank, Vneshtorgbank-24 and Mejprombank Plus will apparently be fighting for clients in the regions. No matter which side wins the fight, private clients will benefit from the competition: bank services will become more profitable and accessible for them.