01 November 2003 06:27
Retail Banking: Russian Banks Fight Harder For Consumer Business - Competition Is Heating Up Among Russia`s Banks And Foreign Players For A Slice Of The Growing Retail Banking And Mortgage Lending Markets That Are Catering For The New Middle Class. Anthon
The decision by Russia's second largest bank to step up its mortgage lending and aim for a leading role in the
booming retail banking market risks being dwarfed by headline hogging reports such as Russia's elevation to
investment grade status by US rating agency Moody's.
However, the plan announced by Andrei Kostin, head of state-owned Vneshtorgbank (VTB), to allocate 4bn roubles
($132m) to mortgage lending this year and raise its share of the retail market from 1.5% to 8% during the next five
years is a clear sign that competition is heating up for pole position in the Russian retail and mortgage banking
markets.
The plan also confirms that the combination of sharply rising incomes and decades of pent-up, frustrated demand is
starting to create a powerful demand for consumer-orientated retail banking services.
Recent research by Moscow-based Integrated Research Group (IRG) indicates that the Russian consumer market was worth
between $260bn and $275bn last year but the dynamism of this "new economy" of consumer goods and services is
poorly reflected in the official statistics. These are still biased towards the old industries and show a total GDP of
only $360bn in 2002.
Incomes are growing
Spending-based estimates by IRG and others indicate that the real GDP is around 40% higher. Real incomes have been
growing by 8%-9% a year over the past three years, along with the emergence of thousands of rapidly growing companies
supplying the consumer market. They are providing services and quality consumer goods that were unavailable during the
Soviet regime or that were imported until the 1998 rouble crisis gave a powerful boost to import substitution.
The new consumer-led economy is fuelling the rapid emergence of a middle class with rising disposal income, low debt
and a growing appetite for credit. Between 12% and 15% of Russia's 143 million population now have the disposable
income to qualify as middle class - these people are heavily concentrated around Moscow. Consumer polls show the average
Russian consumer to be a 35-55-year-old female single parent with one child, a cat and a monthly disposable income of
$350 a month or $4200 a year. Some consumers are much richer.
Foreign banks join the fray
Foreign banks, with greater experience of retail banking, are also testing the waters alongside the main domestic
players such as VTB, Alfa Bank, MDM and Rosbank. Citibank, for example, concentrated on corporate lending until last
November when it started a small retail lending operation.
Allan Hirst, now CitiGroup country officer for Russia, helped to develop the bank's large retail banking
operation in Poland. He says the Russian banking system is similar to Poland's in the mid-1990s. But a lot of
regulatory and other issues still have to be tackled before retail banking and mortgage lending can be developed to
their full potential. "Longer term lending is difficult. It is hard for a lender to repossess, for example,"
he says.
Other foreign banks taking a cautious look at the sector include HSBC, whose retail lending capacity has been boosted
by its acquisition of Household International, and France's Societe Generale. In time, the wider experience of
Western banks and the greater agility of the smaller banks is expected to erode Sberbank's dominant role in the
banking system.
Domestic competitors
Although it has by far the most extensive branch network throughout Russia - with 1233 out of a total of 3433 Russian
bank branches - Sberbank has been slower than Alfa Bank and others to deliver personalised loans for cars, consumer
durables or mortgages. In the past few months, for example, Alfa Bank has opened 15 of its new Alfa Bank Express retail
branches in Moscow alone and plans to open another 25 branches by the end of next year, its main target being the rising
middle class.
Looking further ahead, the big prize is dominance in the mortgage lending business. This is tiny at present and needs
serious regulatory and legislative reforms before it can satisfy a huge and largely untapped demand.
According to a study of the residential construction market by IRG, 44% of middle class Muscovites plan to buy an
apartment in the next five years and 57% of those expect to take out a bank mortgage. That translates into a potential
annual demand for 300,000 modest apartments a year in the Moscow region alone, requiring more than 200,000 mortgages.
There is a long way to go. Last year only 3% of the 400,000 new apartments built nationwide were financed in this
way.
[UKIR [UK & Ireland Intelligence Wire]] |
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