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    Clr upstream-dkam Clr upstream-dkam Presentation Transcript

    • The role of the Bank of Moscow in International Financial Centre creation
      Upstream
      Nachinkin Denis ↑LevykinaKseniya ↑Finagin Alexander ↑Shpigel Maria
    • Moscow needs to and can develop from regional financial center (FC) to an international financial center (IFC)
      The benefits of making IFC in Moscow are:
      Now Moscow has already the following competitive advantages:
      Page 2
      • Russia will become a full participant in the international financial process, and will receive full voting rights in decision-making
      • Higher per capita income levels and faster rates of GDP growth
      • Attracting international capital
      • Increasing the base to capitalizing economy
      • Expanding access to financial resources of Russian companies
      • Innovation development of economy
      • Establishing the base for en effective, low-cost financing of domestic companies
      • Development of the middle-class
      • Moscow is the largest center of capital concentration of the former republics of the USSA and Central and Eastern Europe
      • Moscow is recognized national financial center in Russia: over than 80% of financial flows in Russia and more then half of Russia’s banking capital
      • Moscow produces more than 18% of GDP
      • The city’s budget is one of the largest among the 10 leading world cities
      • High rates of economic development accompanied by the creation of a unique legal infrastructure, which is formed by leading Russian and foreign lawyers
      • Convenient time-zone, extending the working day
      1
      2
      The most realistic scenario for Moscow is to move from Regional to National quadrant in 2-3 years and only afterwards (in 5 years) eventually become an International FC (leading in CIS countries)
      In order to take advantage of developing FC in Moscow the Bank of Moscow has to take an active part in the development of this IFC
      High
      (full diversity service)
      Level of diversification
      Global
      3
      National
      International
      2a
      Low (specialized)
      1a
      2b
      Regional
      Niche
      1b
      National (low)
      Global (high)
      Moscow (current)
      Scope (volume of cross-border transactions)
      Trajectories of FC evolution: possible for FC with specialization,
      recommended for Moscow
      3
      4
      1b – 2b
      1a – 2a
      See: Appendix 1 and 2
      Source: group’s design
    • Global Financial Centers Index reflects that the main area the Bank of Moscow ( ) has to base its strategy on is “People”
      Current Moscow’s GFCI rating is low not only in comparison with the leading IFC, but also with its close competitors and average
      The key areas of competitiveness of IFCs are:
      Page 3
      • Moscow
      • Territorially closest
      • BRICS
      • Close competitors according to CF profile matrix
      • Top 5
      • concern of the government
      • crucial for the strategic moves of
      Average=592
      See: Appendix 3 and 4
      Source: GFCI7 Report
      Source: case data
      1
      2
      “People” involves mainly the development of “human capital”. In this area lies most significant gap between the existing current FC profile of Moscow and the one needed to it to become IFC
      This means that from the Bank of Moscow’s perspective the strategic goals (that are quite interrelated) are to:
      • cultivate human capital in the interest of
      • stimulate the financial activity of Russian people
      Development of “human capital” includes 2 main aspects of concern:
      • Increase in the popularity of financial services (which needs a closer look from ////viewpoint)
      • Increase in the standards of living in Moscow (which is only of secondary importance to us as it does not have that instant and significant effect for )
      3
      4
      Source: group’s assessment
    • Solutions – 1. The main Points of substantial growth: investment funds, pension funds
      Page 4
      First issue is the target audience of Bank of Moscow – Moscow citizens and citizens of other Russian citizens. Maximal return can be obtained from the following client segments:
      In order to increase the popularity of financial services the Bank of Moscow is advised to implement a set of strategic initiatives that are divided in 2 groups:
      See: Appendix 5 and Excel
      Source: case data
      1
      2
      It is important to put emphasis on the investment services: promotion of the Bank’s pension fund, mutual funds and equity management. This will exploit the potential of these services and give a significant effect:
      Banks have already developed almost all types of financial services, however, investment services have large potential, since they are least developed in Russia. In order to promote them and increase awareness of the potential clients about these products it is necessary to create and accomplish educational measures, such as:
      • 31%
      • Provide to all interested clients free of charge short-period courses on financial markets, investments, banking, etc. to increase financial education of customers and stimulate their investment activity
      • Send annual or quarterly investment prepositions (via post mail or e-mail) to all of the account holders of the bank to inform them about all financial products and services proposed by and all seminars available for free (during which the essence of those products is understandably and professionally explained)
      • 26%
      • 65%
      • 38%
      3
      4
      Source: group’s evaluation
      See: Excel
    • Solutions – 2. Development factors: companies – cooperation, products – innovation and people – human capital development
      Another pool of strategic movements recommended is cooperation with other companies:
      Page 5
      At the same time bank needs to use innovative approach - introduce new propositions to satisfy customers’ contemporary demands:
      • Innovative products and services:
      • Provide customers with free user-friendly programs for managing personal incomes and expenditures
      • Introduce “Business Muscovite VISA” with bonuses, possibilities of easy usage of card in Internet, electronic ticket for Metro, etc.
      • Introduce “Bank for life” and “Full-package” bonus schemes
      • Innovative infrastructure:
      • Enhance Internet-banking and introduce schemes for banding bank cards to WebMoney and PayPall
      • Develop offices of a new type (as a digital office)
      • Insurance companies (as they are complementary to financial services) – provide clients with guarantee of insured deposits and accounts, promote the bank as a bank with high sustainability and reliability
      • Service companies (such as car insurance companies, mobile network operators, etc.) – stimulate their customers to use contracts with automatic monthly/annual drafts from clients’ bank account
      • Private pension funds – provide customers with a service to make monthly pension payments automatically with a certain small discount (which is covered by pension fund as it has guaranteed payment on a regular basis)
      • Companies that provide strong bonus schemes (such as Malina, Aeroflot, etc.) – make bonus card + bank card in one and provide customers with extra bonus for a certain amount spent from the bank card
      • Car dealers – put a car in front of the bank office and advertise that it could be bought through taking a car loan
      • Main Russian banks (VTB, Sberbank, etc.) – make an alliance in the sphere of:
      • withdrawals from ATMs (bank terminals) (free-of-charge withdrawal from any ATM of member bank from this alliance)
      • sponsorship of TV-news and Radio-news concerning finance analytics making people believe that it is a good idea to invest money through the banks
      2
      See: Appendix 6
      Living standards in Moscow is another aspect of the human capital:
      Educational system is one of the main factors, we are able to influence and which affects the quality of life:
      • developing business-oriented bachelor and master programs in Banking and Financial spheres on the basis of HSE or/and New Economic School (lectures given by representatives of the and students making practical training within the )
      • programs of employee development of requalification
      • provide educational credits for students
      Also important, but not really possible to influence factors:
      • Transportation system - Security level
      • Level of informatization - Health system
      • Environment
      1
      3
    • With suggested actions would not only contribute to the development of IFC in Moscow, but also solve key question of attracting new clients and enhancing their financial activity
      The above proposed strategic measures could be implemented within the Retail Business Department of the Bank of Moscow. The cascading of goals and initiatives reflects the division of responsibilities among the branches of this department:
      Page 6
      2nd branch (retail sales offices)
      1st branch (engineers of bank products and technologies)
      1
      Those strategic actions aim to solve almost all factors that currently block the development of financial activity of people in Russia:
      62% of Russians prefer not to use any financial services because they perceive then to be too complicated – What could be better to increase the share?
      It is a great potential for increasing the segments which is concentrated in two aspects:
      • Development of financial literacy
      • Creation of credibility and trust of the population towards financial institutions
      As a result in 5 years (when Moscow would become an IFC) Bank of Moscow would have growth in some of its financial products by more than 4 times
      2
      3
    • Page 7
      Appendix
    • Page 8
      Appendix 1. PESTI analysis
      The main set of macro-factors significantly influencing the bank industry apply to social and infrastructure factors.
      This are the main areas proposed strategy has to deal with.
    • Appendix 2. SWOT-analysis
      SWOT analysis for the Bank of Moscow reflects the situation of emerging possibilities that the bank has to take advantage of and at the same time block the influence of the possible threats using its strengths
      Strengths
      Opportunities
      • Moscow becomes an international FC of CIS
      • Merge of RTS and MICEX
      • Introduction of IAS in Russia
      • Russia becomes a member of WTO
      • Internet usage increase
      • Loosen restrictions on pension funds investment portfolios
      • Introduction of extra laws (or rather greater control over law compliance) to protect shareholders and stimulate disclosure
      • One of the leading universal commercial banks in the Russia
      • Diversified variety of services to corporate and private clients
      • Overcame the crisis of 2008 and managed to become a part of top- 500 world financial brands
      • Large branch network
      • Own pension fund
      • «Guide» concept, innovation approach (ex .– digital office)
      • Government partner on implementing the «Electronic government» and «Informational city» programs
      SWOT-Analysis
      • Retail banking client base average growth is no more than 3,9% per year
      • Volume of household deposits declined over the past year by 15%
      • One of the major shareholders – government
      • Absence of international auditor
      • High workload of social functions
      • Another financial crisis
      • Low financial activity of people
      • Low degree of public confidence in financial institutions
      • Insufficiently developed infrastructure
      • Political risks
      • Rising competition
      • Undeveloped infrastructure
      Weaknesses
      Threats
      Page 9
    • Page 10
      Appendix 3. Comparison of American and Russian capital market (harvey balls table) - 1
      Russian companies lack alternative opportunities to put their capital in
    • Page 11
      Appendix 3. Comparison of American and Russian capital market (harvey balls table) - 2
      In Russia banking sector acts as the key financial intermediary of the economy, whole in the USA there are many alternatives to banks
      This comparative analysis reveals that there are substantial gaps in the development of Russian capital market. On the one hand, they represent serious backwardness, and, on the other hand, great opportunities for development
    • Page 12
      Appendix 4. Competitors’ analysis – 1
      Moscow’s GFCI is far away from the top-5 leading IFC:
      FC profile matrix (connectivity/diversity):
      Moscow
      Source: GFCI reports
      1
      The closest competitors according FC profile matrix:
      3
      2
      Source: GFCI8 Report
      Source: GFCI reports
    • Competitors from other BRICS countries:
      Territorially closest competitors:
      Page 13
      Appendix 4. Competitors’ analysis – 2
      Source: GFCI reports
      Source: GFCI reports
      1
      3
      There is empirical evidence that significance of being nearby is that geographic proximity matters, in that investors from wealthy countries put considerably more capital into nearby IFCs than those that are far away.
      That means that we need to take into account territorially closest competitors.
      Moscow
      2
      Source: Rose and Spiegel (2007)
      Source: case data
    • Appendix 4. Competitors’ analysis – 3
      The closest competitors according to BCG-matrix lie in the emerging area:
      BCG matrix of FC (financial market/growth and development):
      Page 14
      • Mumbai (Bombay)
      • Seoul
      • Sao Paulo
      All these FC are from countries which economies are:
      • emerging
      • fast-developing
      • of modest size
      Yet these FC are rising stars and Moscow is among them:
      1
      2
      Source: GFCI8 Report
      Source: Rose and Spiegel (2007)
    • Appendix 5. Clients and product analysis – 1
      In our work we assume that all people who use financial services are:
      In Moscow region, the greatest share of people are wealthy middle aged. Among total amount of financial services users in Moscow they take the first place, being of nearly 38% of all users in Moscow. The proportion of Bank’s clients is slightly different from typical - more «yuppie» presented and less pre-pension employees:
      Page 15
      • Russian Federation residents
      • men and women
      • aged over 18 years
      • have enough income to fulfil the basic needs, but we will not take into account pensioners and poor youth
      The scale of our analysis:
      • We take into account the Moscow region and Russia.
      • We make predictions regarding the next 5 year time period.
      Source: case dara
      1
      2
      The types of financial products they use are:
      3
      Source: group’s design
    • At first, we would like to find out more about the bank of Moscow financial services:
      Page 16
      Appendix 5. Clients and product analysis – 2
      • As for mortgages- we estimate the increase in those given by the by 1,116bln next year.
      • We estimate increase in usage of debit cards issued by by 10%, with total amount of 84742 next year. And for credit cards this figure would be 58450 cards.
      • Payroll card is used by slightly more than 63% (only is taken into account), which is 3% higher than the average level in Russia (60%).
      • Current account shows the expected numbers - but now it is slightly less(35,3%) than average(36%)
      • Debit cards are used by approximately 9% of people in Russia, while in this figure is 16%, which means great programs or useful advertising.
      • This is similar to car loan which is of 8% on average and 14,6% in .
      • As for deposits, it was predicted that they would increase with by 18% next year, but this figure was estimated for the average level 23%, and since in the there are 25% of deposits among their clients, we estimate the future year increase to be about 20%, reaching 30% of deposits among clients. As was stated, the mean value of deposits is 65 000, so the total number would be approximately 9,476 blns of rubles.
      • Speaking about credits - the average level of people who take credit is 15%, and 10% is predicted increase. As for figures- it is 13,4% and we predict 9% increase, so 14,6% in the next year. So we believe that the level of credits will be 5,340 blns next year (the average period is 2 years).
      2
      Another very important aspect is investment - its levels are at extremely low level in Russia. Less than 5% of people use them. There are 2 primary possibilities for investment – UIT (including brokerage services) and pension capital
      • UIT are not used by yuppie and wealthy middle-aged people, because they have enough money to invest them using brokerage services. Other people use UIT for investment. Though it is believed that number of people who invest these ways will double to 2012 to the level of 12mln, reaching 17mln in 2015 (which is still little in comparison with developed countries). More than that, UIT are expected to have an annual growth rate of 38%.
      • has own pension fund. In mandatory accumulative pension it has 422,660 mln (out of the total market of 4bln). This figure is expected to increase by 25% in year and the part which the bank owns – by additional 40%. In employer sponsored pension - has 349,560mln (out of 20bln). This figure would increase up to 466080 at the end of the year and bank’s share would increase by 10% more.
      • This would be the main trend of the future years – increase in investment
      1
      3
      See: appendix …
      Source: group’s design
    • Page 17
      Appendix 6. Innovative products, services and infrastructure description