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DELPAL_AEB (version 11 12)_FINAL.ppt

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  • 1. Investing in the Russian banking sector Round Table and Presentation of “How to Invest in Russia“ The AEB Finance and Investments Committee Philippe DELPAL Global Head of Retail Banking in Russia CEO of CETELEM in Russia December 14 th , 2007
  • 2. BNP PARIBAS in Russia Retail Banking Consumer Finance Fleet Management Corporate & Investment Banking Present in Russia since 1974 through Rep. office and since 2002 through subsidiary Corporate & Investment Banking International Retail & Financial Services Asset Management & Services
    • Cetelem #1 in continental Europe
    • Top 3 in Europe in leasing
    • Plans: In 5 years – 100 branches in Russia
    • Strong investment banking franchise
    • Leader in creditor insurance worldwide
    2002 2004 2005 2006 2007 2003
  • 3. What could bring BNPP to Russian banking business?
    • Bringing expertise in retail banking
      • BNP Paribas Group: over 5500 branches worldwide, including around 1800 branches in 28 fast-growing countries
      • Modern bank technology and risk management skills
      • Model Branch in line with the best European standards
    • Differentiating BNPP from other competitors: genuine focus on the customer
      • Ensuring secure and high-quality banking services
      • Excellence in customer relationship
    • Attractive Bank products and services:
      • All types of financing (working capital, overdraft, investment financing, etc.)
      • Trade Finance products (export-import financing, LC, LG, documentary collections)
      • Dedicated teams in charge of international groups: Turkish, Italian and Ukrainian desks
      • Supplier/Distributor finance programs
      • Foreign Exchange; Deposits; Domestic and International settlements; Cash Management
      • Plastic cards products (payroll solutions, corporate credit cards)
  • 4. Banks with Foreign Capital in Russia: Facts and Figures Share of foreign ownership in Russian banks' combined charter capital rose to 24.9% as of October 1 2007, whereas only two years ago the same indicator hardly reached 10.8% (April, 2006) Some reasons for further growth: In August 2007, the Bank of Russia issued authorizations to buy over 20% in a few Russian banks from the Top-100 to several foreign credit institutions not yet present in Russia. The number of credit institutions, 100% owned by non-residents, increased to 58 banks out of 1,165 Russian banking institutions. The volume of foreign investments in the charter capital of Russian banks reached RUR 139,455 million. + 85 % Number of banks with 100% foreign capital + 46 % Number of banks with foreign capital
  • 5. Why there is a growing interest of foreign institutions in the Russian banking system
    • Level of life of Russian citizens is growing – by 10% annually
    • GDP growth in 2006 – 6.7% against 2005. This year the growth will exceed 7% (Q3 – 7.6%) as per expert estimations
    • Unemployment rate: 7.2 - 7.6% in 2006 – no changes in the past 2 years
    • Growth of banking services use - 63% in 2007 vs. 57% in 2005 with a constant positive trend
    • The reduction of credit and business risks
    CONSUMERS – Income p/m, 2002-2007 (US$) RETAILERS – Sales Volume, 2002-2007 (US$ bln) CONSUMER LOANS – Volume Growth, 2002-2007 (US$ bln) All 3 of the main inter-dependent players of the Russian market – Consumers, Retailers and Retail Banks - have been developing at the same pace for the last 6 years (2002 – 2007)
  • 6. Most intensive growth through M&A: Recent transactions
    • Volume of deals in the banking sector grew by 147% to $4,8bl in 2006. The year of 2007 appears to exceed this performance with 15 deals $2,5bl already announced in the first six months of 2007.
    • 2007 may become a year of the expansion of large players to provinces and the consolidation of small banks.
    3.8 6.0 2.9 3.8 3.8 USD 200 mln By Morgan Stanley, 100% City Mortgage Bank USD 8.8 bn SPO SBERBANK USD 634 mln By Societe Generale, 20%-1 Rosbank USD 8 bn IPO VTB USD 477 mln By OTP Bank, 96.4% Investsberbank USD 550 mln By Raiffeisen International IMPEXBANK USD 122 mln Sold 34.5% to portfolio investors Probusinessbank USD 313.7 mln By Nordea, 85.7% Orgresbank USD 395 mln By HVB Group (UniCredit), 100% International Moscow Bank USD 1 bn By KBC, 92.5% ABSOLUT BANK MOST “VENDIBLE” BANKS
  • 7. Drivers for growth of the foreign capital proportion Bank acquisition Need for additional capital Changes in regulation Increasing competition Increased foreign interest Expansion into the regions Entry into WTO Growth prospects Expansion into other business segments
  • 8. Entry on the Russian market: organic growth vs. M&A PROS CONS ORGANIC M&A
    • Lower risk while business expansion and diversification
    • Focus on internal resources
    • No necessity to aggregate significant capital up to a certain period of time
    • Longer development process
    • Huge investments to be done for realization of certain stages, eg. development of a regional network
    • Limited opportunities for business portfolio diversification
    • Less possibilities to use up-to-date banking technologies due to lack of knowledge and experience in a banking institute
    • Synergy effect from costs decrease
    • Diversification of business portfolio
    • Rapid profitable development and strategic goals achievement
    • Strengthening of market position
    • Financial access and new technologies
    • Customer database extension
    • Geographical availability
    • Huge investments realized as a lump-sum payment
    • Possible ratings drop of a bank-acquirer
    • Difficulties in the post integration process: organizational, business, etc.
    • Human resources factor
    • Mergers and Acquisitions
    • Green field
    • Partnership
    • Combination
    Entry strategy
  • 9. Merger Integration: The day after syndrome…
    • Most of M&A fail to deliver shareholder value, due to:
    • Lack of structured strategic planning prior to transaction
    • Lack of planning and preparation for post-integration period
    • Complex integration of two businesses
    • Shortage of financial and human resources
    • Difficulties in dealing with different organizational cultures
    • Difficulties in overcoming the cultural issues
    • Difficulties in implementing of new HR strategy and organization structure
    • Difficulties in integrating IT and reporting systems
    • Risk of losing customers
    • Retention and selection of the management team
    strategy transaction integration
  • 10. Nevertheless, the Market Share of Foreign Players will Increase in the Next 2-3 Years: Few Pretenders Merrill Lynch has acquired about 10% of the Trust Banking Group. Hapoalim May buy a Russian bank worth $200 million to do primarily mortgage loans Getin Holding Focus on a bank with a banking license, IT license and system for reporting to the Russian CB Industrial & Commercial Bank of China Has just received a license to open a bank in Russia Bank of Tokyo Mitsubishi Got a CBR license and plans to buy a Top 10 Russian bank OTP (Hungary) Acquired Investsberbank in 2006 and plans to buy one or several regional banks Provident Financial Investment of 10 mln pounds for Buying a small local bank in one of the Russian’s remote regions Barclays capital Opened an office in Moscow in 2007 may buy a small domestic lender HSBC Obtained a general license in 2007. Experts believe that will acquire a Russian bank Nordea Bank Finland Development of its retail banking, acquisition of a bank with a strong presence in Moscow and St-Petersburg Deutsche Bank AG Acquisition of a bank or building up its own acquired in February 2006 UFG Bank, a leading investment bank
  • 11. Conclusion In spite of optimistic potential in market volumes, Banks on the Russian market will have to face several serious challenges within next several years: Funding issues Liquidity tightening will cause cost of funding to grow influencing local and small foreign banks with limited access to cheap cash resources Narrow profit margins Decrease in interest rates due to changed legislation and increased customer awareness will cause decline in margins, putting banks financial performance under pressure Growing need for regional network Necessity to quickly develop regional infrastructure in line with retailer development in the regions, will force banks into considering M&A deals with regional banks, as development of own structure takes significant amount of time International expertise These challenges will be much easier to face for large multinational banking groups that will allow them to take leading position on the market due to modern IT solutions and high service level standards
  • 12. Philippe DELPAL Global Head of Retail Banking in Russia, BNP Paribas Group CEO of CETELEM in Russia Tel: +7 495 660-91-83 E-mail: [email_address] Web: www.cetelem.ru ; www.bnpparibas.ru Contact