The Russian Banking Sector:  Assessing the Growth  Michel Perhirin, CEO, MDM Bank Regional Cooperation Forum   GENEVA, 9-1...
Macroeconomic Overview
Overview: Russian Economy Stable economy <ul><ul><li>The latest forecasts show Russian GDP to surpass  1,000 bln  USD by 2...
Overview: Russia is Closing to Top 10 by GDP Russia’s rapid and sustainable growth has brought the country onto the list o...
International agencies recognize the success of the Russian economy;  the country has solid Sovereign ratings. Overview: S...
Overview: FDI Inflow Foreign Direct Investment inflow is constantly increasing due to improved economic and political cond...
Banking Sector Development
Russian Banking System: Infrastructure Credit system participant quality is gradually improving – the number of credit ins...
Russian Banking System: Concentration & Growth Results <ul><ul><li>The Russian banking system grew strongly in 2005:  </li...
Credit Rating Comparison for Russian Private Banks The leading Russian Banks are highly rated by International Agencies So...
MDM among Top Russian Banks Top Russian Banks as of 1Q 2006 * * Estimate, based on Russian Accounting Standards ** Excludi...
Russian Banking System: Foreign Banks in Russia Foreign owned banks are increasing their presence in Russia in terms of as...
Russian banking system: Mergers & Acquisitions Increasing M&A activities in past two years <ul><ul><li>Foreign banks </li>...
Banking sector:  Investor Friendly?
Banking Sector: State Policy requires further development The Banking System  still needs to  deal with  a number of probl...
<ul><ul><li>Improve legislation </li></ul></ul><ul><ul><li>Improve Banking regulation and supervision </li></ul></ul><ul><...
Banking Sector:  Application of Western Quality Standards
Russian Bank Clients Vendors Media Community Execs. Managers Line employees Competitors Western standards of quality Share...
Path of Change Current State Western standards of quality in Russian banking services  Western standards in banking servic...
Product offering: banks are closer to western standards Still missing sophisticated product lines, Russian banks are closi...
Banking in Russia: The Future Over the years several key measures were implemented to improve and increase the importance ...
Outline: MDM Outline  <ul><ul><li>High international credit ratings </li></ul></ul><ul><ul><li>Leading bank in corporate g...
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Presentation of Mr. Michel PERHIRIN, Chairman of the Board ...

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Presentation of Mr. Michel PERHIRIN, Chairman of the Board ...

  1. 1. The Russian Banking Sector: Assessing the Growth Michel Perhirin, CEO, MDM Bank Regional Cooperation Forum GENEVA, 9-10 JULY 2006
  2. 2. Macroeconomic Overview
  3. 3. Overview: Russian Economy Stable economy <ul><ul><li>The latest forecasts show Russian GDP to surpass 1,000 bln USD by 2007 </li></ul></ul><ul><ul><li>The inflation forecast is 8.5% for 2006 </li></ul></ul><ul><ul><li>Foreign currency reserves have reached $247.2 bln by end of June 2006 and are expected to increase further </li></ul></ul><ul><ul><li>There has been an increase in the p ayment surplus for current operations </li></ul></ul>
  4. 4. Overview: Russia is Closing to Top 10 by GDP Russia’s rapid and sustainable growth has brought the country onto the list of leading World economies The Russian Federation has the 14th highest GDP
  5. 5. International agencies recognize the success of the Russian economy; the country has solid Sovereign ratings. Overview: Sovereign Ratings
  6. 6. Overview: FDI Inflow Foreign Direct Investment inflow is constantly increasing due to improved economic and political conditions FDI & Portfolio investment share are gradually increasing Location sites considered for new investment or expansion (% of citations for each country)
  7. 7. Banking Sector Development
  8. 8. Russian Banking System: Infrastructure Credit system participant quality is gradually improving – the number of credit institutions is decreasing mostly due to “dead” bank exclusion from the market
  9. 9. Russian Banking System: Concentration & Growth Results <ul><ul><li>The Russian banking system grew strongly in 2005: </li></ul></ul><ul><ul><ul><li>Assets increased by 36.6% (2004: 27.4%) </li></ul></ul></ul><ul><ul><ul><li>Capital increased by 31.2% (2004: 16.2%) </li></ul></ul></ul><ul><ul><ul><li>Profit increased by 47.3% (2004: 38.6%) </li></ul></ul></ul><ul><ul><li>2005: ROE 24.2 % (2004: 20.3 %) </li></ul></ul><ul><ul><li>2005: return on lending assets 3.2 % (2004: 2.9 %) </li></ul></ul><ul><ul><li>The top 30 largest banks experienced the highest growth level (2005: Assets increased by 48%) </li></ul></ul>Dynamics of the Russian banking system June 2006 % of total % GDP US$ bln % of total % GDP US$ bln % of total % GDP US$ bln Top 20 Banks 66% 20 % 1 62 66% 1 5 % 1 16 6 3 % 31 % 2 48 20-200 Banks 2 6 % 8 % 63 2 4 % 5% 42 2 8 % 1 4 % 109 Other Banks 9% 3 % 22 11% 2% 19 10% 5% 3 9 Total Loans Total Customer Accounts Total Assets Source: Central Bank
  10. 10. Credit Rating Comparison for Russian Private Banks The leading Russian Banks are highly rated by International Agencies Source: Cbonds, Moody’s, S&P, Fitch Caa
  11. 11. MDM among Top Russian Banks Top Russian Banks as of 1Q 2006 * * Estimate, based on Russian Accounting Standards ** Excluding subsidiaries
  12. 12. Russian Banking System: Foreign Banks in Russia Foreign owned banks are increasing their presence in Russia in terms of assets and number thus establishing a new level of competition Key factors <ul><ul><li>The number of foreign-controlled banks in the Russian banking system*, as of April 2006, reached 55. (52 in 2005; 42 in 2004) </li></ul></ul><ul><ul><li>The assets of foreign-controlled banks increased by 49.3% (2004: 29.9%) and equity (capital) by 56.4 % (2004: 36.7%) </li></ul></ul><ul><ul><li>Non-resident-controlled banks’ share in the banking system's assets grew from 7.6% in 2004 to 8.3% in 2005 and in equity (capital) from 7.8% to 9.3% </li></ul></ul><ul><ul><li>Private deposits in non-resident-controlled banks increased in 2005 by 60.0% (2004: 71.9%) </li></ul></ul><ul><ul><li>*With m ore than 50% share </li></ul></ul>Russian top 30 banks asset structure Source: Central Bank, as of January 1, 2006
  13. 13. Russian banking system: Mergers & Acquisitions Increasing M&A activities in past two years <ul><ul><li>Foreign banks </li></ul></ul><ul><ul><li>BSGV  DeltaCredit </li></ul></ul><ul><ul><li>GE Consumer Finance  Deltabank </li></ul></ul><ul><ul><li>Hansabank  Kvest </li></ul></ul><ul><ul><li>RaiffeisenBank  Impexbank </li></ul></ul><ul><ul><li>EBRD portfolio investment:  13 local banks (2005: 7 banks) </li></ul></ul><ul><ul><li>Societe Generale  Rosbank (10%) </li></ul></ul><ul><ul><li>OTP Bank  Investsberbank </li></ul></ul>Benchmark valuation multiples <ul><ul><li>Top Russian banks </li></ul></ul><ul><ul><li>Rosbank  OVK </li></ul></ul><ul><ul><li>VTB  Guta Bank; PSB (SPb) </li></ul></ul><ul><ul><li>Nikoil  Avtobank;Uralsib </li></ul></ul><ul><ul><li>Mid-market local banks </li></ul></ul><ul><ul><li>Promsvyazbank  Rostpromstroibank </li></ul></ul><ul><ul><li>Petro-Aero Bank  Ruskobank; Inkassbank </li></ul></ul><ul><ul><li>Sibacadembank  Uralvneshtorgbank; Mezhtorgbank; Dalvneshtorgbank; Zheldorbank </li></ul></ul><ul><ul><li>VEFK  MDM Bank St. Petersburg </li></ul></ul>Three Major Acquisition Groups
  14. 14. Banking sector: Investor Friendly?
  15. 15. Banking Sector: State Policy requires further development The Banking System still needs to deal with a number of problems Insufficient Banking Sector contribution to economic growth Excessive Costs associated with the Banking Sector Low level of creditors’ rights protection The Legal base For a competitive environment is not fully developed Bankruptcy procedures needs more transparency
  16. 16. <ul><ul><li>Improve legislation </li></ul></ul><ul><ul><li>Improve Banking regulation and supervision </li></ul></ul><ul><ul><li>Develop the Banking sector infrastructure </li></ul></ul>Banking Sector: Striving for Improvement <ul><li>ARB (679 banks) , «Russia» ( 350) , MICA* (67) and o ther organizations take an active part in the State policy implementation </li></ul><ul><li>Rapprochement of the State and Bank interests </li></ul><ul><li>Proactive stance toward public authorities’ initiatives </li></ul><ul><li>Banking society members’ balance of interests </li></ul><ul><li>Investment attractiveness increase in the external markets </li></ul>The State pledges to make the following improvements: Russian Banks exert every effort to increase the Sector’s investment attractiveness Both the State Authorities and Russian Banks must combine efforts to bring the Sector in correspondence with high international standards *MICA – Moscow International Currency Association
  17. 17. Banking Sector: Application of Western Quality Standards
  18. 18. Russian Bank Clients Vendors Media Community Execs. Managers Line employees Competitors Western standards of quality Share- holders Regulators Russian banking system: Stakeholders & Western standards
  19. 19. Path of Change Current State Western standards of quality in Russian banking services Western standards in banking services in Russia: Drivers & Blockers <ul><li>Drivers: </li></ul><ul><li>Strong competition </li></ul><ul><li>Increase in FDI </li></ul><ul><li>High growth levels </li></ul><ul><li>Increased ratings </li></ul><ul><li>High liquidity </li></ul><ul><li>Low interest rates </li></ul><ul><li>Blockers: </li></ul><ul><li>Banking system weaknesses </li></ul><ul><li>High fragmentation of Russian banking system </li></ul><ul><li>Dominance of state-owned banks </li></ul><ul><li>Significant number of small banks </li></ul><ul><li>Slow implementation of reforms </li></ul><ul><li>Risks level remain substantial </li></ul>
  20. 20. Product offering: banks are closer to western standards Still missing sophisticated product lines, Russian banks are closing the gap in product offering moving from “boutique” to mass standardized products Process organization <ul><li>Cash management </li></ul><ul><li>Loan products </li></ul><ul><li>Liquidity management </li></ul><ul><li>Investment banking </li></ul>Corporate clients <ul><li>Payments </li></ul><ul><li>Plastic cards </li></ul><ul><li>Loan products </li></ul><ul><li>Savings products </li></ul>Retail clients <ul><li>Wealth management </li></ul>Private banking Variety of services <ul><li>Standardized procedures </li></ul>Processes <ul><li>Demand analysis </li></ul><ul><li>Relationship management </li></ul>Client insight <ul><li>Multifunctional core systems and CRM </li></ul>IT Support platform <ul><li>Widening distribution network: </li></ul><ul><ul><li>Branches </li></ul></ul><ul><ul><li>Mini-offices </li></ul></ul>Offices <ul><li>Internet banking </li></ul><ul><li>Internet trading </li></ul><ul><li>Phone banking </li></ul><ul><li>Call centres </li></ul>Virtual <ul><li>Agents networks </li></ul>Third party Sales channels <ul><li>Credit bureaus </li></ul>Risk management
  21. 21. Banking in Russia: The Future Over the years several key measures were implemented to improve and increase the importance of the banking system in Russia. <ul><ul><li>Banking system growth will continue </li></ul></ul><ul><ul><li>Four distinct groups will remain on the market. </li></ul></ul><ul><ul><ul><li>State-owned banks </li></ul></ul></ul><ul><ul><ul><li>Largest private banks </li></ul></ul></ul><ul><ul><ul><li>Regional banks </li></ul></ul></ul><ul><ul><ul><li>Foreign banks </li></ul></ul></ul><ul><ul><li>Conditions for FDI attraction will improve </li></ul></ul><ul><ul><li>Transparency in lending institutions' operations will increase </li></ul></ul><ul><ul><li>Foreign banks will continue steady growth </li></ul></ul><ul><ul><li>Dominance of state-owned banks will remain </li></ul></ul>
  22. 22. Outline: MDM Outline <ul><ul><li>High international credit ratings </li></ul></ul><ul><ul><li>Leading bank in corporate governance practices in Russia (S&P CG Ratio:6.0) </li></ul></ul><ul><ul><li>One of the four largest privately owned Russian financial institutions </li></ul></ul><ul><ul><li>Universal bank: retail, corporate, investment and private banking </li></ul></ul><ul><ul><li>Close to 1 million retail clients </li></ul></ul><ul><ul><li>Over 70,000 corporate clients with over 2,000 medium & large active clients </li></ul></ul><ul><ul><li>Numerous awards from financial magazines </li></ul></ul>Key Highlights <ul><ul><li>As of March 31, 2006 (IFRS), MDM FG: </li></ul></ul><ul><ul><ul><li>Assets: US$ 5,752 mln </li></ul></ul></ul><ul><ul><ul><li>Equity: US$ 963 mln </li></ul></ul></ul><ul><ul><ul><li>Net profit for 1Q 2006: US$ 43 mln </li></ul></ul></ul><ul><ul><ul><li>ROAE (annualized): 20% </li></ul></ul></ul><ul><ul><ul><li>Cost / income: avg.50% </li></ul></ul></ul><ul><ul><ul><li>Staff: 5,396 </li></ul></ul></ul>Moody's Fitch S&P Ba2 / stable BB- / stable B+ / positive

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