delpal_aeb (version 11 12)_final.ppt
TRANSCRIPT
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 14th, 2007
BNP PARIBAS in Russia
2002 2004 2005 2006 20072003
Retail BankingConsumer FinanceFleet
ManagementCorporate & Investment Banking
Present in Russia since 1974 through Rep. office and since 2002 through subsidiary
Corporate & Investment BankingInternational 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
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)
Banks with Foreign Capital in Russia: Facts and Figures
Share of foreign ownership in Russian banks' combined charter capital rose to 24.9%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: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 5858 banks out of 1,165 Russian banking institutions. The volume of foreign investments in the charter capital of Russian banks reached RUR 139,455 RUR 139,455 million.
61
20 21 23
2732
33
41
4852
58
-
10
20
30
40
50
60
70
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
+85%
Number of banks with 100% foreign capital
136130
126123
128132
136
153
188
199
100
120
140
160
180
200
220
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
+46%
Number of banks with foreign capital
510
22
41
86
150
2002 2003 2004 2005 2006 2007e
119154
203
245
327
438
2002 2003 2004 2005 2006 2007e
Level of lifeLevel of life of Russian citizens is growing – by 10% annually
GDPGDP growth in 2006 – 6.7% against 2005. This year the growth will exceed 7% (Q3 – 7.6%) as per expert estimations
UnemploymentUnemployment 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
131163
218289
552
714
2002 2003 2004 2005 2006 2007e
CONSUMERS – Income p/m, 2002-2007 (US$)
RETAILERS – Sales Volume, 2002-2007 (US$ bln)
CONSUMER LOANS – Volume Growth,
2002-2007 (US$ bln)
Why there is a growing interest of foreign institutions in the Russian banking system
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)
Most intensive growth through M&A: Recent transactions
MOST “VENDIBLE” BANKS
SBERBANK SPO USD 8.8 bn
VTB IPO USD 8 bn
ABSOLUT BANK By KBC, 92.5% USD 1 bn
Rosbank By Societe Generale, 20%-1 USD 634 mln
IMPEXBANK By Raiffeisen International USD 550 mln
Investsberbank By OTP Bank, 96.4% USD 477 mln
International Moscow Bank By HVB Group (UniCredit), 100% USD 395 mln
Orgresbank By Nordea, 85.7% USD 313.7 mln
City Mortgage Bank By Morgan Stanley, 100% USD 200 mln
Probusinessbank Sold 34.5% to portfolio investors USD 122 mln
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$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 consolidationconsolidation of small banks.
3.83.8
6.06.0
2.92.9
3.83.8
3.83.8
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 prospectsExpansion into other business segments
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
Entry strategy
Mergers and Acquisitions
Green field
Partnership
Combination
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
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.
HapoalimMay buy a Russian bank worth
$200 million to do primarily mortgage loans
Getin HoldingFocus 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 TokyoMitsubishi
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 FinancialInvestment of 10 mln pounds for
Buying a small local bank in one of the Russian’s
remote regions
Barclays capitalOpened an office in Moscow
in 2007may buy a small domestic
lender
HSBCObtained a general license in 2007.
Experts believe that will acquire a Russian bank
Nordea Bank FinlandDevelopment 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
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 issuesLiquidity 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 dealsconsidering 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
Philippe DELPALGlobal Head of Retail Banking in Russia, BNP Paribas Group
CEO of CETELEM in Russia
Tel: +7 495 660-91-83
E-mail: [email protected]
Web: www.cetelem.ru; www.bnpparibas.ru
Contact