OREANDA-NEWS. May 30, 2007. "Russia is expected to remain the most attractive market in Central and Eastern Europe", summarized Herbert Stepic, CEO of Raiffeisen International Bank-Holding AG and Deputy Chairman of Raiffeisen Zentralbank ?sterreich AG (RZB), at a press conference held on 20th of May in Kazan. Stepic reported on the current trends and perspectives of the Russian banking market on the occasion of the annual meeting of the European Bank for Reconstruction and Development (EBRD). According to Stepic, the Russian banking sector had more than offset the losses caused by the crisis in 1998 already by the end of 2001. Since then, local banking assets grew at outstanding levels. In 2006, the total assets of the Russian banking industry grew by 41 per cent to approximately 405 billion euros. This corresponds to 53 per cent of Russia's GDP. In 2005, the total banking assets reached 45 per cent of the local GDP.

Starting from total banking assets at year-end 2005, which amounted to 285 billion euros, RZB's analysts expect this figure to double by 2009 and to quadruple by 2014. As a consequence, they are expected to exceed combined banking assets of Central and Eastern Europe at the latter date.

The race for banking assets will go on
In 2006, no less than twelve international banks acquired stakes in Russian banks (see list below), pushing the market share of foreign banks to around 11 per cent according to Reuters. Among the top-20 Russian banks are three by majority foreign-owned ones. As of year-end 2003, the market share of these banks was less than 4 per cent, a ratio that increased to 6.8 per cent by the end of 2005.

Stepic expects a continuation of bank sales, especially by owners that look for a strategic partner or just consider the time favourable for a sale. Massive expansion of the consumer finance business in the regions will be a key to success in retail banking for any active market player. Consequently, the availability of a solid branch network will be one of the most important selection criteria for any potential buyer. Foreign banks are very thoroughly screening the market for acquisition targets. Still, some major foreign banks are poorly represented in Russia. Therefore, they look for acquisitions in order to catch up with their peers. In addition, banks with a presence in Russia already could increasingly focus on growth via acquisitions.

Further acquisitions of medium-sized local banks by foreign groups are very likely. The most attractive targets are those banks offering a developed branch network, a solid SME and retail customer base, an experienced retail staff and previous involvement of international banks.

On the other hand, an Initial Public Offering (IPO) will become a more likely tool for the top-20 banks to broaden their capital base.

Consolidation should continue over the next years. During the last five years, approximately 100 banks vanished per annum. RZB's analysts expect that by 2015, the number of banks most probably will have decreased from 1,345 to around 1,000.

Stepic considers the necessity for state-of-the-art risk management and product development as the main challenge for the future and a key to success. Given the credit boom, it is certainly crucial to maintain prudent lending procedures and adequate risk management in order to keep the percentage of bad loans in the credit portfolio on a reasonable level. Regarding products, he sees continued demand for mortgage and consumer loans and rising attention to fund business as well as pension and life insurance business.

Leading foreign bank in Russia and the entire CIS
After the acquisition of 100 per cent of Impexbank at the beginning of 2006, Raiffeisen International, represented in Russia by Raiffeisenbank Austria and Impexbank, is the country's seventh-largest bank in terms of total assets (according to Interfax-CEA).

Together, Raiffeisenbank and Impexbank are ranked third in Russia in terms of consumer deposit volumes (79.5 billion rubles, approximately 2.2 billion euros)* and fourth in consumer lending (48.6 billion rubles, approximately 1.3 billion euros)*, Interfax-CEA reported. The most significant factor in the business development of Raiffeisen International in Russia is the constant expansion of the sales network, which is spread across the country, providing access to more than 140 million people.

Johann Jonach, Chairman of the Board of Raiffeisenbank Austria, said, "During the past year, we have been working intensely on preparing the launch of our legal merger, increasing the charter capitals of both Raiffeisenbank and Impexbank. The legal merger is expected to take place by the end of 2007. The combined banks will work under the name of Raiffeisenbank."

At the end of the first quarter, the combined assets of both banks reached almost 9.8 billion euros, they had 242 outlets across the country and employed a staff of 8,278. The bank plans to increase the number of branches to 369 by year-end 2009. Together with Raiffeisen Bank Aval, the second largest bank in Ukraine, Priorbank, the third largest bank in Belarus, and a leasing company in Kazakhstan, Raiffeisen is the largest western banking group in the Commonwealth of Independent States.