Sberbank’s biggest domestic rival is growing fast
The Russian state wants a national banking champion to be proud of and has brought in new management, many from the private sector, to transform Sberbank into a top-notch corporate and retail bank. Its ambitious plans include establishing strong positions in foreign markets.
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German Gref, the former Russian minister of economics and trade, was given the job at Sberbank with the mission to lead it to its next stage of development |
ANTON KARAMZIN, FORMER chief financial officer of Morgan Stanley in Russia, had not met German Gref when he took the call from a headhunter on December 27 last year. Just two days later, he was preparing to sign a new job contract and shaking hands with the former Russian minister of economics and trade – chief Russian negotiator on World Trade Organization entry, father of the multi-billion dollar Russian stabilization fund, liberal economic reformer and long-term member of president Vladimir Putin’s inner circle until his sudden removal from the cabinet in 2007.
Gref had been given the top job at Sberbank, Russia’s biggest bank, with a clear mission to lead to the next stage of development an institution that the previous management team, under outgoing president Andrei Kazmin, had already transformed from a sleepy state savings bank into a decent universal bank.
"We are not going to be required to grab market share, we are not going to be measured by size," says Karamzin, just a couple of months after his appointment as Gref’s deputy chairman was formalized by the bank’s board. "Our mandate is to go and build one of the best banks in the world."
As a business mission, it’s both hugely ambitious and disconcertingly vague but it certainly sounds like a very big job. Karamzin doesn’t look worried. He smiles and turns philosophical. Maybe, he replies, but his grandfather, at the age of 28, was appointed deputy finance minister of Russia in 1939 and spent six years working for Stalin to finance the war and subsequent reconstruction.
That was a big job.
Karamzin, though still young, has packed a lot of experience into his career. On the night he meets Euromoney, he plans to attend a reception in Moscow to celebrate the 15th anniversary of Citibank’s operations in Russia with Citi chairman Sir Win Bischoff. Karamzin was one of the half dozen executives who opened Citi’s operations in Moscow in 1993. No doubt his old colleagues and bosses will be intrigued by his new job.
Karamzin is one of a handful of business leaders that Gref has attracted from the private sector. Denis Bugrov, a partner at McKinsey in Russia, has also joined to help develop strategy. Viktor Orlovky from IBM will be head of IT.
It’s not hard to see what attracts them, or why Karamzin decided so quickly to leave his comfortable seat at Morgan Stanley. He says: "This bank, which has 250,000 employees and 20,000 branches, has even greater potential than once could have thought from the outside. Yes, I have encountered some scepticism from my peers. If you ask anyone in Russia they will give you a long list of things Sberbank should do – from better service to retail customers to achieving greater sophistication in corporate banking – and this is a fantastic opportunity. There is tremendous intellectual capital within this organization and a lot of people who want to move forward in a dynamic, entrepreneurial way."
Can the bank be state-owned and dynamic and entrepreneurial at the same time? When you hold 50% of the population’s bank deposits, that lays a weight of responsibility to take a controlled and disciplined approach to your commercial enterprise. The bank’s new management team is developing a vision and strategy to present to the board in the next few months. But there are certain things that are obvious for it to do.
One is to grow in the nascent mortgage market and generally increase retail lending. The bank’s loan approval process has traditionally been unusually cumbersome. Customers have had to find two co-signatories for loan applications to which the bank has recourse if the original borrower cannot pay.
Political drama
There is an element of political theatre in the process of overhauling this. Shortly after Gref’s appointment, he appeared on television presenting a brief outline of the bank’s business to then president Putin. Putin appeared to consider the document before observing to Gref that the bank takes deposits from retail customers and makes loans to corporates – surely, it should make more loans to retail.
"That’s good for the country but it’s also good for us because retail banking can be a driver of profitability," Karamzin rationalizes. Even despite the daunting application process, the bank has a hefty slice of the retail market. Right now, acquiring new loans is not the challenge: it’s processing and managing them.
In many maturing emerging countries and fully developed ones the penetration of mortgages is anywhere from 60% of GDP to 100%. In Russia it is 3%. Karamzin says: "If we had a good mortgage product right now, even though real estate prices in some of the big cities have run away from most of the population, we would be hit by a flood of customers coming to Sberbank to the point we could not process it from a risk management point of view. We must put that in place. We want to grow quite fast in this segment where there is such a clear opportunity."
Similarly the bank is keen to acquire new skills with which to serve its corporate customers. "Corporate banking at Sberbank is a well-functioning machine but with a rather narrow range of products," he says. "There is a huge opportunity to move into, for example, project finance and structured finance: and by that I don’t mean third-generation derivatives on sub-prime mortgages, but to meet the modern corporate banking needs of our client base. We are one of the few banks to have ample funding and balance sheet and, on the back of that, there is a huge opportunity to do some more fee-based and advisory investment banking work."