Q&A with VTB CEO Andrey Kostin

Dominic O’Neill
Published on:

In an in-depth interview with Euromoney, the head of the powerful Russian state lender discusses domestic bank competition, regulation, credit growth and reveals the impact of state ownership.

Over the past 10 years, VTB has greatly narrowed the gap with Sberbank in terms of size of assets. Could you eventually overtake Sberbank and become Russia’s biggest bank?

We have never said we want to be the biggest bank, or to overtake anyone. Size does not necessarily matter.

Sberbank and VTB had very different starting positions. The former still dominates in the Russian retail market. Where does this dominance come from? Sberbank started with 20,000 branches and hundreds of thousands of employees all around the country, inherited from the Soviet period. Hence, Sberbank possessed unique competitive advantages both in terms of its network and client base from the very inception of the Russian banking system.

When I joined VTB 11 years ago we set the goal of evolving into one of the leading Russian banking institutions. It was a challenging although realistic target. We decided that the bank should have a substantial part of the domestic market – which we have successfully achieved.

VTB started in the early 1990s as a mid-size bank servicing the foreign operations of a small number of then state-owned trade organizations. Eleven years ago, our assets were only 10% of those held by Sberbank. Today VTB’s assets are equivalent to half of Sberbank’s. In terms of assets and capital we are firmly number two in the Russian market, with other banks lagging behind.

It is also noteworthy that over the past 10 years we have created a number of new profitable businesses almost from scratch, primarily retail and investment banking.

We are proud that our investment banking arm – VTB Capital – established only five years ago, is number one in Russia. With the biggest market share, VTB Capital is well ahead of Sberbank's CIB. Competition in the area is tough and I must say our colleagues do not let us become too complacent. However, again, we never set a target to be the largest. As I pointed out, we want to create an efficient, well-diversified world-class financial institution.

Indeed, in the past 10 years we have developed quickly both through organic growth and acquisitions. We have also channelled substantial resources to expand into new areas – retail and investment banking. Looking back I must say that it was the right strategy. VTB Group managed to make the most of the opportunities that the growing emerging markets and the global economic situation provided at that time.

Now that the world economy and Russia as an integral part of it are entering a period of post-crisis uncertainties, we have very strong prerequisites to resist any potential downturn. We are also able to secure sustainable performance and attractive returns for our shareholders in the future.

As for industry growth expectations, we tend to be more conservative at the moment.

If the [Russian] economy is now growing at 2% or 3% [then rapid growth of the bank, and the banking sector] can’t last forever. Indeed, growth in the industry should be, to a certain extent, in line with that of the economy. However, given that penetration of banking services in Russia is still low in comparison with emerging market peers, we can reasonably expect banking industry assets to grow at a pace of between 10% and 15% a year, at least now.

When you say 'now’ you mean...?

By 'now’ I mean this year and the next two or three years. We expect moderate economic growth in Russia and therefore I think that there will be equally moderate growth in the banking sector.

What about development of retail? Sberbank recently announced its growth in retail would gradually slow over the coming years. Does that present you with an opportunity, particularly in retail?

On the one hand the economy is slowing down today. We are seeing a slowing in growth of corporate loans. It has also become clear that further growth of retail lending is [producing commensurate growth in] non-performing loans and related provisions. On the other hand, however, there are still interesting niches in the retail segment, which provide good opportunities. We started our new project, called Leto Bank, because activities such as consumer loans and point-of-sales lending were not covered by VTB.

However, I would be very cautious about saying that we will grow much faster than the market here. We want to grow faster than the market in general, but it will not be like in previous years, when VTB demonstrated growth that was about twice as fast as the market.

Previously our growth [in retail] was very much related to our corporate lending. For example, we lend money to various corporations, and we service their employees on the retail side. This is a group of clients that is more reliable, because we know their income. When we started to work with low-end clients, we found that they have a much higher risk profile.