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In view of president Vladimir Putin’s assault on Yukos it might seem an odd time to take on extra Russian risk. Nevertheless, that is just what RZB’s Russian subsidiary, Raffeisen Zentralbank Oesterreich (RZO), has been doing in its lending operations, and the strategy has been paying off.
Most foreign banks have restricted lending to the largest companies in Russia, such as Yukos, Norilsk Nickel, LUKoil and Sibneft. These are listed on exchanges abroad, and have international accounting standards and steady revenue streams. Foreign banks are comfortable lending to them. But as more and more banks have sought to increase Russian exposure in the past few months, yields for such credits have tightened considerably, from Libor plus 4 or 5 basis points, to plus 2.5bp or 3bp. Michel Perhirin, chairman of Raffeisen Zentralbank Oesterreich, says: “We began questioning the profitability of lending at these rates. For us, we consider yields of Libor plus 2.5bp or 3bp not attractive at all for the risk.”
RZO is searching beyond the top-tier companies for better yields, taking chances most foreign banks aren’t willing to contemplate. Herbert Stepic, deputy chairman of RZB, says: “We’ve decided to open the middle market. It was and is an untapped market.”
John Balsdon, lawyer with Herbert Smith in Moscow, says: “None of the other foreign banks have been moving into the middle market to the same extent as RZB. It’s bold, but it’s where the margins remain big.”
While top-tier companies have been heavily courted by foreign banks, slightly smaller ones are for the most part still serviced by Russian banks such as Sberbank or MDM Financial, at interest rates of around 15% to 20%. RZB is competing by offering yields of 8% to 9%, while still picking up good profits for itself. But the bank is taking a risk. As Balsdon says: “It’s a case of going into the unknown. There’s no history.”
Perhirin says: “These companies are often new names, but they’re very well managed by young professionals, and they’re prepared to open their books. They realize they need to give more information to banks if they want a good service.” Indeed, the fact that the likes of Wimm-Bill-Dann are new, without the history of many oligarch companies, might actually mean that they are less risky in the present anti-oligarch environment.
The move into the new market, according to some observers, has been led by RZO’s head of loans, Konstanze Thym. But it needed RZB back in Vienna to get comfortable with the new risk. Stepic says he was happy: “In Austria, we are already the bank of the Mittelstand. These companies will be more and more the backbone of the economy, and we have to invest in the future.” The bank has taken added comfort from working with the European Bank for Reconstruction & Development on some deals.
In addition to its push into the loan market, RZB has stolen a march on rivals such as Citigroup and HVB in the rouble bond market. Other western banks are following it and Renaissance Capital into the market, which has slowed down since the feverish activity earlier this year. The only areas where RZO may not be among the leaders are equity brokerage and M&A. Perhirin has no plans to push into equity brokerage while the bank remains one of the leaders in custody. RZO does have an M&A arm, RIAG, but Stepic thinks the big deals will still go to Merrill Lynch and Goldman Sachs, while RIAG is concentrating on helping Russian clients make regional acquisitions.
JE
