One of the juicier sub-plots is the potential for competition with the highly regarded departing senior management of Sberbank. Andrei Kazmin has taken over the Russian Post Office and his former second in command at Sberbank, Alla Alyoshkina, has taken over at Sviaz Bank, which is linked to the post office. The expectation is that the post office will expand further into banking in Russia, competing on a national basis through its widespread office network with Sberbank. Kazmin has had to patiently remind the markets what its main job will continue to be – delivering the post.
Meanwhile another potential natural competitor is often overlooked. State-owned Russian Agricultural Bank, whose national priority mission is to lend to the agricultural industry and the rural population, has spread itself far and wide across the huge country and grown at an extraordinarily rapid pace under the leadership of chairman Yuri Trushin. He tells Euromoney: “Seven and a half years ago, we were roughly bank number 400 in Russia. Now we are in the top 10 and by assets in the top five of Russian banks. We grew assets six- or seven-fold in the two years 2006 and 2007.”
Regular injections of state capital will enable growth to continue. On the last day of 2007, the bank received a Rb7 billion ($300 million) increase in authorized capital and another Rb2 billion is in the works. “The plan is for 30% growth in loans and assets in 2008. But my personal estimate is that it will be closer to 50%. We expect another two-fold increase in assets over the next three to five years but, as a rule, the actual figures often turn out to be two or more times greater than the plan, as we regularly receive additional capital increases from the Russian budget.”
According to the Russian model of state capitalism, a highly leveraged instrument like a bank is the ultimate tool of budget efficiency. For every rouble it ploughs into the bank’s capital, rather than spending it directly in the agricultural sector, the state sees Rb20 of loans extended. The state even subsidizes the interest payments on these loans, paying back two-thirds and more of the interest expenses that agricultural companies and household borrowers pay out.
Of course, it’s a good model only if the borrowed funds are invested productively. Trushin justifies it to a sceptical westerner. “In the past, direct state aid was of low efficiency because there were a lot of freeloaders who just took the money and produced nothing. This system is more effective because to get a loan an enterprise or household has to demonstrate its efficiency and only receives the interest subsidy from the state after it has paid out interest. So the borrowers have to be efficient.” He adds: “The entire attitude of the political authorities, from the federal all the way to the local level, to facilitating agricultural development has changed in recent years. In the 1990s, when the authorities announced subsidies for agriculture, it led to chaos. Today, everything has to be done in a very business-like way. If a loan gets taken out, it has to be repaid. It makes our life easier, as we can chose borrowers based on our analysis of their financial capacity and credit history”.
Like Sberbank, Russian Agricultural Bank demands guarantors of individual loans, which will typically come from among a borrower’s neighbours. “For people in the countryside,” Trushin notes, “there is nothing more important than good relations with your neighbours.”
Surely the point will soon be reached when the supply of subsidized funding overwhelms the rural economy’s capacity to absorb it, leading to waste, theft and unhealthy market distortions. That’s possibly true in theory, Trushin, a rare career banker running a Russian bank, concedes, but not yet. “There is a huge funding deficit in the agricultural sector. The total portfolio of loans extended in the agricultural sector and rural areas is around Rb600 billion and our estimates suggest the requirement is for between Rb2 trillion and Rb3 trillion. Today we are extending loans to only three out of every 10 potential borrowers that come to us and only take the best of the best borrowers according to our credit evaluation.”
Trushin sees growth in demand for all categories of financing, including the kind of long-term capital investment projects that stand behind 80% of the bank’s present loan portfolio, short-term working capital facilities and a growing percentage of the bank’s loans going to households. It has extended 400,000 of these loans in a country where the census records 18 million such rural households of which the bank estimates one-third can meet its eligibility criteria to obtain loans. The challenge is reaching them and the bank is seeking to spread its tentacles through rural credit cooperatives.
In the corporate lending area, the bank gathers intelligence by lending across the sector, from food producers to food processors, transporters, even supermarkets. If it learns that a product is not selling well or the required processing or transport infrastructure is not in place, it won’t extend a loan.
Amid dark headlines over global food shortages and rising prices, Trushin says the bank sees promising signs of the agriculture sector in Russia responding to market price signals. “One result of the rising price of grain is that we are seeing more land that is not presently being used – up to 30 million hectares – perhaps will be turned over to cultivation.”
