CEE architects of transition: Petr Aven

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By:
Lucy Fitzgeorge-Parker
Published on:

Petr Aven served as minister of foreign economic relations for the Russian Federation between 1991 and 1992. He was president of Alfa-Bank Russia from 1994 to 2011 and is currently chairman of the board, a position he also holds at ABH Holdings, Alfa Group’s financial holding company.

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THE ARCHITECTS     

Big Russian private-sector banks are like mushrooms. Every decade, a new crop spring up, dominate the landscape for a few years and then either blow up spectacularly or disappear without trace. 

The one exception to this rule is Alfa-Bank. For nearly 30 years, the lender has weathered the repeated storms that have battered Russian banking, each time emerging stronger than ever. Much of the credit for this remarkable longevity goes to the bank’s long-serving president, Petr Aven. 

An economist by training, Aven joined Alfa-Bank after a brief spell as a minister in Russia’s first post-Soviet government, where he was tasked by Boris Yeltsin with making the rouble convertible and liberalizing foreign trade. That done, he made a rapid exit from politics. 

“I quickly understood that the day-to-day of political life wasn’t for me,” he says. 

In 1994, he met Mikhail Fridman, founder of the rapidly expanding conglomerate Alfa Group. The two joined forces and Aven became president of Alfa-Bank, a tiny corporate lender founded by Fridman four years earlier.

Aven freely confesses that, at the time, he knew nothing about banking. 

“I have a background in econometrics,” he says. “I hadn’t even read a single book about banking. And so I became a sort of autodidact, learning everything as I went along.” 

Quick learner

He was clearly a quick learner. By 1997, Alfa-Bank was in the top 25 banks in Russia – and the winner of that year’s Euromoney award for best bank in the country. 

The following year, however, it was Aven’s early training that saved the bank from disaster. Almost uniquely among Russian bankers, he saw the 1998 crisis coming – a level of foresight he attributes to his economics background.

“It was simple,” he says. “It’s a textbook case, really. To assess the risk of devaluation, you have to compare reserves with M2 money supply,” he says. “If reserves are going down and money supply is going up, then at some point you’ll be faced with devaluation.” 

As a result, in mid 1998 Alfa-Bank cut its exposure to local government bonds to just $100 million. “We would have cut it completely, but as a market maker we were pushed by the central bank to keep something,” says Aven. 

More importantly, the bank prepared for devaluation. 

“I was sure that there would be a devaluation in late August or September, so starting from June we increased our dollar position and decreased our position in roubles,” he says.

As a result, Alfa-Bank changed almost overnight

Boost

“The fact that we were one of the few – or perhaps the only – private bank to survive the 1998 crisis gave a huge boost to our market position,” says Aven. “Just before the crisis, we were ranked 22 to 23 by assets. Immediately afterwards, we landed in the top six, because most of the other banks in the country didn’t survive or lost their reputation.” 

Devastating as it was, Aven believes that overall the 1998 crisis was good for the Russian banking sector.

“Many unsustainable institutions disappeared,” he says. “This caused the market and banking sector to become much healthier. Plus, the devaluation helped to promote exports and industrial growth.” 

Combined with a sustained rise in the price of oil, this resulted in a decade of outstanding growth in Russia. GDP expanded by more than 7% a year – and as one of the strongest and most trusted banks in the country, Alfa was able to take full advantage of that

The lender also came through the global financial crisis relatively unscathed, thanks partly to a cautious risk management strategy – including a strict policy of never lending to other Alfa Group companies – and partly to the well-attested willingness and ability of its shareholders to provide financial support. 


Every crisis has been nothing but positive for us
 - Petr Aven

Once again, Aven says the turmoil worked to Alfa-Bank’s advantage. 

“When you win you become much more confident in yourself and in your institution,” he says. “In that sense, every crisis has been nothing but positive for us, both in 1998 and in 2009.” 

He admits, however, that Alfa’s conservative approach has occasionally had its downsides. 

“We were a bit behind with our digital transformation,” he says. “We also could have moved into retail a bit earlier instead of remaining a strictly corporate bank. 

“This was also a function of our size. Being the biggest doesn’t always mean you’re the fastest.” 

Yet while Alfa-Bank may be the largest privately owned lender in Russia – a position it regained in 2017 after the failure and nationalization of Otkritie and B&N Bank – it is still dwarfed by state-owned firms Sberbank and VTB. 

At $490 billion, Sberbank’s balance sheet is over 10 times the size of Alfa’s. Aven says this level of concentration is unproductive but inevitable given the structure of the Russian economy. “The role of the state is increasingly high and state-owned firms prefer to deal with state banks,” he says.