Awards for Excellence 2019
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When Alfa-Bank began focusing on small and medium-sized enterprises 10 years ago, the segment was largely ignored by Russia’s leading banks. Customer service was nonexistent and access to finance was limited, especially for smaller firms.
“It was the lowest priority for most banks to work with SMEs, so the standard of products and services was pretty basic,” says Vladimir Verkhoshinskiy, chief executive of Alfa-Bank.
Alfa-Bank pioneered new methods of working with SMEs, creating a sales and service model specifically for the segment and using new channels to target clients. The success of this strategy quickly attracted competitors – including state-controlled Sberbank, Raiffeisenbank and challenger Tinkoff Bank – but Alfa-Bank has managed to maintain its edge.
From 2015 to 2016, the bank revamped its SME offering to keep pace with digitalization. It has also been at the forefront of the development of ancillary services for the segment, offering legal and tax consulting, as well as hugely popular coaching and seminars on compliance.
“This really is a competitive advantage,” says Verkhoshinskiy. “Most SMEs can’t afford to hire high-class specialists on every subject, so they really appreciate us helping them and making their life easier.”
Alfa-Bank also offers online accounting services for smaller businesses and last year launched a digital assistant for startup entrepreneurs that prepares documents required for registration with the federal tax service in 15 minutes based on nothing more than scanned copies of a passport.
Other recent innovations include Russia’s first virtual Visa card for SMEs, which can be activated within 60 seconds in Alfa’s Business Mobile application, as well as a full-scale FX service for smaller businesses that obviates the need for brokerage accounts.
Alfa-Bank’s main competitive advantage in the SME segment, however, remains its ability to provide rapid access to credit with effective risk management. Applications for loans of up to R3 million ($48,000) are processed within hours, while approval for larger facilities takes a maximum of five days.
Speed of disbursement is also key. Last year, Alfa-Bank cut the crediting period for mid-sized loans to one day.
“We deliver the speed of regional banks that are located close to clients with the quality of decision-making of national banks,” says Verkhoshinskiy.
This is made possible by Alfa-Bank’s in-depth knowledge of the segment.
“If you ask our head of medium corporates which sectors are more risky, he simply wouldn’t understand the question,” says Verkhoshinskiy. “He doesn’t know sectors – he knows every one of our 55,000 medium-sized clients by name. This type of expertise only comes with experience.”
Alfa-Bank has also developed sophisticated scoring models that inform credit decisions for mid-sized companies and are the main basis for lending to small and micro firms.
“We provide very profound algorithms, we connect our systems with many external databases and we work constantly with specialized international consultants to optimize our models,” says Verkhoshinskiy.
This allows Alfa-Bank to maintain outstanding asset quality in a segment that has often proved challenging for Russian banks. At 1%, the bank’s non-performing loan ratio is well below the sector average.
Alfa-Bank’s consistent strength in SME banking is clearly reflected in the numbers. For the last five years, the bank’s SME client base has grown by close to 30% a year. A third of Russia’s medium-sized companies are now customers of Alfa-Bank, along with 10% of micro and small companies.
Credit growth has been equally impressive. Lending to micro and small companies doubled last year, while the medium business loan portfolio grew by 60%. SMEs account for nearly 13% of Alfa-Bank’s total corporate credit portfolio and 30% of overall operating revenue.
Verkhoshinskiy is confident that this pace of growth can be maintained.
“The SME segment is one of the key focus areas in our new strategy,” he says. “There are 6.5 million small and medium-sized firms in Russia, so there is still plenty of room to grow. Our ambition is to grow several times faster than the market.”