Postal Bank Could Cost up to $10Bln

Vneshekonombank expects that the creation of a postal bank based on Svyaz-Bank and Russian Post will cost $5 billion to $10 billion, Vedomosti has learned.

VEB is planning to create the postal bank, and on Feb. 17 it invited partners from private business to participate in the project. The state corporation is to discuss preliminary results of the talks next week.

The project's cost could be from $5 billion to $10 billion, a banker interested in the partnership told Vedomosti. The information was confirmed by Svyaz-Bank chairman and VEB first deputy chief Anatoly Tikhonov.

Investments could be less than the lower end of the estimate if minibank offices are opened at the majority of Russian Post offices, where clients could open accounts, apply for consumer loans and so forth, Tikhonov said.

Creating full-fledged bank branches offering all of the main services in most post office locations, or even separately, would require investments closer to the higher end, he said. But if offices are not opened everywhere and they offer varying levels of service, the total investment would be lower.

Russian Post has 41,000 branches, including about 1,000 where Svyaz-Bank has a presence.

"You need to treat these figures with caution, since these are only preliminary estimates, which could be corrected," Tikhonov said. The scenario ultimately used will depend largely on the opinions and capabilities of the private investor, he added.

Initially, the charter capital of the postal bank will be increased by 25 billion rubles ($848 million), from the current 24 billion rubles (from Svyaz-Bank), Tikhonov said. The investment will come from a private investor, VEB, as well as Russian Post or the Federal Property Management Service (as a federal state unitary enterprise, Russian Post is not allowed to be a bank co-owner).

Tikhonov said they would not contribute post offices to the bank's capital. Russian Post, a spokesperson said, offered that VEB exchange its shares — if it were to become a joint stock company — for shares in the postal bank. The postal service's management estimates its capitalization at no less than $12 billion to $15 billion.

Renovations and construction of branches and offices will require 12.4 billion rubles, purchasing and installing equipment will require 8 billion rubles, and 3 billion rubles will be needed for the IT platform, Tikhonov said. The majority of the expenses would be in the first three years.

Additional funds would be required in the third year to cover losses and develop the project, Tikhonov said, but it is unclear how much.

The project should have an operating profit in its fourth year and "hit full stride" in the fifth year, becoming a "serious competitor to Sberbank," he said. Unlike Sberbank, the postal bank will not close unprofitable locations in distant regions, trying instead to cover those losses with profits from other branches. He said the project should recoup investments in seven to eight years.

If an investor is found quickly, the project could be launched by the end of this year, Tikhonov said. "We're the Development Bank, and one of our tasks is to create infrastructure. On the other hand, the government has long been trying to figure out how to make the postal service more effective," he said, referring to VEB's interest in the project.

VEB owns 99.47 percent of Svyaz-Bank, which ran into financial difficulties during the crisis.

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