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. Last Updated: 07/27/2016

Moscow Banks Challenge the Sberbank Habit

Until recently, the story of the Russian retail banking market could be summed up in one word: Sberbank. That name stands for the state-controlled savings giant that still controls more than two-thirds of all individual deposits.


But across Russia, the picture is changing, especially in Moscow, which has become the test site for competition in the Russian financial markets. Here, several large banks, notably MOST Bank and the Stolichny Savings Bank, are now challenging the hegemony of Sberbank with some success.


"The Moscow market is very dynamic," said Maxim Balod, director of MOST's retail operations. "Its development is measured not in years, but in months."


Stolichny and MOST are natural competitors in the Moscow market, where they are both based and have the bulk of their customers.


Both are "new" banks, founded independently of the old Soviet state banks after the liberalization of the bank market. Both are politically well-connected in the government and city hall.


The presidents of the two banks, Alexander Smolensky of Stolichny and Vladimir Gusinsky of MOST, have both repeatedly been ranked among the top five in ratings of Russia's most influential businessmen.


In December 1994, Gusinsky entered the political spotlight, when troops, reportedly on the orders of Kremlin strongman Alexander Korzhakov, stormed MOST's offices.


Afterward, Gusinsky -- said to be a close ally of Moscow mayor Yury Luzhkov -- stayed abroad for some time, but is now back heading the MOST group. The group has large interests in real estate and the media, where it controls the NTV broadcaster, the newspaper Segodnya and the new Itogi journal.


Smolensky for his part has been cast in the role of the "enfant terrible" of Russian banking, said an analyst, who asked not to be named. Smolensky was one of the signatories of the "letter of the 13" in October last year calling for a reform of the Association of Russian Banks. As a result of the ensuing dispute, Smolensky pulled Stolichny out of the Association in February.


Unlike other major Russian banks that focus on industrial holdings, such as Uneximbank or Menatep, both Stolichny and MOST have singled out the market for individual deposits as a priority sector.


"From the outset MOST Bank was founded as a bank working with clients, a retail bank; that is a key activity for us," Balod said.


"As regards retail operations they are comparable banks," said Andrei Yashchenko, a banking analyst with United City Bank.


"Stolichny is the cheapest and most 'democratic' of the two," Yashchenko said. "MOST is more conservative and aims at layers with higher incomes."


So far, there is ample room on the market for both to expand rapidly.


"Last year total ruble deposits of private clients in our bank increased more than fivefold," said Alexei Grigoriev, the chairman of Stolichny's board.


"Over the last one and a half years private deposits have increased at least ten times," MOST's Balod said.


At Stolichny, 30 percent of all ruble deposits and 10 percent of currency deposits are now made by private clients, but the bank's management has set itself more ambitious goals.


"Our aim is that two-thirds of deposits should be made by private depositors," Grigoriev said. "It is difficult to forecast exactly when, but I believe we can reach that target by 1997," he said.


According to information obtained from the bank, total deposits of private and corporate clients at Stolichny last year amounted to $620 million.


Stolichny's branch network in the capital is now second only to that of Sberbank, counting 40 branches. The bank's management expects this number to increase to 120 within the next few years.


Admittedly, that is still a far cry from the 700-plus branches of the Moscow Sberbank, but the commercial banks have become more confident that they can challenge the giant in some fields.


"Historically Sberbank has offered worse and more expensive services than the commercial banks," Yashchenko said.


"We are trying to win clients from Sberbank," said Grigoriev. "And at least in Moscow we succeed."


Still, a genuinely competitive market for private deposits in Russia is only in its infancy, bankers say.


"It is difficult to say that the market has yet found its equilibrium," Grigoriev said. "The infrastructure and the level of banking culture are insufficient. Many financial instruments that are standard for Western banking clients have yet to find their place here," he said.


He pointed to the market in debit and credit cards, where Stolichny is a market leader with its STB-card. However, there is still some way to go before this particular market acquires the importance it has in the West.


"Now and then the plastic cards are still treated just as a toy. Not as an instrument to make payments with, but a beautiful thing you pull out and show around," Grigoriev said.


So far, more than 500,000 STB-cards have been issued and they are accepted in some 3,000 Moscow shops, according to information from Stolichny. The MOST Card issued by MOST lags behind, but it is now accepted in 1,000 Moscow shops, Balod said.


"The two cards are undoubtedly the market leaders among the Russian cards," said one analyst, who asked not to be identified.


Today, Stolichny operates 250 automatic teller machines in Moscow, and expects to gain a further edge on its competitors by installing tellers in the lobby of all metro stations. This is a project the bank hopes to finish by the end of the year, Grigoriev said.


The bankers said broader segments of the population are ready to open an account with a commercial bank.


"Earlier it was mostly businessmen that used the services of commercial banks," Balod said. "But now it is all layers of society."


Last year, MOST bank reduced the minimum sum that could be deposited in a short-term deposit to 100,000 rubles. "Therefore we now have a large share of pensioners among our depositors," Balod said.


Nor do the depositors of Stolichny fit ready-made stereotypes of the "new Russian."


Stolichny's average depositor has a modest 1 million to 3 million rubles ($200 to $600) in his or her account, and arrives at the bank on foot or by public transportation. "Either because he lives nearby or because he doesn't have a car," Grigoriev said.


In other ways, the retail market is also rapidly changing, bankers say.


"A couple of years ago the most popular operations were accounts in dollars and plastic cards, " said Balod. But now it is ruble accounts that are by far the most popular among clients, he said.


Annual interest rates on hard currency deposits with MOST are between 8.25 and 20.75 percent. At the same time, large ruble deposits yield 5.6 percent a month -- making them far more profitable than the currency deposits.


The boom in ruble deposits is also making itself felt at Stolichny.


"Ruble deposits are increasing on average by 17 percent a month, while currency deposits grow only by 6 percent," Grigoriev said. The liquidity crisis of August last year changed the outlines of the retail market, but the change has not been negative for the large Moscow banks.


"It may sound paradoxical, but following the crisis all large banks received additional clients," Grigoriev said.


In the months after the August crisis, most large banks registered an increase in private deposits, as scared clients from small and medium-sized banks flocked to the larger institutions, bankers say.


However, the pendulum could swing back again, Balod said.


"Depositors are living people. It is very important what rumors they hear -- and there are many rumors," he said. "Sometimes in the same queue there are people who want to immediately close their account, because they heard something negative, while other people next to them are happily opening a new one."


The presence of Sberbank continues to loom large on the market for private deposits, where its share amounts to 69 percent. Moreover, private ruble deposits in Sberbank increased by 19.2 percent in January this year, while deposits in commercial banks rose considerably slower at 4.6 percent, according to Central Bank statistics.


However, the Russian commercial banks have the potential to reverse this trend, analysts say. "After some stabilization and reorganization of the market the other banks could again begin attracting customers from Sberbank," Yashchenko said.


Recurrent rumors of Stolichny's intentions to "take over" Sberbank have surfaced in the Russian press -- first in the aftermath of the August banking crisis, when some retail operations were transferred to Stolichny from the troubled Natsionalny Kredit bank.


Prior to the crisis, Natsionalny Kredit, headed by financial tycoon Oleg Boiko, had reportedly bought up a large stake in Sberbank -- according to some sources, as much as 16 percent of its stock.


However, its takeover attempt was cut short by a Duma decision to postpone the privatization of the state savings' giant.


At the time, it was reported that Natsionalny Kredit's stake may have been given in trust to Stolichny, but Grigoriev dismissed this.


"As long as the controlling stake in Sberbank is in the hands of the state there is no reason to invest in its stock," Grigoriev said.


"We hold an entirely nominal stake in Sberbank, and for the time being we don't plan to enlarge it," he said.


Still, the "Stolichny connection" was invoked once again in January this year, when Smolensky was widely mentioned as a leading candidate to succeed Oleg Yashin as the head of Russia's largest bank.


In the end, however, Smolensky was passed over and Andrei Kazmin, a deputy finance minister, was instated as Sberbank president by the government.


But both Stolichny and MOST have ambitions to target layers formerly thought of as prerogatives of Sberbank.


A large proportion of private clients at the banks come from bulk deals with companies and colleges, that channel the payment of salaries or grants through the banks.


Stolichny, for example, has struck such deals with industrial enterprises in many regions. The large Hammer and Sickle metallurgical plant is among the Moscow enterprises paying their wages through Stolichny.


Stolichny also runs accounts for the employees at the State Duma, the White House government headquarters and several Moscow publishing houses.