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. Last Updated: 07/27/2016

Russian Banks Eye Retail Business

Russia's commercial banks are gearing up to fight state giant Sberbank for a piece of its most lucrative market -- retail business.

The Central Bank plans to allow Russia's best banks to abolish limits on household deposits July 1, freeing them to try to prize some $20 billion that the Russian population is estimated to hold in under-the-mattress money. The retail market is the cheapest source of funds in Russia, and Sberbank holds 76.23 percent of it.

"We hope to fight not only for the remaining 25 percent, but also for Sberbank's share," said Leonid Klochkov, deputy chairman of one of Russia's largest banks, SBS-Agro. "We are heading for a time when deposits will become the main component of our resources, the same as for Sberbank."

An Inkombank official said it would try to lure Sberbank's traditional clients, elderly Russians who receive pensions and make utilities payments at Sberbank.

The State Statistics Committee says households held 138 billion rubles ($22 billion) in banks Dec. 1, 1997, and the Central Bank forecasts that will double by year 2000.

"Our goal is to at least double household holdings in our bank, and I think this trend will be typical for other healthy banks," Klochkov said, adding that SBS-Agro held more than 5 billion rubles in individuals' deposits at the start of the year.

But the Inkombank official said he did not expect a sharp inflow of new clients' funds after the new regulation came in force, because competition on the market was very strong.

Sberbank also has a key advantage -- its deposits are guaranteed by the government, but those of commercial banks are not. "Quite a wide category of depositors think a lot about guarantees, given the experience of the past years, MMM and others," the Inkombank official said. "It will take quite a long time to overcome this mistrust," the official added.

Bankers say they must expand their networks in order to compete with Sberbank, which has more than 32,000 outlets.

"Since the population is scattered around the country, the most competitive bank will be the one with a wide network. Only through a developed network can you work successfully with households," Klochkov said.

SBS-Agro acquired 1,200 branches two years ago, when it purchased a controlling stake in Agroprombank. Inkombank also plans to expand, as does powerful Uneximbank, a newcomer to retail banking.