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. Last Updated: 07/27/2016

St. Pete Catches Eye of Moscow's Banks

ST. PETERSBURG -- The St. Petersburg financial market, Russia's second-largest, is attracting more and more attention from Moscow-based banks.

So far this year, a number of them have opened branches in St. Petersburg, while MDM-bank purchased a controlling interest in Petrovsky Narodny bank in April.

According to Andrei Melnichenko, chairman and co-owner of MDM-Bank, the fact that the Northwest region is the second-largest is behind his bank's drive to increase its market share by buying existing banks.

MDM seems to be looking to grab some of the share of Promstroibank, or PSB, one of the largest local players.

The most obvious example of this competition is the fact that MDM-Bank lured Olga Kazanskaya, who had been PSB chairman since late 1999, to take over as CEO of Petrovsky Narodny Bank.

Alexander Pustovalov, who replaced Kazanskaya at PSB, said the bank sees itself as a national player in Russia's financial sector.

"From the economic standpoint, our main competitors are large, mostly Moscow banks who are working aggressively in the market," he said.

Despite the campaign MDM seems prepared to wage in the local market, PSB doesn't think its position will be diminished.

"Our strong side is our presence in the regions," Pustovalov says. "At present, about 80 percent of deposits in Russia are concentrated in Moscow banks."

So, to fit with the bank's self-image as a national institution, PSB is expanding more determinedly into the Moscow market, where it previously operated only one branch. The first step came earlier this year, when PSB gained control over Moscow-based SVA-Bank and, just as important perhaps, the bank's management team, which Pustovalov sees as vital for boosting SVA-Bank's operations and attracting new clients.

PSB also announced that it would buy banks in Nizhny Novgorod and Yekaterinburg, and open branches in Tomsk and Ulyanovsk by the end of this year to add to a share in Vologda's Sovietsky Bank, which it bought earlier this year.

The bank has also added a strong commercial partner in metallurgy giant Severstal, when the latter became one of the bank's shareholders in February and, in turn, transferred its account activity from its own affiliate, Metkombank, to PSB's branch in Cherepovets, Vologda region.

While PSB is betting on expanding beyond the region, MDM's push has been in the opposite direction: moving into the northwest. Besides Petrovsky Narodny Bank, MDM has brought three other medium-sized banks under its umbrella -- in the Komi Republic, Murmansk and Vyborg, respectively -- and is going to invest up to $50 million this year in regional development throughout Russia, according to Melnichenko.

According to Kazanskaya, the time is ripe for small banks to look for ways to become tied to the industry's major financial groups.

"By purchasing an existing bank, larger banks also purchase a market share and a presence in the market from the outset," she added.

Fyodor Andreyev, chairman of Baltunexim Bank, said that opening branches in other regions is the most efficient way of expanding activities from a purely business point of view. At the same time, dealing with an established local bank is more attractive to clients and partners outside Moscow, who sometimes have a prejudice against firms based in the capital.

Most banking-industry executives say the activity of recent years is only the beginning, and that St. Petersburg remains a sellers' market, both from the standpoint of local banks and of trained personnel. Andreyev says there are still a number of small- and mid-sized banks in St. Petersburg that are good targets for acquisitions.