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. Last Updated: 07/27/2016

Depositors Returning as Confidence Grows

Could it be that the population is finally regaining trust in banks?

Newly released figures indicate that a stable economic environment is attracting more savings out from under mattresses and into banks. And as more banks enter the retail market, consumers are becoming more sophisticated and selective in choosing between them.

According to figures that the State Statistics Committee released on Monday, bank deposits have grown 35.2 percent since the beginning of this year to reach 949.7 billion rubles ($29.9 billion) as of Oct. 1, 2002. If compared with the same period last year, the growth is even more impressive, at 53.3 percent.

Savings in foreign currencies are up 45 percent since the beginning of this year, while ruble-denominated savings have increased 29.5 percent.

The population deposited funds worth some $4.2 billion into ruble-denominated bank accounts and $3.5 billion into dollar-denominated accounts from January to September of this year, the State Statistics Committee said.

Banks of Choice

As of Oct. 1, state-owned Sberbank accounted for 69 percent of total deposits. Of the remainder, AlfaBank had the largest portion, 2.3 percent, followed by Vneshtorgbank with 1.4 percent and Gazprombank with 1.3 percent.

The top nine foreign players on the local retail banking market altogether hold only about 2 percent of deposits.

Choosing a Bank
Top 10 most important criteria in consumers' choice of banks, 5-point scale*
Long time in the market 4.4
State support 4.1
Famous brand 4.1
High interest rate 4
Foreign origin 3.9
Good references 3.9
High position in ratings 3.8
Range of services 3.8
Location of branches 3.8
Large branch network 3.7
*Criteria are measured using 5-point scale where 1 = not important at all and 5 = very important
Source: Interactive Research Group, Moscow, September 2002

Austria's Raiffeisenbank, which has six outlets in Moscow, is the leader among them, with $228 million in retail deposits as of July 1 -- almost half of the $562 million accumulated by the nine banks together, according to Interfax Rating Agency.

Turkey's Finansbank (Moscow) is one of the fastest growing players in the retail market. It launched retail banking operations in 1999 and has five branches in Moscow.

"We have doubled the amount of retail deposits to about $18 million since the beginning of this year, when it was $9 million," said Sipahi Haktanir, president of Finansbank (Moscow).

Most foreign banks with a local retail presence started out by providing retail products to corporate clients and then diversifying at a later stage.

Hendrik ten Bosch, chairman of ING Bank for the Commonwealth of Independent States countries, said that for several years ING has been offering retail services for employees of its corporate clients. It offers them a full range of retail products, including a pension fund.

In November, U.S. banking giant Citibank opened its first retail outlet in Moscow, after nine years of experience in the corporate market here.

ABN Amro and Dresdner Bank also provide retail services, but so far only to their corporate clients.

Qualities to Bank On

According to a recent survey by market research firm Interactive Research Group, retail banking demand remains underserviced.

The IRG survey, which questioned 388 Muscovites aged 22 to 55 years old who are able to save $2,500 a year, found that respondents no longer give preference to banks based only on their country of origin. The most important criteria for Russians when choosing a bank are now the length of time in the market, state support in case of economic crises and brand recognition.

Banks said the quality and price of their products were becoming increasingly important factors as the market grows more competitive.

Why Open an Account?
Top five reasons to open a bank account, % of respondents' answers
Safety/reluctance to
keep savings at home 62
Simple saving 60
Profit gaining 49
Easy ATM access to money 48
Plastic cards advantages 47
Source: Interactive Research Group, Moscow, September 2002

Haktanir said the retail banking market is not only a source of long-term capital for the banks, but also should be considered a long-term business project.

"You have to understand that you have to invest a lot to develop the branch network, and you won't have get your money back immediately, as the pay-back period might be about four to five years," Haktanir said.

Maciej Lebkowski, deputy chairman of Alfa Bank -- Russia's largest private bank and No. 3 in terms of assets -- said it is now focusing its efforts and expertise on fine-tuning a low-cost structure that would make work with retail clients efficient and profitable.

"If you start selling your products to customers who earn $500 or less a month, which is quite a decent salary in this country, then to get a scale you need to create a low-cost structure to sell it," he told Reuters.

As of July 1, Alfa Bank had $615 million on retail deposits, in second place after Sberbank. Alfa Bank said it is expecting to double this amount in the next three to five years.

Russians Are Different

IRG's research found that Russians' approach to banks follows a different logic from that of their European neighbors -- and bankers don't deny it.

"Our clientele in Russia and Poland or Hungary differs a lot," said Michel Perhirin, chairman of the board with Raiffeisenbank in Russia. "In Russia, customers are more product-oriented, whereas in Europe they are more service-oriented, which means the Russian market is lagging behind and is less developed."

According to the IRG survey, operations with plastic cards tend to be the most important banking service for Russian consumers. Almost every second person surveyed said they appreciated noncash payments most out of all other advantages of a banking account.

"I think Russians are quite savvy when it comes to banking services," said James Cook, vice chairman of DeltaBank. "They are not only looking for competitive rates, but also for a bank that treats them well and which is stable, of course. But despite all the advertising, the highest percentage of business we get comes from word of mouth."

According to Finansbank's Haktanir, another interesting characteristic of Russian retail banking clients is that they like to try different products, especially those that they have not used before, while in Europe people are more conservative. "Also, Europeans are more savings-oriented, while Russians prefer current accounts and usually don't think about tomorrow," he said.

Among other most-valued banking services, IRG's respondents named current deposits and deposit accounts, money transfers in and out of Russia and cash withdrawals from ATMs.

Competitive Advantages

In the fight to win new clients, almost all banks in the market are issuing debit cards, but some are going further and offering credit cards and consumer loans.

DeltaBank has recently teamed up with IKEA to offer credit cards to the furniture giant's customers.

"So far we have exceeded our initial estimates on repayment rates, which shows that Russian consumers are a good credit risk for credit card products," Cook said.

He said DeltaBank is currently in discussions with a number of banks and financial institutions that would like to join the bank in offering credit card products.

Meanwhile, about $42 million has been loaned to consumers in the DeltaCredit mortgage program. Another mortgage lender, Raiffeisenbank, had given $20 million in consumer loans, including $9.1 million in car loans and $7 million in mortgages, as of Dec. 1.

Market players see plenty of opportunities, with consumer credits in Russia growing at a double-digit rate annually but still averaging $8 to $10 per person compared to $300 in Poland or the Czech Republic. In IRG's study, every third respondent aged between 25 and 29 years expressed an interest in consumer loans.

Many of the foreign banks considered to be among the industry leaders, including Citibank and Raiffeisenbank, are putting their efforts into developing innovative projects to attract the most sophisticated and wealthiest Russian clients.

Citibank is so far the only bank in the market with ATMs that allow customers not only to withdraw cash but also make deposits. The bank is offering its clients 24-hour banking via the Internet, telephone and ATMs. Citibank also has SMS and e-mail notification about all transactions with cards in addition to traditional services such as savings accounts, deposits, transfers and electronic bill payments.

Other banks are following Citibank's example. Alfa Bank is planning to install similar full-scale ATMs in its 24-hour retail outlets, and Raiffeisenbank and ING are to start offering Internet and phone banking services to their clients in the near future.