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. Last Updated: 07/27/2016

Alfa Looks to Buy 28 Regional Banks

VedomostiYevgeny Bernshtam said Alfa Bank will buy banks with more than 5 percent of the local market.
Alfa Bank has announced plans to buy 28 regional banks as part of its nationwide expansion, changing its previous strategy of forming new branches from scratch.

"We were buying regional banks in the past as well, but now we regard this strategy to be more sensible [than creating branches]," Alfa Bank president Pyotr Aven said.

The 28 banks are located in industrially developed cities throughout the country, but most are in the Far East, Siberia and the Urals, said first deputy management head Yevgeny Bernshtam, adding that Alfa is also planning to buy banks in smaller towns. He declined to predict how many banks would be bought.

Bernshtam said Alfa Bank is planning to double its share of the local market through its regional acquisitions.

Alfa Bank's main requirement is that the regional banks control at least 5 percent of their local markets, he said.

"When buying a bank, our choice will be dictated by its regional network and market share," he said.

The change in strategy matches the situation on the banking market, said an analyst at the Rating research center who declined to be identified.

"Today it is much easier to buy a bank than a couple of years ago. ... Now the banks have less instruments to earn money and the majority of small banks are on the brink of bankruptcy," the analyst said.

"Many bank owners who didn't even think about selling them in 1999 and 2000 are looking for buyers everywhere," said the analyst, adding that 2001 was the turning point.

Before there were more people hoping to buy banks, while now there are more people selling, the analyst said.

Alfa will win itself time by purchasing these banks, which already have client bases and established relationships with local regulating bodies, said Valery Petrov, director of the analytical department at Rosbank.

Opening a branch from zero requires massive consent at a local level, he said.

Petrov said, however, that starting a bank from scratch is easier in some ways. "It is much more manageable because the decision-making system is imposed immediately in the network," he said.

Alfa Bank will continue to consider creating new branches, Bernshtam said.

"Market share can be won over a long period of time by creating branches from zero or ready-made banks can be bought with their own client base," he said.

"But we are very cautious about buying banks because this way we are not insured against obligations that turn up after a year or a year and a half or against a contracting client base caused by the departure of client managers that may not agree with the tough conditions established in the Alfa Bank system," Bernshtam said.

Alfa Bank can avoid unpleasant surprises by switching the business of a purchased bank to Alfa Bank and then selling the bank's license, the Rating analyst said.