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. Last Updated: 07/27/2016

HSBC Makes Leap Into Retail Banking

HSBC is delving into retail banking in Russia and has placed career banker Chris Barry in charge.

Speculation has been swirling in recent weeks that HSBC, one of the world's top five banks by market capitalization, would announce that it was going into retail banking this fall. Its decision, confirmed by Barry on Thursday, is a new vote of confidence in Russia's booming retail banking sector.

Barry said it was too early to discuss any specific dates or expansion plans. He declined further comment.

Barry, 45, a British national with a 28-year career in retail banking, arrived late last week in Moscow. He most recently worked for HSBC's retail banking division in Saudi Arabia.

A source familiar with HSBC's plans for Russia said the bank intended to roll out a full range of retail banking products, including loans and mortgages. The source said the bank had not yet decided whether to expand through acquisitions or organic growth.

Building retail banking from the ground up would take at least three years, Alfa Bank analyst Natalya Orlova said. Expanding through acquisitions is much faster, and despite a recent flurry of foreign acquisitions, attractive private banks still remain on the market, she said.

Earlier this year, Austria's Raiffeisen Bank and Hungary's OTP snapped up second-tier Moscow-based banks Impexbank and Investsberbank, respectively, to develop retail businesses in Russia. France's Societe Generale bought 10 percent of Rosbank, and Germany's Commerzbank acquired 15 percent of Promsvyazbank.

The share of foreign banks in Russia's banking is about 13 percent, while 40 percent of the sector is still state-controlled.

Foreign banks with a solid brand can grow without acquisitions, Moody's banking analyst Vladlen Kuznetsov said. For the past several years, global banking powerhouse Citibank has been aggressively developing retail banking through its Russian subsidiary, the country's No. 15 bank by assets.

But as the market develops, gaining a significant market share without acquisitions is becoming increasingly difficult, Kuznetsov said.

Mid-size banks that are focusing on retail banking development are seen as prime candidates for acquisitions by foreign players. Some such banks, including Moscow-based Vozrozhdeniye, Russia's No. 25 bank by assets, or Uniastrum bank, No. 61, are not actively looking for foreign buyers, but they still present opportunities, Orlova said. "Their desire [to sell out] would depend on the price," she said.

HSBC, which operates in 77 countries, currently has about 100 staff in Moscow and offers institutional, corporate and investment banking services.

The bank is better represented in emerging markets in Asia, Latin and Central America than in Eastern Europe, but a move into Russia makes sense, said James Longsdon, senior director of financial institutions at Fitch ratings.

"It's a large country with a lot of wealth," he said by telephone from London.

Real disposable incomes have grown by 11.2 percent over the past year, according to the State Statistics Service, but retail consumer lending remains vastly underdeveloped.

Retail loans were just 5.6 percent of gross domestic product at the end of last year, versus 8 percent to 15 percent of GDP in Eastern Europe, according to Deutsche UFG's calculations. The mortgage market remains miniscule, with just $4 billion worth of mortgages, or 0.5 percent of GDP, handed out last year. In contrast, mortgages accounted for 3 percent to 10 percent of GDP in other countries of Eastern European, Deutsche UFG said in a report Thursday.