Bank of Cyprus books $100 mln in Russian loans

— Historic milestone as BOC secures license for Russia operations

 

Bank of Cyprus has approved Russian loans worth USD 100 mln with over USD 250 mln under review as it races to strengthen its presence in Russia after securing the relevant permit from the Central Bank of Russia to commence operations there.

Bank of Cyprus is the first bank from Cyprus or Greece to enter the Russian market with the license granted on June 6 regarded as a historic milestone in the bank’s expansion drive outside Cyprus.

Christis Hadjimitsis, Bank of Cyprus Chief Financial Officer, who is also in charge of strategic planning overseeing the current expansion into Russia, told the Financial Mirror that the results so far are well beyond even the most optimistic expectations.

“Our target was to book EUR 100 mln ($130 mln) loans until the end of the year, and so far, we have approved loans amounting to $100 mln with a total of $250 mln already under review,” he said

Hadjimitsis added that at spreads of 4%, the expansion drive into Russia is set to change the future prospects and profitability targets of the Group.

Such is the demand for high quality service from Bank of Cyprus that the bank has no problem in demanding and securing tangible security twice the value of the underlying loan facility from its clients.

“It took us some time until we worked out the correct documentation as to how pledged assets can be mortgaged to us, but now that we have the whole procedure in place, we are confident that we shall be in a position to meet the huge demand from our customers,” he said.

Most of the loan requests are for the booming construction industry in Moscow and St. Petersburg, but Hadjimitsis said Bank of Cyprus is also targeting the leasing, factoring and other traditional banking services such as provision of guarantees, letters of credit, foreign exchange, payment orders and working capital for corporate customers.

“Of the 30,000 international companies that currently bank with BOC, about 20,000 are Russian or with operations in Russia and this is the first group that we are targeting,” he said.

The license secured from the Central Bank of Russia does not allow the bank to accept deposits from physical persons, an exclusion which applies to all banks in the first two years of their operation in Russia.

Hadjimitsis said there will be no overlapping of services between the international companies using the Russia branches and the international banking unit in Cyprus since the two will offer different services.

To give an example, BOC will offer rouble to dollar conversions allowing its Russia based clients to have direct access to its dealing room in Nicosia, a promising service strengthened with the hiring of Russian-speaking staff.

 

— Highly affluent

 

Based on extensive market surveys, Bank of Cyprus aims to target the medium-wealth to rich persons and families with total monthly income of $5000, who are most likely to embrace a European bank offering top service and with the reputation as that enjoyed by Bank of Cyprus.

In addition to medium and large corporations and their owners, Bank of Cyprus will also target their staff. Some of the large corporations banking with BOC employ more than 5,000 people and this is an area that the bank believes it can tap into in order to win over business as standards rise and people turn to banks for housing and consumer loans as well as to keep their savings.

This may also explain why Bank of Cyprus is rushing to commence its leasing operations in Russia with the Manager of Leasing already having joined the team in Moscow.

 

— Branch expansion

 

The Group has already recruited key personnel for its operations in Russia, it has rented a building in Moscow which was adapted according to the bank’s operational needs and prepared the infrastructure to expand rapidly in that country.

The Moscow head office is also acting as the Group’s first corporate branch there with 35 staff, some of whom will be used for the first branch opening in St. Petersburg.

The Bank of Cyprus aims to open 3-4 branches by the year end in Russia’s two largest cities, which boast a combined population of 16-17 mln.

In the next three years, Bank of Cyprus intends to open 15-20 branches in Russia, and reckons that 10% of its total loan portfolio will be generated from the new markets of Russia, Romania and Ukraine.

Bank of Cyprus has not ruled out accelerating its expansion drive through acquisition of a small bank with the necessary licences to tap more quickly the increasing needs of Russia’s 145 mln population with a 70-75% concentration in the major urban areas.

Russia, rich in mineral reserves and the key supplier of energy to Europe, is on track to record the highest growth rates among the developed countries in the years to come and Bank of Cyprus wants to be ideally positioned to win a bigger share of this growing market.

Bank of Cyprus reckons that with new loans amounting to $50 bln a year, even if it manages to win just 1% of the new loan market that would correspond to new loans of $500 mln a year.

“The potential is simply overwhelming and truly remarkable,” said Hadjimitsis, adding that another important consideration is that the Russian authorities are not keen to allow a massive influx of foreign banks.

Last year, only nine permits were given to foreign banks and this year, only three permits have been given, one of which was to Bank of Cyprus.

Michalis Ergatoudes has been appointed as Bank of Cyprus Country Manager in Russia and is being assisted by a strong team of Cypriot and Russian officers, guaranteeing both the effective management of risks and the provision of the highest quality of customer service.