Hellenic Bank Public Co. (HB), Cyprus’s third largest financial group has decided to take a “go-slow” approach as regards plans to commence operations in Russia having already secured full banking permission from the Russian Central Bank last week.
Glafkos Mavros, HB Group General Manager responsible for business development in Cyprus and Russia and one of the chief architects of the Russia expansion drive, told the Financial Mirror in an exclusive interview that in view of the prevailing conditions in Russia but also globally, the “board has decided to wait for conditions to improve, before commencing actual operations.”
In view of the decision and having secured the approval of the Central Bank of Russia, HB has taken steps to fully secure against foreign currency exposure for the capital invested in its subsidiary.
“This means we have not risked a single cent in shareholder money for the Russia expansion,” said Mavros, adding that the original business plan has been put on hold and will be reviewed towards the end of the year.
The 9% decline in first quarter GDP growth in Russia, the IMF’s forecast for GDP growth to shrink in 2009 by 6% and the recent move by the Central Bank of Russia to cut the discount rate to 12.5% in view of the economic contraction, coupled with negative comments by prominent bankers and Central Bank officials in Russia about the alarming rise in non-performing loans and increased provisions, have prompted HB’s board took to consider putting the start of operations on hold.
Preparations
In the meantime, Hellenic Bank is racing full speed ahead to prepare for the commencement of operations probably in 2010, when conditions improve.
The electronic banking system has been purchased and modified to meet the bank’s requirements and scope of operations and is currently being tested by local core managerial staff who are also undergoing training. The bank has also purchased its head offices in the centre of Moscow and within walking distance from Kremlin, at a cost of EUR 15 mln. It is a fully renovated historical building which is being fitted out and will be ready for operation by November.
It has also received permission from the Russian authorities to book its activities until the commencement of full banking operations through a “Nostro Account” that in addition to covering the needs of the subsidiary, also caters to its client needs.
Hellenic Bank (Russia) has already assembled a 17-strong management and operational team under the helm of Moscow General Manager Yiannis Telonis, an experienced and high ranking official of the HB management team who reports directly to Mavros and CEO Makis Keravnos.
The new banking operations in Moscow are separate from the representative offices already operating in the Russian capital since 1998, in St. Petersburg and in Kiev.
SMEs
Mavros reassured shareholders that “Hellenic Bank will only engage in traditional banking operations in Russia and will not invest a single euro in financial instruments,” adding that the expansion strategy in Russia will be different from that in Greece, given the differences in the economic and financial conditions.
Hellenic Bank is eyeing the thousands of Russian and other companies active in Russia and other CIS countries that already bank with its international banking centre as its first client target base.
“We have been dealing with our clients active in or from Russia since 1992 and have watched companies grow into giant multinationals. Our Russian subsidiary will service the needs of these companies.”
“We shall then target the SMEs according to strict internal guidelines on how much exposure we shall take per sector, per company, adhering to the bank’s tough lending criteria in an effort to minimise risk,” said Mavros.
The banking license stipulates that HB Russia will not accept deposits from individuals for the first two years of operations but it is free to accept deposits from companies and offer its forex, transfer and other services to individual clients.
Margins, opportunities
The relatively high margins prevailing in Russia of 8-10% is an important factor seen by Mavros helping the bank move quickly to profit in contrast to Greece, where margins have been squeezed to 0.5-1.5% under fierce competition.
Depending on the growth of operations and opportunities in the market, Hellenic Bank will decide on the pace of network expansion in Russia. According to the business plan, HB’s second branch would open in the fourth year of operation. However, Mavros said the bank shall not disregard good opportunities for the takeover of Russian banks if the opportunity arises and at a good price.
Mavros, who first came up with the Russia expansion plan as early as the mid 90s, said “Russia is a powerful country with a dynamic economy that will offer many opportunities for a strongly capitalised bank like Hellenic Bank to grow and prosper.”
The recent breakthrough in the negotiations paving the way for the removal of Cyprus from Russia’s tax black list is also seen as a plus, which will help the growth of business ties.
Mavros concluded that when the board takes the decision for the commencement of operations in Moscow, there would be no need for capital and resources, which are all in place following recent moves by the management to strengthen the bank’s capital.
