Bank of Cyprus opens first branch in Moscow

— Leasing operations to follow, 3-year Strategic Plan to reveal new goals

 

Bank of Cyprus has become the first among Greek and Cypriot banks to secure a license to operate in the Russian Federation and on Monday officially opened its first branch in Moscow.

Group Chairman Eleftherios Ioannou told hundreds of leading public and business personalities during a reception in the Russian capital that the start of operations is a key pillar in the strategy of Cyprus’ largest financial group to expand into new markets.

Bank of Cyprus, or Bank Kipra as it will be known in Russian, will aim to build on the good reputation that the bank and Cyprus in general enjoy among Russian companies and the public at large with added support coming from the fact that since 1998, the Group has been operating a Representative Office in Russia.

In his address, Group CEO Andreas Eliades said that the expansion into the Russian market is a well planned, long term investment move which is fully in line with the new globalised economy.

“We were the first Cypriot bank to expand into Greece and now we have become the first to set a foothold in the very important and rapidly developing Russian market,” he said.

Bank of Cyprus will also seek to take advantage of the fact that Cyprus is the biggest source of foreign direct investment into Russia in 2006 with a 22.6% share, followed by the Netherlands, Luxembourg, Germany and the UK, according to official data.

 

— Experienced staff… Leasing

 

Michalakis Ergatoudes, Chairman of the Bank Kipra Management Committee, said the Group operations in Russia are targeting the corporate market with 52 staff, seven of whom are Cypriots, while the bank will soon introduce new products and services aimed at Russia’s growing middle class market.

Loans have been offered in dollars, euros, roubles and Swiss francs to within and outside of the Moscow area. Ergatoudes said plans are underway to open the Group’s first “street branch” sometime in the next 3-4 months, during which time efforts to expand into Russia’s second largest city, St. Petersburg, are also well under way.

Bank of Cyprus aims to have 4-5 branches in Moscow and two in St. Petersburg.

Yiannis Kypri, BOC Group Chief General Manager told the Financial Mirror that the new three-year Strategic Plan to be revealed in February 2008 will include revenue targets from the Russia operations.

In the meantime, plans are ready to set up Bank of Cyprus Leasing operations in Moscow with staffing well underway. The majority of the bank’s Russian staff have come from other banks, so they have basic banking experience, are fluent in English but most importantly, are willing to adopt and embrace the Bank of Cyprus culture, which is placing strong emphasis on customer service while adhering to the highest standard of code of conduct.

 

— Better than expected

 

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 far beyond the most optimistic expectations.

“We have met and surpassed our loan book targets,” he said, adding that at spreads of 4%, the expansion drive into Russia is set to change the future prospects and profitability targets of the Bank of Cyprus Group.

Such is the demand for high quality service from the 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.

“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,” Hadjimitsis said.

 

— Foreigners gaining

 

Currently there are 1200 banks operating in Russia of which 200 are foreign-owned. According to recent data, 50% of the market is controlled by five banks, all state owned while the foreign banks currently command an 18% market share.

Group CEO Eliades said there is great potential to penetrate the medium 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 Bank of Cyprus have staff surpassing 5.000 and more and this is an area that the bank believes it can tap 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 starts its Leasing operations in Russia.

“Housing loans are only 2% of total loans, consumer loans are now being discovered, while large sectors of the economy are working on prepayments and there is no use of cheque, factoring or other traditional western banking services,” Eliades said, adding that the potential for rapid expansion is great.

 

— Takeover…

 

Bank of Cyprus has not ruled out accelerating its expansion drive through the acquisition of a small bank with the necessary licences.

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.

Bank officials are hoping that as they prepare for the expansion drive, additional help may come if the Russian authorities amend an existing law under which foreign banks need to have two years of profitable operations before they are allowed to accept deposits from the public.

The law may be amended to allow banks declaring a high capital, strong liquidity and good rating (all enjoyed by Bank of Cyprus) to tap into Russia’s deposit market and if the right opportunity is presented, to proceed with an acquisition.

Indeed, Bank of Cyprus has chosen to acquire an already established bank in the Ukraine and has repeatedly said that if the permission of the Russian authorities is granted, it will not hesitate to acquire an existing bank.

The fact that the Russian authorities are in no hurry to allow a faster entry of foreign banks – last year, there were only nine permits to foreign banks and this year, only three permits have been granted, one of which was Bank of Cyprus – is seen as a positive factor that gives ample time to the bank to organise itself to gain a better foothold in the market.