Based in western Siberia, Sibacadembank has been expanding virtually unopposed, attracting international suitors and making plans to float. Chairman Igor Kim talks to Ben Aris.

Based in the icy wilds of Novosibirsk in the depths of Siberia, Sibacadembank (SAB) has come from nowhere to burst onto the Russian banking scene. The bank has doubled in size almost every year since the 1998 financial crisis and expects to double in size again this year. It is hard to impress Russian analysts with fast growth, but even they admit that the pace of SAB’s rise has been “phenomenal” and they have marked the bank down as the most attractive acquisition target on the market. Its largest shareholder and chairman Igor Kim says he is not selling, but plans to float in about two years’ time.

The last century of Russian history is written all over SAB. Mr Kim’s grandfather was a Korean caught on the wrong side of the line when the Soviets closed the border after the 1917 revolution, and was eventually deported to Kazakhstan during the Stalin terror in 1937.

Mr Kim was born in central Asia but grew up in a small port on the Pacific coast in Russia’s far east. A mathematics child prodigy, after he won a gold medal at an academic Olympiad, he was scooped up by the Soviet machine and sent to Akademgorod, an entire city dedicated to training the finest minds in the Soviet Union and the nerve centre of the Soviet military-industrial complex.

“Those were among the happiest days of my life,” says the jovial Mr Kim, reminiscing about school days in his modest Moscow office. “We were living a big romantic ideal and studying in a community of very creative and intelligent people. It was also very tough training for the brain and I have never been [as] challenged since.”

After leaving school, Mr Kim enrolled at the Novosibirsk University to study physics and was on the path to becoming one of the Soviet Union’s top scientists.

SAB was the local branch bank of the Soviet Union’s academy of sciences, the Russian equivalent of the Royal Society. But the collapse of Communism in 1991 destroyed both Mr Kim’s budding career as a nuclear scientist and the academy’s prestige.

Home market focus

SAB has emerged from the economic chaos of the past decade as a poster boy for the banking sector and the increasing importance of Russia’s 88 regions, spread over half the globe. It has left its larger peers to scrap over the richer markets in Moscow and St Petersburg, while it concentrates virtually unopposed on its home market in the thinly populated Asian part of the Russian landmass.

SAB is headquartered in Novosibirsk in the mineral-rich west Siberian region and is the end-product of a series of mergers brought off by Mr Kim. All three of SAB’s main shareholders graduated from Novosibirsk University’s physics faculty, but it was Mr Kim who led them into banking.

Among other things, Mr Kim had spent some time studying mathematical economicsk, the science of modelling economies, which got him a job at Rossisky Narodny Bank (Russian People's Bank)in 1994 where he was later joined by two friends, Alexander Taranov and Andrei Bekarev. A small local bank, Rossisky Narodny Bank only began to grow fast after it was made an ‘authorised’ bank of the Western Siberian Railway Company, the same year as Mr Kim joined.

The railway deposited its budget money in the bank, which provided a source of funds to finance the bank’s business and it began to flourish. The same was not true of the Siberian branch of the bank for the Academy of Sciences, Sibacadembank, which was set up in 1990 and whose managers turned to Mr Kim for help the same year.

“The managers of SAB came to us to help them save the bank, which had very large bad debts and was facing bankruptcy,” says Mr Kim. “We came to SAB, which was a lot bigger than Rossisky Narodny Bank, as crisis managers, but ended up as owners after we took over all the obligations of the bank and paid them off.”

Devaluation fillip

It took four years to turn SAB around, but Mr Kim put it back into profit and eventually the two banks merged only a month before the double whammy of the Russian government’s default on its debt and rouble devaluation hit on August 17, 1998. It was the best possible thing that could have happened to SAB.

“During the crisis, we received 1000 new corporate clients and the bank grew eight-fold in one year. So many people were coming to the bank, it was almost impossible to cope with the influx: during the worst of the crisis we had 300 corporate customers open accounts in a single day,” says Mr Kim. “By the end of it, we emerged as the biggest bank in Novosibirsk.”

Over the next four years, Mr Kim’s banks grew fast and he bought several more in Siberia and Russia’s far east, such as Kuzbass Transport Bank, which merged with SAB in 2001. The biggest acquisition in this period was UralVneshtorgbank (UVTB) headquartered in Yekaterinburg, which is set to be merged with SAB.

With a solid base in Siberia, the bank launched the second plank of its growth strategy in 2002 – integration with the international financial markets. SAB was quickly admitted to the European Bank for Reconstruction and Development’s (EBRD) loan programme for small and medium-sized enterprises, then graduated to the trade finance support scheme, until finally the EBRD bought a 25% stake in SAB in December 2004.

Retail build-up

SAB is a universal bank, but Mr Kim was quick to spot the potential of retail banking and built up the consumer finance business so that, with its 1.3 million customers, it is now second only to the state-owned behemoth Sberbank in the retail business east of the Urals.

The bank has 10 regional branch offices and 178 points of sale (PoS), which already puts it in the top 10 in terms of its distribution network. And it intends to open 60-70 new PoS a year over the next two years, mostly in the smaller cities where the only competition is Sberbank.

The loan portfolio was split 43% corporate, 57% individuals at the end of the first half of last year. Personal loans account for 70% of the retail lending followed by mortgages at 15% and car loans at 8%.

The key to this rapid growth is the bank’s focus on its home regions in the Urals, Siberia, the Volga delta and Russia’s far east; with 10% of the Siberian market and 3%-4% of the Urals market, SAB has been going into the market at a furious rate.

International banks are circling the Russian bank sector looking for take-over targets and SAB must be one of the most attractive assets on offer, but Mr Kim says he has no plans to sell out just yet.

SAB was intending to sell a 12% stake to Germany’s Dresdner Bank in April 2006, but the deal was called off at the last moment. The shares were eventually sold to individual portfolio investors last summer with South Africa’s Standard Bank the book runner. Mr Kim will not say why SAB killed the Dresdner deal. But there was no problem in placing shares among portfolio investors, which raised $81m in July.

Reluctant to sell

His decision is typical for the owners of Russian banks at the moment: with such fast growth rates most are reluctant to sell majority stakes, but as the capital-adequacy ratio of the Russian banking sector is falling by about 1% a year because of the exponential growth of lending, many of the fast-growing banks are willing to sell minority stakes to raise fresh capital.

Mr Kim has no immediate plans to find a strategic investor, but wants to float the bank once capital passes $1bn, from the $350m it will be after the merger with UVTB is completed in the next few months and the bank is rebranded as URSA Bank. International advertising agency BBDO has already been hired to undertake the makeover and an initial public offering (IPO) could take place in 2008 or 2009, he says.

“I have a principle: plan and achieve that plan. Our plan is to [float], but I can’t say precisely which month or year, as it will also depend on market conditions. But we will have an IPO in the next few years,” says Mr Kim. “We plan to repeat our growth of last year and this year, when the capital and assets doubled in both years.”

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