A series of mergers have given UralSib a highly diversified profile and turned it into Russia’s largest privately owned commercial bank. Ben Aris reports from Moscow.
Banks with roots in Russia’s regions are starting to overtake those that built their fortunes in the 1990s by playing to the needs of government and oligarchs. The development of Russia’s banking sector is moving into a new phase where geographical reach is as important as size and connections. Moscow and St Petersburg are still the most lucrative markets but UralSib’s strength is that it caters to both big business and the kolkhozy (collective farms) in the interior.
UralSib is the result of mergers between three big banks, but the original UralSib started life as Bashkreditbank, which dominated the oil-rich region of Bashkortostan just north of the Mongolian border and was one of a handful of regional success stories prior to the 1998 financial crisis.
Like many mid-sized banks, the financial meltdown was a blessing in disguise, as it allowed it to step up a tier to become a leader in the sector, literally overnight. Bashkreditbank extended its lead over its peers by realising early on the potential of the retail sector and re-branded as UralSib at the end of the 1990s, at least four years before the bulk of its peers began to target ‘the man on the street’ as a source of business.
“After the crisis, Bashkredit realised it couldn’t survive if it remained in only one region. So the bank re-branded and began building up a nationwide business as a universal bank,” says Alexander Dementiev, UralSib’s deputy chairman.
Initial merger activity
Nikolai Tsvetkov, who owns investment bank Nikoil, was the driving force behind creating what today is the UralSib group. He brought together Nikoil with the leading Moscow-based retail bank Avtobank and later added UralSib to form the biggest privately owned bank group in Russia. The group’s total assets were $8.3bn and equity $1.45bn as of the end of last year.
UralSib was always going to be a major player on the Russian bank scene. It was the 11th largest bank in Russia and the biggest bank not based in Moscow prior to the merger with Nikoil and Avtobank. But it is in the top slot among the commercial banks today thanks to the ambitious set of mergers.
The best way to protect against future crises was to build a bank with as many diversified lines of business as possible, so no matter which direction the economy went, the bank would always have some profitable businesses to concentrate on.
For example, 2005 was an exceptionally good year for securities trading, which accounted for a large chunk of the bank’s bottom line, after the leading RTS index almost doubled. Following a sharp correction in the global equity markets in May 2006, securities did less well, but the retail banking division continues to flourish. Today, the bank is present in 74 of Russia’s 88 regions, with Moscow, Siberia and Bashkortisan being the most important.
“All the different banks in the group have different business lines. It is both our strength and the source of our problems,” says Mr Dementiev. “None of the banks competed so there were no conflicting interests.”
Strength in breadth
Mr Dementiev argues that UralSib is in a uniquely strong position to beat off the competition. He says banks now need three things to compete in the regions: local knowledge, capital and a range of attractive products.
Russia’s state-owned retail behemoth Sberbank has the capital and the local knowledge but not the products. The foreign banks have the capital and the products, but not the local knowledge. And a few of the local banks have the knowledge and the products, but not the capital or geographic reach of UralSib.
The mergers are done with for the moment as UralSib turns to ramming home its advantage. However, with competition rising and capital being squeezed by the exponential rate of growth, UralSib will be back in the market place in the foreseeable future.
“The bank is currently well capitalised and we have aggressive growth plans, but in the future we understand that we will need to [float] if we are going to continue to grow,” says Mr Dementiev. “There are plans to [float], but definitely not in the immediate future.”
