Adapting to new customer expectations in times of crisis - World -
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A commitment to socially responsible principles is key to navigating a disrupted business environment, explains Dmitry Gusev, CEO of Russian lender Sovcombank.

Dmitry Gusev

Dmitry Gusev, CEO, Sovcombank

How has the Covid-19 pandemic impacted the Russian banking industry?

In late March, as the pandemic was gaining momentum, Russia went into lockdown and the majority of employees had to stay home. We expected these developments to have an extremely negative impact on the banking industry, with the quality of retail and corporate loan portfolios seriously deteriorating as a result. But today we can see that things have gone much better than anticipated, due to a whole range of factors.

First and foremost, the Russian banking industry turned out to be much better prepared for this crisis than for the previous ones. Over the past several years the financial sector has gone through a transformation, driven among other things by the regulator’s efforts. 

How has Sovcombank’s investments in its digital capabilities delivered value during the pandemic?

Sovcombank was one of the first Russian banks to introduce a telecommuting arrangement, with some 90% of our back office staff transitioned to remote work. Guided by the recommendations from the federal and some regional governments, as well as our internal decisions, we temporarily shut down some of our front offices.

Overall, our regional network model is designed to make a brick-and-mortar office a place to get help and advice on products, services and online capabilities rather than to make a banking transaction. This is why the closure of a portion of our offices did not affect our ability to service customers, who continued using our products and making routine transactions. No doubt we have seen an increase in the share of online transactions, which was also quite high prior to the pandemic. Now our offices have resumed work, placing a stronger focus on customer education.

For us, the crisis also highlighted the processes that need some rethinking. Despite a great volume of digital operations, there are still those involving paper documents. If our offices close or we seek to reduce contact between our employees and borrowers to protect their health, we need to cut paper-based transactions.

What lessons have we learnt from the pandemic? We will be further stepping up the share of online transactions that do not require a visit to the bank to ensure business continuity even in case of closed offices.

How has Sovcombank supported its customers through developing new products/services?

The government has taken sufficient steps, mostly pro-customer and, to a certain extent, even “anti-bank” ones. All of these measures have been focused on encouraging banks to meet their customers halfway. They include the new law on repayment holidays for consumer loans, mortgages, car loans and SME loans, as well as measures aimed at shifting a portion of the debt burden from borrowers to the bank, at the expense of the bank and its resources. We have complied with all of these support measures and have joined all relevant programmes. At the same time, we have offered an alternative programme to our borrowers, which in many cases is more beneficial both for our customers and the bank.

What was the aim of all those government measures, such as loan repayment holidays? Mainly, to ensure that bank customers get a grace period, i.e. have their loans rescheduled for a longer term. However, interest will continue to accrue on a rescheduled loan throughout the whole term, and after the repayment holiday borrowers will actually see their debt increase. On the one hand, borrowers receive immediate support and are released from loan payments for up to six months, but, on the other hand, in half a year they will face a significant increase in outstanding debt.

We have a somewhat different concept and give our borrowers a chance to make small payments against their loan principal and pay no interest instead of debt rescheduling. As a result, a customer is fully released from paying interest during the grace period, while the debt is reduced through smaller but regular principal payments. Thus, we offer our customers a choice by providing all of the government programmes and our own programmes at the same time. This is a win-win approach both for our customers and for the bank. Borrowers save on loan interest while the bank improves the quality of its loan portfolios since any prolongation would inevitably result in poorer loan quality.

What issues is the Halva Instalment Card solving for customers specifically during the pandemic?

The Halva Instalment Card has originally been a socially oriented product designed to offer card holders an opportunity to buy what they want without running into interest expenses. During the pandemic, the card’s advantages have proven yet again that it is a very serious rival of conventional lending products.

Firstly, many customers have been using the card as a contingency reserve to minimise their current budget and get access to additional lending at a zero interest rate in case of emergency.

Secondly, with the growing volume of online transactions, the Halva Card has also scored over POS lending, which is mainly limited to offline purchases, when a customer has to go to a retail store to select a certain product, get a specified credit limit for the selected item and make a purchase. Meanwhile, a Halva Card holder gets credit limits for the purchase of any goods from a broad selection of retailers instead of a limit for a given refrigerator or a TV set, for example. Our customers have particularly appreciated the advantages of our card during the pandemic.

How has the pandemic accelerated the discussions around and interest in ESG and socially responsible banking in Russia?

We have faced several challenges all at once. Firstly, speaking of social responsibility within our bank, an absolute must was to protect the health of our employees. Secondly, we had to retain jobs. We have fully succeeded in all our tasks as a socially responsible employer.

One of the key challenges was to provide sufficient work for those employees who risked to find themselves without it following the shift to telecommuting. Most of the employees from the temporarily shut-down front offices were transferred to our virtual call centre and had a full workload.

At the same time, we have successfully protected the health of those employees who had to remain at their usual workplaces. This has been attested to by the overall infection rate across the bank, which is considerably below the national average. I see it as our great achievement.

As for our customers, many of them have found themselves in dire straits. We have been slightly better off, because the share of industries that have been hit hardest by the shutdown (such as travel industry, air transportation, hospitality, etc.) in our loan portfolio is next to none. We have been willing to accommodate those customers who were actually affected and offered them either debt rescheduling or reduced interest, up to a zero rate.

Today, the matrix of criteria used by banks in their decision making has been clearly expanded for the first time ever to include in addition to profit – the bottom line result – other important factors, other values that have a bearing on their final decisions, such as the health of their employees, the health of their customers, and social responsibility towards affected industries. I believe this is the first time that Russian banks have demonstrated a coordinated commitment to their social responsibility principles.

How can the banking industry ensure that this becomes a real reset of banking industry culture and focus, and not slide back following the pandemic?

During the pandemic, banks were forced to compete in a new environment. They needed to ensure that all of their services remain available to their customers. They had to provide free access to all of their products and services irrespective of whether their offices were open or closed, or whether their staff worked from home or in the office. It was a serious challenge for all of them, as banks competed with one another to see who can offer the best, the most efficient, polite and comfortable services to their customers. And we handled it all very well.

Banks have also strived to show the most responsible attitude to their customers. The government has set the key trends and imposed certain rules of the game, while banks have tried to be flexible with their customers. During this time, the public has generally got used to good things, including new service formats, additional bonuses, and the willingness of banks to compromise.

In fact, whenever the pandemic is over, we will have to adapt to the new rules of the game which have already been introduced de-facto. Customers have certain expectations that banks will have to meet. There will be no sliding back. I am sure there has been a real reset, and the change will be a lasting one.

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