Raiffeisen International (RI), the specialist central and eastern Europe (CEE) subsidiary of Austria’s RZB Group, is set for more dramatic expansion in the region following its hugely successful record IPO in April. The €1.1bn issue was the largest ever IPO in Austria and the fourth largest worldwide so far this year. But the key factor was that the order book was 22 times over-subscribed, providing a ringing endorsement for the pioneering strategy of Raiffeisen CEO Herbert Stepic. With plans to buy a bank in the Ukraine and expand organically in Russia, RI is strategically positioned in profitable growth markets – from Serbia in the Balkans, across central Europe, to Russia and Kazakhstan in the Commonwealth of Independent States (CIS) region.
In 2004, the ‘pure play’ RI increased pre-tax profits by 23.7% to €342.2m with an increasing share coming from the CIS (23%) and the seven south-eastern Europe (SEE) markets (29%) – together overtaking its five banks in the CEE (48%). With balance sheet growth of 44.1% in 2004, RI has been able to sustain exceptional organic growth along with strategic acquisitions in Albania, Bulgaria and Bosnia. Mr Stepic expects the increasing profit share from SEE and the CIS to continue.
Green-field approach
Building largely on its green-field approach, RI has built up a formidable business of 15 network banks, 14 leasing companies and 5.2 million customers in 16 markets of the overall region. With the most diverse structure among its key competitors, RI’s balance sheet from 941 business outlets reached €31.5bn at the end of March this year, and first-quarter profits were up 80% at €133.3m.
In the SEE states (Albania, Bosnia, Bulgaria, Kosovo, Croatia, Romania and Serbia), RI regards itself as the number one player, with 494 branches and 3.4 million customers. In Serbia, for example, Raiffeisenbank has a dominant position with a 14.8% market share by assets.
“We have the most extensive market coverage of all banks in the region and show excellent positions: our banks are the largest in Serbia and Montenegro, Bosnia and Herzegovina and Albania,” says Mr Stepic. “We rank second in Kosovo, where we run a separate unit, third in Romania and are in fourth position in Bulgaria and Croatia.”
Opportunities abound
For Mr Stepic, the CEE, CIS and SEE areas are full of opportunity and are in great need of a full range of financing, from corporate to consumer. In the 1990s and in recent years, Mr Stepic was brave enough to enter new markets and establish the Raiffeisen brand. RI has obtained a first mover advantage in many markets and is already the leading foreign bank in Russia and Ukraine, areas where competitors have been reluctant to enter.
Russia and Ukraine are now once again a focus of RI’s attention. Mr Stepic is in negotiations to buy Aval Bank in the Ukraine. With a population of 60 million and a 12% growth rate, the underbanked Ukraine market offers much; Aval Bank’s 1400 branch network and three million customers appear an attractive addition to the RI network.
Mr Stepic told The Banker that negotiations for Aval could be concluded by the end of June but no agreement is certain.
In Russia, however, he is planning a dramatic organic growth strategy. Few banks, either Russian or foreign owned, have networks across Russia. Apart from the giant state-owned Sberbank and perhaps Alfa Bank, most banks are concentrated in the Moscow and St Petersburg areas. Mr Stepic says he plans to establish a network of branches across the country in the 10 largest cities in the provinces.
Riding out the storms
Raiffeisen first went into Russia in 1997 and, unlike others, has stayed and weathered the financial storms. Now Russia accounts for 8% of RI’s assets. The planned move into the Russian provinces, with their huge untapped customer base, is a first among foreign banks and reflects RI’s vision and role in markets that it considers to be its ‘backyard’ and natural strength. Mr Stepic expects the 10 provincial branches to be operational by the end of the first quarter of 2006.
With RI projecting GDP growth in the CEE, SEE and CIS regions to average 11.2% a year in the 2004-2007 period – three times the rate for the eurozone countries of 3.6% – Raiffeisen is confident that this overall market of 320 million people has strong potential for banking as well as economic growth. And, with his IPO successfully under his belt and the European Bank for Reconstruction and Development and the International Finance Corporation coming in as shareholders, Mr Stepic is well armed to continue his crusade across the region.
