Philippe DELPAL, CEO of Cetelem in Russia took part in the presentation of the new edition of Association of European Businesses in Russia prepared by the Finance and Investments Committee on the 14th of December. His article was published in the “How to invest in Russia” Guide. Publication reviews the situation on the banking M&A market and examines different ways of entering Russian market for the foreign banking institutions.
Over the course of the last few years the Russian economy has seen a stable growth in the share of foreign investors in capital of Russia’s banks. As of 1st July 2007 the share of the foreign ownership in the capital of a Russian financial institutions reached more than 21%, whereas only 2 years ago the same indicator hardly surpassed 10.8% (1st, April 2006). The number of credit institutions 100% owned by nonresidents increased equated to 58 banks out of 1165 Russian banking institutions; the volume of foreign investments in the chartered capital of Russian banks reached RUR 139.455 mn and augmented by 23.5% in the Q2 2007.
The growing interest of foreign institutions to the Russian banking system is due to the fact, that the Russian market today is one of the most promising and attractive for investments. Continued strong growth of GDP, increase of consumption, driven by the rapid improvement of the living standards, a reasonably low unemployment rate and relative political stability, entail the increase of interest of foreign structures in Russian economy and in particular in banking sector.
In 2006-2007 the portfolio of investments of non-residents in banking sector saw the most intensive growth due to the M&A activities.
Retail banking services are one of most complicated line for the launch of a business activity. When investing in the Russian banking market, the foreign institutions chose one of the two approaches: acquisition of a Russian bank or building business from scratch (green field approach). A foreign bank opting for the green field approach, takes the risks related to the implementation of all necessary business processes. An acquisition implies difficulties of the integration period.
Number of M&A deals is likely to grow in 2008 due to consolidation tendencies on the banking market and necessity for banks to quickly develop regional infrastructure in line with retailer development in the regions. Liquidity tightening will cause cost of funding to grow influencing local and small foreign banks with limited access to cheap cash resources. These changes will increase the role of the large multinational banking groups that will obtain leading positions on the market due to modern IT solutions and high service level standards.
Overall, the outlook for the Russian banking sector in the forecast period is favorable. Continued development will help sustain growth in the short and long term of the interest of foreign investors.
