VTB, Russia’s second-largest lender, has unveiled an
ambitious 3-year strategy to double its annual profits and boost
its retail banking presence. Herbert Moos, chief financial officer
of the bank, said the move is in line with a ‘significant growth’
in the bank’s market capitalisation. Farah Halime and Douglas
Blakey report.
Go deeper with GlobalData
VTB, the second-largest bank in Russia, with $24bn in
assets and a network of 479 branches, has outlined a strategy plan
that could see it double annual profits, boost its branch network
by 40% and ramp up its cross-sell efforts, all by 2013.
Release of VTB’s three-year strategy plan
coincided with the bank posting of its first-quarter results, a net
profit of 2010 at RUB15.3bn ($491.5m), a massive swing from a loss
of RUB20.5bn in the comparable period of 2009.
It is also the highest quarterly profit in the
bank’s history and followed six quarters of losses.
The bank’s 2010-2013 development strategy aims
to build up its strongest lines, and unlike corporate banking,
which the bank said is “relatively comfortable” in scale, VTB has
ambitious targets for its retail division.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe bank’s share of retail lending in Russia
jumped 30 basis points to 10.5% in the first quarter of 2010, from
8.8% at the end of 2008, with the aim of increasing its market
share by 1.5 times by 2013.
Ekaterina Petelina, head of strategy and
corporate development at the bank, told analysts at an investors
forum: “Retail banking is one of the areas where we would like to
still grow our share. The reason for that is very clear. The retail
business is much more marginal and reaps much higher return on
equity.”
With a targeted shift in focus from aggressive
growth of market share to improving efficiency, boosting returns on
equity and the bank’s market capitalisation, the bank expects to
build its presence in the Commonwealth of Independent States region
and increase the customer base significantly.
The retail arm, branded VTB24, recorded a
strong net profit of RUB6.7bn, from a loss of RUB4.3bn in the
year-ago quarter.
Other positive metrics included a 110 basis
point improvement in the bank’s net interest margin to 5.2% from
the corresponding period last year.
The bank’s cost-cutting efforts paid off, with
a decrease in total costs of 7% from the last quarter of 2009, to
RUB22.2bn; VTB’s cost-income ratio also fell, by 140 basis points
from 39.6% a year ago to 38.2%.
The bank said its retail deposit market share
was maintained at 5.9%, despite strong competition in the
sector.
Retail deposits were up 4% to RUB493.6bn in the
first quarter, from RUB476.5bn at the end of December 2009.
A subdued demand for loans in the first quarter
pushed the bank to focus its efforts on “expanding operations with
quality customers”, but consumer loans still edged 4% higher to
RUB190.5bn in the first three months of the year.
VTB continued to focus on shorter-term and higher margin
products including consumer loans, auto loans and credit cards in
the first quarter.
“We do not expect that from quarter to quarter
we will show record profits. I hope that we will reach a profit of
RUB50bn [for 2010], and for me that is enough for now,” said
Herbert Moos, the bank’s chief financial officer.
Moss said he expects the retail loan portfolio
to grow between two-and-a-half and three times in the next three
years, with deposits targeted to experience a similar growth.
The retail division is also expected to reap
dividends in terms of return on equity aimed at reaching more than
20%, rising from 8% at the end of 2009.
VTB will also continue to target a further
reduction in its cost-income ratio.
Although the strategy appears wide-ranging,
there are, said Moos, clear, realistic goals in place.
The bank has outlined a segmentary approach to
target retail customers, described by Moos as “revolutionary”. Moos
added that VTB24, the group’s retail banking arm, “cannot achieve
high performance in terms of cross-sell” without a segment-oriented
approach.
The bank said it plans to focus on clients
rather than on the specific products it is offering.
“That means we will change our customer
relationship management system for the better recognition of our
clients’ needs,” a bank spokesperson told RBI.
“We will segment our clients and offer
segment-oriented products for them that will distinguish by the
price, number of services and so on. Besides, we will develop our
credit card products, providing our clients with more co-branded
cards.”
With the aim of a
cross-sell ratio of three to four products per client per segment,
from its current two products per client, the bank plans to launch
an ‘Innovation Factory’ to road-test new products and technologies
and roll out the most successful on a large scale.
The second key initiative centres on expanding
the distribution network. VTB expects to open between 150 and 230
branches across Russia.
Although the network will not venture into new
regions as VTB24 has a presence in all major Russian cities with a
population above 250,000 – the bank said it is planning to increase
the density of branch network in key cities such as Moscow and St
Petersburg.
As part of the drive to transfer between 70-80%
of routine regular transactions to alternative channels, the bank
plans to boost the ATM network to over 7,000, from around
4,000.
Boosting the branch network is “a very
important part of [VTB’s] retail strategy, to achieve the target
that we’ve mentioned and grow retail share by 1.5 times,” Moos
said.
With the return to economic growth, VTB
cautiously resumed its branch network expansion programme and
opened three new branches in the first quarter. The bank plans to
open 48 new outlets by the end of the year to boost its presence in
key markets and continue to grow its client base which totalled
4.8m active retail customers at the end of the first quarter of
2010.
Technology is paramount to the bank’s targets
and the bank aims to build on its key platforms and technologies to
make the bank “better than market average”.
VTB24 recently struck a deal with FIS, one of
the world’s largest providers of core banking software. The FIS
platform will be rolled out in the next few years in an effort to
increase the bank’s customer base but also “develop strong
long-term relationships with each individual client”.
FIS Profile is being rolled out through a
phased programme, initially for the bank’s loan business, along
with the Profile Direct web-based front end for back-office
servicing. This will be followed by current account, deposit and
credit line products, debit and credit cards.
Commenting on the tie-up with FIS, Dmitry
Rudenko, VTB24 first deputy president and chairman of the board,
said: “VTB24 is one of the leaders of the national retail banking
sector. For us it is vital to transform into a full-service credit
institution, operating in all key segments of the Russian banking
market.
“VTB24 is focused on expanding the range of
products available to retail customers and improving the level of
customer support. We want to position ourselves as a leading
provider of reliable, customer-friendly banking services.
Distribution investments last year by the bank
included an increase in its ATM network reach 4,000 units and
expanded its range of ATM services, including automated cash
deposits and loan repayment options.”
“Deployment of effective technology is a key
element in enabling VTB24 to deliver first-class banking services
to current and prospective customers, encompassing high net worth
individuals and those in the small business sector,” Rudenko added.
“FIS Profile will address the challenges of real-time availability,
scalability and improved time to market.”
FIS Profile service
delivery director Bruno Lopes toldRBI: “VTB came to us
with one very simple objective, to replace their current legacy IT
system, with a new core banking system.”
According to Lopes, two main factors swung VTB
towards working with FIS, the Profile system itself and FIS’
knowledge of and experience in working in the Russian market.
“One of the major challenges was scalability.
Growth is just adding more hardware and the system grows in a very
scalable way.”
The project started in September 2008 and is
being introduced in a phased roll out with the loan product
portfolio the first to go live.
Current accounts, deposit and cards will follow
over the next two to three years.
As for possibility of mobile banking, the
system is designed and developed to allow for multi-channel use
such as mobile banking, if VTB decide to introduce such a
service.
“We are engaged in discussion with the bank
which will allow us to introduce in a relatively straightforward
way other products,” said Lopes.
As for the Russian market, Lopes said FIS’
ability to demonstrate its knowledge of, and experience in the
Russian market, had played a critical role in VTB electing to adopt
the FIS platform.
“Strategically, the deal was important for FIS
and makes us stronger to obtain further projects in the
region.”
|
Performance |
|||
|
VTB – earnings fundamentals, |
|||
|
Q110 |
Q109 |
% change |
|
|
Total assets (RUBtr) |
3.36 |
3.61 |
-25 |
|
Net interest income (RUBbn) |
42 |
34.3 |
22.4 |
|
Fees and commission income (RUBbn) |
6.2 |
5.6 |
10.7 |
|
Net non-interest income (RUBbn) |
14.2 |
8.3 |
71.1 |
|
Profit before tax (RUBbn) |
18.5 |
-23.7 |
n/m |
|
Net profit (RUBbn) |
15.3 |
-20.5 |
n/m |
|
n/m = not meaningful Source: VTB |
|||
