Business Times - 14 Jun 2010(SINGAPORE) Russia's VTB Group has come a long way from its roots as a state-owned export-import bank focused mainly on serving big Russian companies.
Set up in 1990 as Vneshtorgbak, the bank went through several transformations in the past two decades, and has since become Russia's second-biggest banking group. In recent years, it has added retail banking and investment banking to its business mix, and expanded overseas.
In 2002, when its current chief executive Andrei Kostin joined the bank as part of a new management team, half of the bank's income was generated by just 10 clients, and it had total assets of just US$4 billion, Mr Kostin told BT in an interview last week.
Eight years later, VTB now has total assets of some US$110 billion (at end-March), including US$72 billion in customer loans, making it the second-largest banking group in Russia after Sberbank, which has US$230 billion in assets. VTB had some 5.8 million customers at the end of 2009, mostly in retail banking.
On May 27, the group announced a new three-year strategy, setting ambitious profit targets that will see the bank expand its retail banking business further in Russia, and shift more of its corporate and investment banking activities into fee-earning transactions and advisory services - rather than traditional lending.
Since then, Mr Kostin has gone on a charm offensive in Asia, where it is still relatively unknown except to big investors. One of VTB's aims is to raise the contribution of its international operations to the group's income. The group has set itself a target of earning an overall return on equity of at least 15 per cent by 2013, up from 11.9 per cent in the first quarter of this year (VTB suffered a loss last year).
'By 2013, each of our subsidiaries should bring in an ROE of at least 15 per cent; if not, we'll be closing it,' Mr Kostin said. 'I'm quite convinced that you can do business successfully everywhere, but it requires a lot of time and money, so you should really select the most profitable and promising areas.'
Those promising areas are mainly retail banking in Russia - including private banking - and investment banking, he said. VTB wants to increase the contribution to group income of both business segments, which are more profitable than its main corporate lending business.
Corporate banking made up 64 per cent of the group's total revenue last year; retail banking contributed 20 per cent, and investment banking 11 per cent.
'In our previous strategy we focused on aggressive growth and taking leading positions in the market. Now we've switched to efficiency and quality of the growth; we'll focus specifically on profitability and return on equity,' he said.
Temasek Holdings invested an undisclosed sum in the bank's shares at its initial public offering in London and Moscow in 2007, which raised US$8 billion. The bank continues to enjoy strong support from the Russian government, which injected some US$14 billion of capital into VTB during the financial crisis. The government now owns 77.5 per cent of VTB - down from 100 per cent before its IPO.
It needs no new capital until 2013, but it would 'definitely consider' a public listing in Hong Kong to raise more capital then, Mr Kostin said last Friday, according to a Bloomberg report in Hong Kong.
'Asia is important for us in a number of ways. It has recently become a capital-exporting region; before, it was mainly a capital-consuming region. So in our process of diversifying our borrowings and our international shareholder structure, we are very much focused on sovereign funds in Singapore and China,' Mr Kostin told BT.
VTB has started raising more debt capital from investors in Asia - as much as 30 per cent of some debt issues, compared to 10 per cent previously - to diversify its funding sources, Mr Kostin said. It is also exploring issuing debt in Asian+ currencies such as the Japanese yen or Korean won; it has 'no objection, in principle' to issuing debt in other currencies such as the Singapore dollar, but needs to ensure that the funds raised are easily convertible into roubles, since most of its spending is in Russia, he said.
For now, VTB is the only Russian bank with a full-fledged investment banking operation and a significant international presence. It has some 20 offices worldwide, including in Singapore, where it has 30 staff. The bank also plans to open an investment bank office in Hong Kong later this year, Mr Kostin said.
He sees opportunities to position VTB in Asia as the bank to turn to for those keen on investing and doing business in Russia. 'We very much would like to be viewed as the expert on Russia,' he said. 'That's a niche for our investment banking business here in Asia.'
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