Transcript MDM Fin Group - Investor Presentation

The Russian Banking Sector:
Assessing the Growth
Michel Perhirin, CEO, MDM Bank
Regional Cooperation Forum
GENEVA, 9-10 JULY 2006
1
Macroeconomic Overview
2
Overview: Russian Economy
Stable economy
 The latest forecasts show Russian GDP
to surpass 1,000 bln USD by 2007
 The inflation forecast is 8.5% for 2006
 Foreign currency reserves have reached
$247.2 bln by end of June 2006 and are
expected to increase further
 There has been an increase in the
payment surplus for current operations
33
Overview: Russia is Closing to Top 10 by GDP
Russia’s rapid and sustainable growth has brought the country onto the list of leading
World economies
The Russian
Federation
has the 14th
highest GDP
4
Overview: Sovereign Ratings
International agencies recognize the success of the Russian economy;
the country has solid Sovereign ratings.
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
Brazil
Ukraine
B+
Russia
China
Mexico
Poland
India
Kazakhstan
Moody's
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
Kazakhstan
India
Brazil
Ukraine
BB+
BB
Russia
China
Poland
Mexico
S&P
A
China
A-
BBB+
BBB
Poland
Russia
BBB-
India
BB-
Brazil
Ukraine
Kazakhstan
Mexico
Fitch
5
B+
Overview: FDI Inflow
Foreign Direct Investment inflow is constantly increasing due to improved economic and political conditions
Location sites considered for new investment or
expansion (% of citations for each country)
FDI & Portfolio investment share are gradually
increasing
6
Banking Sector Development
7
Russian Banking System: Infrastructure
Credit system participant quality is gradually improving – the number of credit institutions is
decreasing mostly due to “dead” bank exclusion from the market
8
Russian Banking System: Concentration & Growth
Results
 The Russian banking system grew strongly in
2005:
–
Assets increased by 36.6%
(2004: 27.4%)
–
Capital increased by 31.2%
(2004: 16.2%)
–
Profit increased by 47.3% (2004: 38.6%)
 2005: ROE 24.2 % (2004: 20.3 %)
 2005: return on lending assets 3.2 %
(2004: 2.9 %)
Source: Central Bank
 The top 30 largest banks experienced the highest
growth level (2005: Assets increased by 48%)
June 2006
Dynamics of the Russian banking system
Total Loans
Total Customer Accounts
Total Assets
% of total% GDP US$ bln % of total% GDP US$ bln % of total % GDP US$ bln
Top 20 Banks
20-200 Banks
Other Banks
66%
26%
9%
20%
8%
3%
162
63
22
66%
24%
11%
9
15%
5%
2%
116
42
19
63%
28%
10%
31%
14%
5%
248
109
39
Credit Rating Comparison for Russian Private Banks
The leading Russian Banks are highly rated by International Agencies
Baa2
Baa3
Ba1
Russia
Ba2
Ba3
B1
Alfa bank
Ak Bars Bank
Rosbank
MBRD
Bank Zenit
JSC Impexbank
Russian Standard
Promsvyazbank
Nomos Bank
Petrokommerce
BB
BB-
B+
Alfa Bank
Bank of KhantyMansiysk
MDM FG
MDM Bank
Moody's
BBB
BBB-
BB+
Russia
MDM Bank
MDM FG
S&P
Russian Standard
BBB
BBB-
BB+
BB
BB-
Russia
Fitch
B2
B3
Caa
B
B-
CCC+
Uralsib
Promsvyazbank
B.I.N. Bank
HCFB
Surgutneftegasbank
Petrocommerce
Rosbank
TransCreditBank
B+
B
B-
Alfa Bank
MBRD
Ak Bars Bank
Nomos-Bank
Promsvyazbank
Bank Zenit
Rosbank
BIN Bank
International
Bank of Saint
Petersburg
MDM Bank
MDM FG
Bank
Soyuz
CCC+
Trust Bank
Uralsib
10
Source: Cbonds, Moody’s, S&P, Fitch
MDM among Top Russian Banks
Top Russian Banks as of 1Q 2006 *
US$ mln
Sberbank
Vneshtorgbank
Gasprombank
Bank of Moscow
Uralsib
Alfa Bank
Rosbank
Raiffeisenbank
International Moscow Bank
MDM Bank **
Promstroybank SPb
Promsviazbank
Citibank
Petrocommerce
Assets
95 853
24 048
17 204
9 329
8 539
8 473
7 569
5 821
5 715
4 781
4 561
4 311
3 841
3 087
MDM Bank, % of the top 14
2.35%
Loans
Deposits
70 248
77 182
11 431
9 160
7 826
9 781
6 336
7 687
4 861
5 021
6 678
5 768
4 342
5 677
3 387
3 107
3 204
3 628
3 095
2 335
2 770
3 307
2 674
2 807
1 416
2 459
1 973
2 043
2.38%
* Estimate, based on Russian Accounting Standards
** Excluding subsidiaries
11
1.67%
Capital Profit before Tax
10 808
907
4 406
158
1 630
241
828
46
1 575
274
1 031
65
844
20
571
55
568
45
767
81
469
37
341
48
378
0
454
55
3.11%
3.99%
Russian Banking System: Foreign Banks in Russia
Foreign owned banks are increasing their presence in Russia in terms of assets and number thus
establishing a new level of competition
Key factors
Russian top 30 banks asset structure
 The number of foreign-controlled banks
in the Russian banking system*, as of
April 2006, reached 55. (52 in 2005; 42
in 2004)
Source: Central Bank, as of January 1, 2006
 The assets of foreign-controlled banks
increased by 49.3% (2004: 29.9%) and
equity (capital) by 56.4 % (2004: 36.7%)
 Non-resident-controlled banks’ share in
the banking system's assets grew from
7.6% in 2004 to 8.3% in 2005 and in
equity (capital) from 7.8% to 9.3%
 Private deposits in non-resident-
controlled banks increased in 2005 by
60.0% (2004: 71.9%)
*With more than 50% share
12
Russian banking system: Mergers & Acquisitions
Increasing M&A activities in past two years
Benchmark valuation multiples
Top Russian banks
Rosbank
PSB
Impexbank
Bank of Moscow
Investsberbank
International
Moscow Bank
 Rosbank  OVK
 VTB  Guta Bank; PSB (SPb)
 Nikoil  Avtobank;Uralsib
Foreign banks
 BSGV  DeltaCredit
Assets, Change y- Capital,
BV
mln. USD
o-y, % mln. USD multiple
6 933
48
709
4
4 827
61
501
1
1 883
43
192
3
7 662
49
963
3
832
311
87
3.7
5 479
57
602
2.3
Three
Major
Acquisition
Groups
Mid-market local banks
 GE Consumer Finance 
Deltabank
 Promsvyazbank  Rostpromstroibank
 Hansabank  Kvest
 Petro-Aero Bank  Ruskobank; Inkassbank
 RaiffeisenBank  Impexbank
 Sibacadembank  Uralvneshtorgbank;
 EBRD portfolio investment: 
13 local banks (2005: 7 banks)
Mezhtorgbank; Dalvneshtorgbank;
Zheldorbank
 Societe Generale 
Rosbank (10%)
 VEFK  MDM Bank St. Petersburg
 OTP Bank 
Investsberbank
13
Banking sector:
Investor Friendly?
14
Banking Sector: State Policy requires further
development
The Legal base
For a competitive
environment
is not fully
developed
Excessive
Costs
associated with
the
Banking Sector
The Banking System
still needs to
deal with
a number of problems
Low level
of creditors’
rights
protection
Insufficient Banking
Sector
contribution
to economic
growth
Bankruptcy
procedures needs
more
transparency
15
Banking Sector: Striving for Improvement
Both the State Authorities and Russian Banks must combine efforts to bring the Sector in
correspondence with high international standards
Russian Banks exert every effort
to increase the Sector’s
investment attractiveness
The State pledges to make
the following improvements:
 Improve legislation
 Improve Banking
regulation and supervision
 Develop the Banking
sector infrastructure

ARB (679 banks), «Russia»
(350), MICA* (67) and other
organizations take an active part
in the State policy implementation

Rapprochement of the State and
Bank interests

Proactive stance toward public
authorities’ initiatives

Banking society members’
balance of interests

Investment attractiveness
increase in the external markets
*MICA – Moscow International Currency Association
16
Banking Sector:
Application of Western Quality
Standards
17
Russian banking system: Stakeholders & Western
standards
Execs.
Vendors
Western
standards
of quality
Clients
Shareholders
Russian
Bank
Managers
Media
Line
employees
Community
Competitors
18
Regulators
Western standards in banking services in Russia:
Drivers & Blockers
Western
standards
of quality in
Russian
banking
services
Drivers:
• Strong competition
• Increase in FDI
• High growth levels
• Increased ratings
• High liquidity
• Low interest rates
Blockers:
• Banking system weaknesses
• High fragmentation of Russian banking
system
• Dominance of state-owned banks
• Significant number of small banks
• Slow implementation of reforms
• Risks level remain substantial
Current State
19
Product offering: banks are closer to western standards
Still missing sophisticated product lines, Russian banks are closing the gap in
product offering moving from “boutique” to mass standardized products
Process
Variety of services
organization
Corporate clients
• Cash management
• Loan products
• Liquidity management
• Investment banking
Retail clients
• Payments
• Plastic cards
• Loan products
• Savings products
Private banking
• Wealth management
Support platform
Processes
• Standardized
procedures
Client insight
• Demand analysis
• Relationship
management
IT
• Multifunctional core
systems and CRM
Risk management
• Credit bureaus
20
Sales channels
Offices
• Widening distribution
network:
•Branches
•Mini-offices
Virtual
• Internet banking
• Internet trading
• Phone banking
• Call centres
Third party
• Agents networks
Banking in Russia: The Future
Over the years several key measures were implemented to improve and increase the importance
of the banking system in Russia.
 Banking system growth will continue
?
 Four distinct groups will remain on the
market.
Ba
– State-owned banks
– Largest private banks
sel
Cr
bur edit
eau
s
– Regional banks
Sim
– Foreign banks
 Conditions for FDI attraction will improve
 Transparency in lending institutions'
operations will increase
 Foreign banks will continue steady
growth
 Dominance of state-owned banks will
Ris
pli
M& ficatio
Ar
ule n of
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k -o
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sup nted
erv ban
isio kin
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Ob
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II
O
WT
ta l
api nt
c
e
Fre veme
mo
ta l
api
c
ry
lato ease
u
g
r
Re inc
ta r
n
o
i
at
Infl
s
ion
s
n
Pe
yst
e
ing
get
em
rov
p
m
mi
ent
Recent and anticipated changes in the Russian Banking sector
remain
21
Outline: MDM
Outline
Key Highlights
 High international credit ratings
 As of March 31, 2006 (IFRS), MDM FG:
Moody's
Fitch
S&P
Ba2 / stable
BB- / stable
B+ / positive
 Leading bank in corporate governance
practices in Russia (S&P CG Ratio:6.0)
 One of the four largest privately owned
Russian financial institutions
 Universal bank: retail, corporate, investment
and private banking
 Close to 1 million retail clients
 Over 70,000 corporate clients with over
2,000 medium & large active clients
 Numerous awards from financial magazines
22
–
Assets: US$ 5,752 mln
–
Equity: US$ 963 mln
–
Net profit for 1Q 2006: US$ 43 mln
–
ROAE (annualized): 20%
–
Cost / income: avg.50%
–
Staff: 5,396