Igor Kim, CEO of Russia’s Expobank, which has made its name snapping up assets from foreign banks pulling out of Russia, does not expect Russian retail banking to be profitable for another two years, but is interested in buying up more banking assets in the meantime.
Speaking to bne IntellINews at a meeting in the City of London earlier in June, Kim, one of Russia’s most secretive bankers, offered a grim short-term prognosis for the country’s ailing retail banking industry.
He suggested that the Russian banking sector is going through a “real, not theoretical, stress test” and that “over the next two years, the profitability of the Russian banking sector will not be very high”.
Kim also cited the continuing decline in real wages as one of the factors contributing to the “issue of toxic assets” that Russian banks “spend most of their time trying to clean up”.
“Many banks’ results over the last two years will show a worsening of their asset quality,” he added.
However, he noted that banks in Russia are currently undergoing an “adaptation” due to the Central Bank of Russia (CBR) “cleaning up” the banking system. “Any players who are not willing to abide by the new regulatory rule will disappear,” Kim warned. “I would say that after the cleaning up of the sector, the banking sector in Russia will be much more reliable, and I think that naturally the profitability will increase.”
Kim, who has bought nearly two banks annually during two decades in the sector, shows no sign of letting up despite the difficulties facing the sector in Europe. After acquiring a number of Western banking assets following the 2008 financial crisis, Kim said he is interested in buying up other western and eastern European banking assets in the near future.
“There are around 7,000 different banks in Europe – there is a large enough quantity that we can continue making acquisitions,” he said.
With retail lending continuing to struggle in Russia, and with one of Kim’s consumer-oriented former assets suffering, it comes as no surprise that his latest acquisitions circumvent retail lending altogether.
Kim also confirmed to bne IntelliNews the purchase of RBS’ Kazakh operations. “We have agreed with RBS to purchase their subsidiary bank in Kazakhstan, and we have already submitted our applications to the National Bank of Kazakhstan,” Kim announced.
The focus of RBS’ Kazakh and Russian operations is in corporate lending and dealmaking – areas of the overall banking sector that have performed fairly well in the face of the region’s current economic slowdown, despite the overall investment climate suffering, as the bneChart below shows.
“RBS Kazakhstan is quite attractive to us. So it’s practically doing exactly the same business as RBS in Russia. So in this respect we have a high level of comfort. And we think that this business model may be quite successful in Kazakhstan,” Kim said.
The deal closely follows Kim’s acquisition of RBS’ Russian operations in November last year, adding to an already-growing portfolio of Western banking assets acquired as part of a larger European expansion.
In 2014 the notoriously media-shy Kim acquired the Czech subsidiary of Germany’s Landesbank Baden-Wuerttemberg (LBBW), renaming it Expobank CZ, and last year snapped up London-based FX brokerage FXCM Securities, renaming it Walbrook Capital Markets.
He is confident that the new acquisitions will be able to weather the storm and was quick to point out that Expobank’s 2015 results showed a non-performing loan (NPL) rate of only 0.6%, which he boasted is “significantly lower than the market average”. Indeed, Russia’s corporate NPL rate for 2015 sat considerably higher, at 6%.