Ben Aris in Moscow -

The consumer lending business has taken the blow dealt by the international crisis on the nose, but Ivan Svitek, CEO of Russia's second largest consumer bank Home Credit and Finance Bank (HCFB) is not unduly flummoxed. For the extra-tall Czech who took over running HCFB just before the crisis broke, it has been is an opportunity to take the bank in a new direction.

"We had a great 2008 with record profits," says Svitek. "We were hit in December, but by then we had already taken action: we cut the mortgage, car loans and the low-margin business, as well as prophylacticly doubling our collection staff."

Svitek says that HCFB's bad debt has risen to 9.1% of its total portfolio as of December, but is still less than the average for retail lenders. The bank has cut back on its less profitable point of sale desks (a company representative who mans a stand in the partner's shop) to concentrate on the most profitable outlets. Business volumes have tumbled too. HCFB specialises in consumer loans, many of which are made at the point of sale in electronic shops and the like. "Consumer electronic sales are down by 30%, but credits on these sales have fallen by half or more, as about a quarter of these goods were bought on credit and now only 7% to 12% are," says Svitek. "The Russian consumer is looking at their financial position and acting accordingly."

Crisis modelling

The crisis has caused a major headache for everyone, but catering to consumers has its own special problems. As consumer lending deals with large numbers of people, normally you can usually predict and model a consumer's behaviour fairly accurately and so spot new trends well in advance. Not so in a crisis. "You can model someone's spending habits pretty accurately, but the one thing you can't model is how likely they are to lose their job," says Svitek.

Despite the dramatic drop in business, Svitek remains pretty sanguine about the future. The cost of capital has rocketed, but Svitek says that HCFB doesn't have a problem with funding, as it has accelerated plans to collect retail deposits and already raised enough capital to meet its immediate needs. "Pure retail banking is a new direction for us. We looked at it last year, but didn't go into it, as there was too much competition. But all that changed dramatically only a few months ago and now the market is wide open. We have moved fast and intend to build up one of the leading retail banks in the country," says Svitek, who already commands a network of 176 branch and points of sale in more than 1,200 cities, already making HCFB one of the biggest retail banking operations in Russia. Like other banks, HCFB has also been pushing true credit cards and issued its five-millionth card in April, making it the second biggest issuer of cards in Russia.

The crisis will be painful, but Svitek believes the market will recover before too long. He won't be drawn on how long this will take or on whether he believes there will be a second bank crisis later this year, driven by the rising number of non-performing loans in the sector. "None of the numbers out there are real. We won't really know what is going on until the fourth quarter of this year. It could go anyway at the moment," he says. "No one has a growth strategy at the moment. All the banks simply want to get to the end of the year with their capital intact."

Russian retail borrowing is only 9% of GDP against over 25% in the west, so Russians are less exposed to the international crisis and presumably will recover their borrowing habit more quickly as a result. "People forget that the crisis is an opportunity for us. We now have a more focused business, our market share has increased and we are now pushing ahead full speed with plans to become a fully-fledged retail bank. We were only toying with this idea last year, but didn't move on it, as the competition was so stiff. Now everything is different. In the last six months, we have done more work on developing the business than we did in the two years prior to that."

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