Mike Collier in Riga -
Flamboyant members of Latvia's rich list aren't hard to find, but the man who tops it isn't one of them. However, even the camera-shy founder of Parex Banka, Valery Kargin, was willing to step into the limelight as he revealed the bank's impressive performance for 2007 and hinted at ambitious plans for the future during a press conference in Riga.
"We achieved a 38% growth in our profit for 2007," Kargin reported. "In total, we have earned €57m. Our assets grew by 35%, reaching €4.5bn. The bank's assets have been growing at 30% annually for the past six years." Parex's capital and reserves grew by 13% and stood at €309m by the end of 2007.
In a notable aside, he also pointed out the bank paid €34m in taxes, making it "an important contributor to the welfare of the country." Over the years Parex has sometimes been the subject of whispered rumours about its supposed ability to avoid paying taxes, which clearly wrankles the mild-mannered Kargin.
East and west
Parex's strategy is a tale of east and west. While most Latvian banks are beholden to parent groups in Scandinavia, Parex is ignoring the region in favour of an expansion into Central Asia and is now eyeing up German banks with a view to buying one of them. Having opened a Berlin branch in 2007, it's now clear that Parex wants to maintain much more than a symbolic presence in Germany and may even use it as a springboard to the rest of Western Europe.
"Importantly, we have been accepted into the Depositors Protection Fund in Germany, which guarantees all the deposits up to €1.5m per one depositor, which has stimulated our growth in the German market. In the first two months of 2008, deposits in Germany reached €115m," Kargin said. "Our strong track record in Germany and Sweden [where Parex can now issue credit cards], which has been further supported by the outstanding performance in the first quarter of 2008, clearly indicates the unlimited possibilities present in Western Europe. It is very possible that we will acquire a bank in Germany in order to reinforce our success in this market."
"Very possible" will be taken by some observers to mean "near certain," suggesting that Kargin and company wouldn't have dropped the hint unless they were close to closing a deal. However, German banking expert Stefan Best of the Standard & Poor's rating agency is sceptical about Parex's chances of landing something big in German waters and has heard no rumours suggesting otherwise. "I doubt that Parex has the resources to buy something meaningful," he told bne.
A German purchase would be particularly satisfying for Kargin after Russian banking giant Alfa Group backed out of a rumoured buyout of Parex last year. If Parex in the west can mirror its success in the east, Kargin will be a happy man indeed. Describing 2007's figures as "great results," he emphasised the importance of maintaining Parex's relationships with entrepreneurs in Russia, Ukraine, Azerbaijan and other post-Soviet countries, as he sees "enormous profit potential" there. In 2007, the deposit volume in Eastern European markets grew by over €220m, or 20%.
Kargin was equally candid about Parex's goals for 2008, which he identifies as increasing the bank's loan portfolio by 32%, increasing deposits by 25% and raising total assets to €5.2bn - an increase of 16% year-on-year. Profits he expects to be around €48m.
But Kargin's performance was far from a grin-and-point piece of positive spin and he didn't shy away from identifying areas of concern, albeit external rather than internal by nature. Parex has refocused its risk management policy and now has 30 "fire-watchers" on duty at its Risk Management Division. Kargin added that an "especially conservative" approach to liquidity issues has been in place for a year and numerous improvements have been made in the field of credit risk management, including revisions to its scoring system.
In answer to press questions, Kargin diverged from the expectation of the Latvian Central Bank and official Government forecasts that project GDP growth of 5-6% for 2008. Kargin offered a more pessimistic estimate of 4%, adding that he expected to witness a harder landing for the economy than official sources are predicting.
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