Graham Stack in Moscow -

In his first policy speech as a presidential candidate back in February, Dmitry Medvedev called on Russian companies to expand abroad via foreign acquisitions. Russia's leading banks have followed the president's orders to the letter.

Since taking over at the helm of Russia's biggest bank Sberbank in November last year, German Gref has launched a new expansion strategy and the first port of call was Ukraine. True to his word, within two months of his appointment Sberbank had acquired a Ukrainian subsidiary, the smallish Kyiv-based NRB.

In March, Gref explained his strategy for NRB: to inject $150m into NRB capital in the short term, an 11-fold increase, and $400m over the longer term, thus lifting NRB into the country's top-10 list of banks within three years. Gref said the number of branches would surge 10-fold by 2010 from the current 25 to 250. Implementation of the bank's new strategy took its first big step in August with a full-scale rebranding of the bank from NRB to its new name Sberbank Rossii - making no bones about whose bank it is.

Although this was a pioneering strategy for Sberbank, it was merely following in the fresh footprints of Russia's second largest bank, state-owned VTB.

In the first half of 2007, VTB acquired two Ukrainian banks and merged them in the second half. "After a period of rapid growth, VTB is [Kyiv stock exchange] listed and shot up to become Ukraine's 11th biggest bank," says Millennium Capital's Viktoriya Bezverkha. "In the first seven months of 2008, VTB Ukraine's assets have grown 60% compared to 20% for the industry, mainly due to extremely rapid retail expansion." VTB has set its sights on being one of the top-three banks within two or three years, an aim that Bezverkha finds "very plausible."

With much of the Ukrainian banking sector overly reliant on wholesale funding from abroad to fund its business growth, having a large parent bank like VTB or Sberbank lends a considerable competitive advantage. Most analysts believe Russian state banks, with their huge assets, stand to gain relative to their private competitors as the credit crunch dries up access to cheap foreign funds, which in turn will boost the competitive position of their subsidiaries in Ukraine.

Send comments to The Editor