The biggest bank in the world

By bne IntelliNews May 22, 2012

Ben Aris in Moscow -

Anton Karamzin, deputy chairman of Sberbank

Odd as it sounds, Sberbank is the biggest lending institution in Russia yet also has one of the lowest non-performing loan (NPL) ratios in the sector. Not only that, but commercial banks interviewed by bne recently also complain that the one-time Soviet dinosaur is dancing circles around them as they struggle to compete with its speed of service and prices.

Dinosaurs in tutus? It certainly is a strangle image, but the bank is in the midst of a revolution that has gone a long way towards making Russia's most popular bank like any of its western counterparts.

Anton Karamzin, deputy chairman of Sberbank, tells bne in an exclusive interview that Sberbank's advantage is that thanks to a new $1.2bn data processing centre, among other things, it can leverage its huge volume of transactions and so has the most accurate risk assessment tools in the industry by a long chalk.

Buying hi-tech solutions to deal with business issues is a pretty standard strategy around the world, but Karamzin points out that the larger part of Sberbank's success is the fundamental attractiveness of the banking business in Russia. For the bank, the key is how best to manage this opportunity. "The credit quality of the Russian consumer is one of the best in the world. Russian banks suffer from less fraud and bad loans than other European countries because Russians don't like to load up on debt," says Karamzin. "And this was true before Communism. Everything 20-30 years something happened: a war, a bad Tsar, a revolution - and you don't want to owe money in hard times."

Managing opportunity is the hard part and something Russians have historically not been very good at. Mismanagement was, after all, what brought the Soviet superpower to its knees. But Karamzin thinks that after 20 years of independence enough has been learnt to finally get things right. "Sberbank is four years through a five-year strategic development plan and we are now starting to see the results," says Karamzin. "The plan covers every aspect of the bank's life and we are doing this systematically, as we want to create a self-perpetuating system that will continue to function when the current management team eventually leaves."

The goal is to make Sberbank as agile as a small bank. It sounds like nonsense, as Sberbank is already the second largest bank in Europe after HSBC in terms of assets and three times larger in terms of the number of branches. "If you measure Sberbank's size in proportion to Russia's GDP, then we are already by far the largest bank in the world," says Karamzin.

The answer to the conundrum of how to run a huge institution as if it had the sensitivity and nimbleness of a small regional player is IT. Moving money and managing risk is all about manipulating numbers, so the banking is a business that lends itself to IT like no other. In November 2011 at the bank's 250th birthday, Sberbank launched the eighth largest data processing system in the world and the biggest in Europe at a cost of an astounding $1.2bn. Just the electricity bill to run this mother-of-all-European-computers runs to $200m a year to keep helium liquid that allows for superconducting electronics that can process 17m transactions a week.

Dinosaurs were clumsy because they had walnut-sized brains. What Sberbank has effectively done is put in place a huge brain that allows this dinosaur to dance.


Upgrading Sberbank's hardware with the scifi-esque data processing centre is the most expensive change the bank has made, but probably just as important in the long run is that it's also upgraded the bank's operating system. The traditional clunky Soviet-era branches with their famously sour service and long queues are increasingly hard to find these days (in Moscow at least). Following a major makeover, increasingly the bank looks - and more importantly runs - like any western bank.

In the 1990s Sberbank had an 80% market share of deposits, but the start of banking reforms in 2004 saw that reduced to 46% as commercial banks ate into its business. However, in the last two years Sberbank has reversed the trend and is currently pushing at the 50% mark as it aggressively expands its product offering.

For example, under former chairman Andrei Kazmin, the ultra-conservative bank was very reluctant to get into the unsecured credit card lending business. In those days, the standard joke was you had to deposit your grandmother with the bank as collateral if you wanted a loan. Current chairman German Gref finally launched credit cards in 2008 and in April this year the bank became market leader with 18% of all the true credit cards in Russian wallets today. The story is the same in pretty much any product you care to mention - mortgages, car loans, credits for small and medium-sized enterprises: Sberbank is the market leader in all these products and unassailable. "One out of every four people in the country bank with us. We are the financial system," says Karamzin. "We have a system now where every step in the bad loan recovery process is recorded in the system together with the recovery plan schedule and deadlines. If say some deadline goes overdue by one day anywhere in any region, then it is immediately flagged in the system. We know here in Moscow, and can call down to the regional branch to ask what has gone wrong."

Sberbank is attempting a Herculean transformation. The classic approach to turning a company in a new strategic direction is to focus on two or three strategic goals and push them through, but Sberbank is too big for that. "If we did it that way, the simple inertia of the bank would pull it back to its old habits. We have to do everything at once. We currently have 740 strategic projects running concurrently," says Karamzin. "It's like flying a plane and fixing the engines in mid-air. It takes military discipline to make it work."

Hairy as it sounds, the new system seems to be working. Under the old regime, the control mechanisms were repeated at every level - federal, regional, down to the sub-regional branches - but the new system full integrated into a single national whole.

The attempt to remake Sberbank's management system strikes to the core of all of Russia's problems. And its success testifies to what could be a dramatic acceleration if businesses are only run a little more efficiently - and without spending an extra kopek in investment. The World Bank found in a study that 60-80% of the productivity gap between Russia and the US was simply due to poor management.

The trouble with changes in the operating system is they are hard to quantify. Apart from the physical facelift at bank's branches, the same people are working in the same branches servicing the same customers doing essentially the same jobs as before. Changing management practices and employees mentalities is an intangible that only shows up at the end of the day in the bottom line. "Otto von Bismark said that Russians are the slowest getting the horse hitched to the cart, but fastest when it came to driving," says Karamzin adding that Russia is still at the beginning of developing its banking system. "Consumer loans grew by 40% last year, but penetration of banking services into the economy is still extremely low. The potential of the Russian banking sector can still grow many times over."

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