Russian VTB bank, which recently raised $3.3 billion from investors on the Moscow Stock Exchange, plans to use the money to boost its corporate and retail lending activity, CFO Herbert Moos told Emerging Markets in an interview.
"The reason we raised this capital is to fund our growth," he said.
The Russian bank's plans are in sharp contrast to those of other banks in both Western and Eastern Europe, where deleveraging following the financial crisis is still taking place. With market share of around 15%, VTB is second to Russian Sberbank, which has a market share of approximately 27% on the Russian markets.
"We think that this year corporate lending in Russia will grow approximately 15%; we believe that VTB will grow its corporate lending portfolio by approximately 20%," Moos predicted.
"Retail lending is actually a higher priority for us than corporate lending. We think the market will grow by approximately 25% this year. We already grew [the retail lending portfolio] by over 7% in the first quarter. We're looking to grow our retail portfolio by over 30% this year."
Moos said the bank's retail operation last year had return on equity of 28%.
Retail loans make up just 11% of gross domestic product in Russia – compared with around 100% in developed economies.
"Absorbing loan growth of 30% looks high by Western standards but from our perspective, even if we continue to grow over 30% for the foreseeable future, we're just simply catching up with the retail loan saturation that developed markets already have," he explained.
VTB completed its share placement on May 23 and Moos said it had "very significant support" from existing shareholders while attracting big foreign funds, both from developed and from emerging markets.
The Norwegian sovereign wealth fund, the Qatar sovereign wealth fund, the state oil fund of Azerbaijan and China Construction Bank (CCB) were among the investors.
For the Norwegian sovereign fund, "this is their first direct investment in Russia of that size," Moos said.
"They need access to Russia, they're interested in Russia. The investment in VTB gives them the opportunity to speak to us on a strategic level and have a very meaningful discussion."
"Qatar never invested into Russia, not even in the index. From that perspective, it's an interesting name, there's a lot that the Middle East has to offer. Similarly as with Norway, we now have separate discussions with them around facilitating their investments in Russia and CIS," he added.
CCB, the second-largest bank in China, just opened an office in Moscow.
"If you look at the developments, the new Chinese leader has made his very first visit abroad to Russia. He has not chosen Western Europe or the United States to visit, he has chosen Russia. That is very symbolic," Moos said.
'CAUTIOUSLY NOT PESSIMISTIC'
He acknowledged that Russia still had "a significant amount of risk" because of its reliance on resource exports and was exposed to volatility arising from pressures on commodity prices.
"That said, we think that the oil price will stabilize at the current levels. We think that this year Russia will show a zero-balance budget, we think that the government debt will stay at around the current level of around 10% of GDP."
"Russia could be criticized for reliance on commodities, but it cannot be criticized for the state of its public finances," Moos said.
He noted that the country has the world's third-largest foreign exchange reserves after China and Japan, at around $500 billion.
"We fell that there's a reasonable cushion for the economy to absorb shocks. That said, the growth of the economy will not be as strong as Russia needs. Russia needs 4%, 5%, 6% growth but I think this year the economy is likely to grow only at around 3%."
He expects growth in the second half of this year to be stronger than in the first, with inflation coming down "quite substantially," which would allow the central bank to lower the reference rate.
"We're cautiously not pessimistic," Moos said.
VTB, which bought Transcredit Bank and Bank of Moscow in the past two years, will not make any more acquisitions in the near future.
"This year is really a year of integration for us. In the next year, maybe next three years, we may start looking but for now there are no real plans for acquisitions," Moos said.
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