Western banks risk losing market share in Russia, a senior Italian banker admitted on Thursday in the wake of accusations by the head of one the country’s sovereign wealth funds that European banks were too profitable in Russia.
Carlo Vivaldi, head of the CEE division at UniCredit, admitted to Emerging Markets that market share in Russia was a big concern. “In Russia we want to keep our position, but we’re concentrating on running the business not on market comments,” he said.
He was responding to recent comments by Kirill Dmitriev, the head of the Russian Direct Investment Fund, which appeared to question UniCredit’s future in the country.
In an attempt to woo Chinese investors and lenders to Russia, Dmitriev complained that European banks were “the most profitable in Russia, especially certain Italian banks, if you know what I mean”.
The allusion to UniCredit was reinforced when Dmitriev, who oversees the $10bn Moscow-based fund set up in 2011 to channel capital into high-growth corners of the Russian economy, added: “We are going to take that market share away.”
Vivaldi repeatedly refused directly to address Dmitriev’s words in public. “We don’t comment on comments,” he said. “We are aware that competition is tough in all countries, and we aren’t concerned about competition.
“Our aim is to increase market share in Russia. We want to maintain our current market share this year, and we have also seen a small increase in domestic [Russian] loans.”
SUSTAINABLE PROFITS
Vivaldi struck an upbeat tone on its sprawling pan-central and eastern Europe banking operations, pointing to “more sustainable” levels across the region, with profits rising sharply in areas like asset and wealth management.
But the Italian lender, with operations across the region, admitted that the spectre of Russia’s flailing economy continues to undermine its long-term plans.
He insisted that UniCredit’s Russian operations would remain in the black this year but admitted the final profit number would be “less than we had projected”. The bank owns 110 branches in Russia, where it is the ninth-largest lender, boasting a 1.7% market share.
At a press conference to outline the lender’s 2015 financial projections, Vivaldi peppered his speech with data showing how well the bank was operating across the regions — but only after excluding data from both Russia and war-torn Ukraine.
The prognosis for the broader Russian banking sector hardly augurs well. UniCredit data show domestic loan growth dipping sharply from just shy of 25% in 2014 to less than 5% in 2016, with the non-performing loan (NPL) ratio jumping from 12% last year, to 19% in 2015 and 20% in 2016. Over the same period, by contrast, Romania, one of Europe’s fastest growing economies, is projected to see NPLs slide from 13% to around 7.5%.
The story is barely any better in Ukraine, where UniCredit expects loan growth to slide to 3% this year, from more than 12% in 2014. Vivaldi said that despite Ukraine’s situation, the lender remained committed to the market’s future.
Having pumped $250m into the bank’s domestic operations over the past 12 months, Vivaldi promised to channel a similar amount into its operations to Kiev by the start of September.