Emerging Europe’s retail banking boom, fuelled by strong economic growth in the CIS on the back of commodity prices, has only just begun, Herbert Stepic, CEO of Raiffeisen International, believes.
The upside is evident from statistics for credit to households, as a proportion of GDP, he reckons: it’s 5.7% in the CIS, 14.5% in south-eastern Europe and 15% in central Europe – compared to 55% in the eurozone.
“This market can grow many times over,” Stepic says in an interview with Emerging Markets. “In the EU 15, increasing market share is mainly about taking a little from others. In central and eastern Europe, it’s an enormous catching-up process. It’s about investing in a huge, and totally unsatisfied, demand.”
In the commodity-dependent economies of the former Soviet Union, there is probably nothing, except the eventual downturn in oil and metals prices, to hinder the retail banking expansion. The new middle class has been hoovering up consumer loans, and is now moving on to mortgages.
Retail contributed 30% of Raiffeisen International’s gross profits in the first half of 2006, up from 21% on the first half of 2005. And in the 18 months to mid-2006 – a period in which Raiffeisen acquired Impexbank of Russia and Aval Bank of Ukraine, making it the largest foreign-owned player in both markets – the number of retail customers grew from 6.5 million to 11.3 million.
“In the early 1990s we started with corporate business. Now retail lending has overtaken that significantly in dynamics,” Stepic says. “We see retail and SME business as the future of this market, and have built that in to our medium- and long-term plans.”
Central Asia is the next frontier for Raiffeisen. The group suffered a setback last month when it sold a 7.7% stake in Bank Turan Alem of Kazakhstan to Stockholm-based East Capital Explorer Financial Institutions Fund for E136.5 million.
“We made the sale, at a good price, because there was a change in the majority ownership after the death of the bank’s founder,” Stepic says. “We had agreed that we would continuously increase our share in the bank, up to a majority, but the new owners have changed that. We are not interested in a financial investment, only a strategic one.”
Raiffeisen continues to work in the Kazakh market through its subsidiary Raiffeisen Leasing, and does business across the central Asian states out from Vienna. “Central Asia is really only just starting the transformation process, partly because of the autocratic leadership in some of the countries,” Stepic says. —Simon Pirani