In order to be really investment-attractive, one doesn’t need to have a huge capital, an extensive branch network covering all regions of our country and access to foreign capital markets to obtain funding. Arxbank, being No.4 in the investment attractiveness rating created by NBJ jointly with Eastland Capital, confirms this observation supremely well. Alexander GERASIMENKO, the Deputy Chairman of the Operations Management Board of JSC Arxbank, interviewed by NBJ unveiled the secret.
 
NBJ: How do you think, Alexander Leonidovich, what criteria should be used to assess how investment attractive one or another financial institution is? What should be taken into account by potential investors in the first instance?

А. GERASIMENKO: In my opinion, financial stability of the asset and no exposure to regulatory risks must be the key selection criteria. Put differently, the investment target must have no ‘skeletons in the closet’, and the regulator must have no serious claims to it which may be implemented as a restriction of some of the bank’s activities or license revocation. As a matter of course, this is determined through a due diligence consisting in a comprehensive audit of the bank when this entails capital investments of a strategic investor.

NBJ: How about financial performance? Is it one of the most important indicators for investment attractiveness?

А. GERASIMENKO:  Absolutely. Though, it is not a secret for everyone that it can be «corrected» towards one or another direction. But, in my opinion, the fact that there are no regulatory risks is more important after all, especially given the existing situation in the market.
 
NBJ: As we remember, before the 2008 crisis, Russian banks were «sold» like hotcakes, and at that time investors considered the availability of an extensive branch network as one of key selection features. Whether this criterion is that important nowadays?

А. GERASIMENKO: Everything depends here on the goals the investor intends to achieve. If it is important for the investor that there is a wide customer stream and that the bank provides services to both individuals and companies, then it is absolutely important for such investor that the financial institution must feature an extensive branch network. It is clear that due to the development of remote banking, many transactions now can be made remotely. Not all however.

NBJ: Possibly, apart from all of the above listed, important factors also include the effectiveness level of the target’s business strategy and availability of a skilled management team and quality of corporate culture?

А. GERASIMENKO: Based on my personal experience of participating in and tracing M&A transactions in the Russian market, I must say these criteria are often attached too much importance. It is good, of course, where the target has an untarnished reputation, a good management team and a well-thought business strategy. In practice, however, after a new owner comes forward, the old team leaves with the business strategy being severely adjusted or even a principally new strategy is developed. This is why I would not recommend that those who are now negotiating a sale of a bank or a significant stake in it lay emphasis on such factors.

NBJ: Let’s now get down to Arxbank. It holds a sufficiently high position in the investment attractiveness rating created by NBJ jointly with Eastland Capital. Could you please tell about the history of the financial institution you work at, its business structure and key lines of business it considers as its key ones in more detail?

А. GERASIMENKO: Arxbank is a comparatively small credit organization in terms of the size of assets. It exists since 1993 and throughout all of the 22 years of its existence it has been a universal bank, i.e. we offer a wide range of services to both individual and corporate customers. These services include cash banking, FX transactions, cash transactions, safe deposit services and, last but not least, products and services designed for corporate customers As to the distinctive features of our bank, I would denote customer focus is the main one. So far, it would not be too correct to speak about VIP banking, but we try to maintain the quality of customer service at a very high level and I must say customers return reciprocity for this.

NBJ: And back on the bank’s branch network, where is its center and what regions of Russia the bank’ footprint covers?

А. GERASIMENKO: Perhaps, it is not going to be a surprise if I say that the city of Moscow is the focal point of our activities being the hub of all financial flows and point where the country’s population and national and corporate money resources are concentrated. But we, though, do not forget about regions with our offices successfully operating in the Chelyabinsk, Belgorod, Vologda and Voronezh Regions. We don’t rule out the possibility that we may acquire banks being smaller than Arxbank in other regions or that we may open additional business units with high quality management teams provided that such assets, however, can readily offer us a sound customer base and they are transparent and healthy. This is the way we entered the Vologda region, being a comparatively small one, and time showed that our choice was not a mistake.

NBJ: We have recently heard in increasing frequency from numerous forums, conferences and roundtables that the current crisis beats small and medium banks more painfully with not all of them but just a few being able to withstand the challenges our tough time gives rise to. How does Arxbank respond to them or, alternatively, how does your financial institution manage to maintain its stability?

А. GERASIMENKO: It is possible that my answer will sound like several common phrases. But each of them is of great importance. A bank’s stability and ability to overcome the most protracted crisis periods result from the fact that it is investment attractive and has a skilled management team and well thought business strategy (restricting high-risk transactions) and competitive edges enabling it to raise required funding from individuals and corporations. All of these are interrelated features and none of them can exist without the other one.

NBJ: Well, funding nowadays is the most challenging issue for most Russian banks and especially for such companies as small and medium banks. How does Arxbank handle this  challenge?

А. GERASIMENKO: Primarily by raising retail and corporate deposits. And this is where we are back to what we discussed above – customer focus as the main distinctive feature of our bank. It is obvious that the market is now facing a rather fierce competition, and, to succeed in retaining customers, a bank needs to show its best qualities such as flexibility of approaches, readiness to meet customers’ needs, ability to implement their requests and wishes. Believe me this is nowhere near that simple so far as concerns small and medium businesses.

NBJ: And the final question of our conversion would be what performance Arxbank expects to end the departing year 2015 with and what it expects to achieve in 2016 in terms of changes in financial performance?

А. GERASIMENKO: As to this year, it is already evident that we will end the year with good financial outcomes. The bank’s net profits will be relatively low, about 50 million rubles. But as you understand, given what this year was for the Russian banking sector in general, this is a rather good result. As regards the next year, I’m sure it is going to be a more successful one, our financial performance will grow and the bank will succeed it maintaining stable growth rates for its business.