The years 2008-2012 proved to be hard times for the Russian banks: first they had to stand up to the crisis generated by the subprime mortgages in the U.S., then overcome the consequences of this crisis. And even now, "there is no peace under the olive trees": the situation in the Russian economy is more or less stable, but constantly looming on the horizon is the threat of the "second wave", debt crisis escalation in Europe, etc. Nevertheless, for many financial and credit organizations all these factors did not become an obstacle to a sustained growth. The successes of the "top ten" banks are always in sight and, as experts suppose, can be easily explained: most of these organizations are banks with state participation. But there are other examples as well: certain market participants outside the TOP-10, TOP-20, TOP-50 or even TOP-100 have significantly increased their net asset values in the period between 2008 and 2012, having climbed dozens, or even hundreds of steps in the rankings (if we compare their standings in the RBC ratings "Largest Russian Banks by Net Assets in 2008" and "TOP-500 Banks by Net Assets at January 1, 2012"). NBJ derided to study their experience to understand the secret of their success.

AFTER FOUR YEARS, A GARDEN CITY BLOSSOMED HERE!

The net assets of the 500 largest Russian banks have increased by 26.29% over tne past year, reaching the mark of 39.24 trillion rubles as of January 1, 2012. It should be noted that since 2009, the market participants have never demonstrated such impressive growth rates. It is also noteworthy that in 2011 a sharp increase in the assets volumes of the TOP-10 banks was observed, which in its own way became a record of the entire post-crisis period.

The top five leaders and their positions in the rankings have not changed for the period since 2008: each of the five largest state-owned banks in one way or another has used the budget and administrative resources to increase the volume of their business.

Helpful to the state-owned banks was also their image of unsinkable enterprises that can always rely on the support from the government, so it is small wonder that these banks now account for the majority of the household deposits.

Outside the top five, certain changes have occurred: VTB24 has drawn ahead of Alfa Bank and up to the 6th position, Uni-Credit Bank has moved from the 8th to the 7th position, Raiffeisenbank went down from the 8th to the 10th position. The second ten largest banks included two "daughters" of the foreign financial credit groups: Nordea Bank has moved from the 26th to the 18th position, and Citibank - from the 25th to the 20th. With their net asset rankings significantly improved, Rossiya Bank has risen from the 33rd to the 17th position over the period from 2008 to 2012, and Saint Petersburg Bank has moved from the 21st to the 16th position.

More to come. The banks from outside the top twenty - not all of them, of course, but many - have demonstrated an even more impressive growth. Moscow Credit Bank has soared from the 55th position in 2008 to the 21st position in 2011. CLOBEX Bank has moved up from the 49th to the 29th position, Moscow Industrial Bank -from the 45th to the 34th position, Orient Express Bank - from the 78th to the 35th position, BINBANK - from the 47th to the 36th position, SKB-Bank - from the 71st to the 39th position, TransCapitalBank -from the 58th to the 40th position, SMP Bank - from the 94th to the 47th position, Ural Bank for Reconstruction and Development - from the 62nd to the 48th position, Novikombank - from the 81st to the 49th position. Investtorgbank - from the 77th to the 52nd position, Vneshprombank - from the 92nd to the 54th position.

OPEN Bank broke a kind of a record having leaped over 88 steps at once - from the 119th to the 31st position, entering the top 50. This, however, surprised no one: during the period from 2008 to 2012 OPEN Bank became famous for a number of transactions with M&A, having first taken over Russian Development Bank, and then Gubernsky and Petrovsky (former EEFC) banks. We should also note those who entered the top-ioo largest banks with a significant upward progress: Russian Capital Bank has risen from the 124th to the 67th position, Asian-Pacific Bank - from the 128th to the 70th position, Metcombank -from the 109th to the 79th position, Nota-Bank - from the 163rd to the 81st position, CentroCredit - from the 104th to the 83rd position, FundserviceBank - from the 114th to the 85th position, Tavrichesky Bank -from the 135th to the 91st position, Moscom-privatbank - from the 137th to the 92nd position, Kuban Credit Bank - from the 134th to the 96th position, NS Bank - from the 125th to the 99th position, Express-Volga - from the 130th to the 100th position. A rapid growth has been demonstrated by Interkommerz Bank that has got over 255 steps (from the 352nd to the 97th position) within four years and entered the top 100 largest banks in Russia.

HE WHO ADVANCES - WINS

What enabled the said banks - and not only them - to significantly increase their assets and climb to the top of the rankings?

During the crisis, the bankers mostly aspired to increase the capital, believes the Head of Bank Ratings for Moody's Interfax Rating Agency, Mikhail Matovnikov.

"Many banks that broke forth from the 900th, 800th and 700th positions in the rankings were "running away" from the license revocation. How their shareholders solved their problems is a separate question. Maybe not all of those capital increases were real, maybe it was just that "schemes were drawn" and the Central Bank will yet have to deal with that. But in any case, one thing is clear: the bank owners were trying to increase the capitals of their organizations to the point that would let the banks feel safe," explains Mikhail Matovnikov. He adds that this problem of "escaping" license revocation remains today, when the minimum capital for the financial and credit institutions is being debated to be increased to 1 billion rabies (according to one of the proposals contained in the "Strategy 2020" - already by 2013). "If we raise funds at all, then certainly not to fall victim to the next purge," emphasizes the expert.

As a contributing factor to the individual banks' increased ratings, quite a significant role was played by such a mechanism as reorganization. At the end of 2008 and in 2009 several financial and credit institutions were put under control of more successful market players, which resulted in the change of shareholding in the banks being reorganized. Fairly common, as the Head of Analytical Department of the National Rating Agency Karina Artemyeva notes, was the variant when one or the other bank would act as a con-solidator of the distressed bank assets by buying and attaching them to itself. "Due to that, the bank's capital increased, and its presence, customer base and lending capabilities expanded. If the consolidation involved acquisition of assets that were not participants in the Deposit Insurance System, then as a result of the transaction the consolidated banks gained access to funding from individuals, built up their passive base and with the support of their new shareholders took on additional opportunities for the development of lending," sums up the expert.

Regarding the large and the largest banks from the top 100 list, their growth has been largely due to the transactions in the segment of mergers and acquisitions. The prime example is VTB, which in 2008 lagged behind Sberbank almost twice in terms of the loan portfolio size. By 2012, the group managed to cut this gap to a minimum by acquiring TransCreditBank and Bank of Moscow. The same can be said about Orient Express Bank that moved from the 78th to the 35th position in the net assets value rankings due to the aggressive strategy in the M&A market.

"Another factor of growth is the development of the retail business," says Stan-islav Volkov, the Head of Credit Institutions Rating Division of "Expert RA" Rating Agency. "As a rale, smaller banks start with cash lending or mortgages granted according to the AHML standards or the standards of major banks buying mortgage portfolios. A less common scenario is the emphasis on lending to small and medium business (market business, i.e. not associated with lending to the shareholders' businesses). This model is typical of many regional banks. But it allows you to grow several times if at the same time the competitive field clears up - for example, the regional Sberbank departments shut down".

Alexander Danilov, Senior Director of the Financial Institutions Analytical Group for Fitch Ratings, believes that there are several groups of banks that have made a breakthrough - and for each of such groups different success factors have worked. "Rossiya Bank, OPEN Bank, MDM Bank have increased their net assets as a result of mergers and acquisitions. Svyaz-Bank, KIT Finance and GLOBEX Bank have climbed to their current ranking positions due to the fact that they were purchased by government institutions (VEB, Deposit Insurance Agency, Russian Railways JSC) and rehabilitated, including by way of balance replenishment and business development. Russian Standard Bank, Renaissance Bank, Tinkoff Credit Systems Bank have advanced thanks to lending to individuals. The factors that turned out to be decisive are the demand for household goods, cars, to a lesser extent - for mortgages, low debt load on the population, and higher rates as compared to the corporate lending," explains the expert.

Among the growth factors named by Alexander Danilov are the availability of support from the Central Bank (in the form of unsecured auctions and other refinancing instruments), as well as the opportunity to participate in tenders for the placement of state corporations' deposits. In the expert's opinion, one also shouldn't count out the shareholders' business and personal relations with the public authorities. The rapid growth of the small banks was often due to the low base start factor: in this case, even a small increase in the assets would in absolute terms lead to a leap over a number of steps in the rankings.

SHAREHOLDERS MATTER

All the experts polled by NBJ agree on one thing: the pace of the banks' development and generally the future of the credit and financial institutions depend on how seriously the shareholders take these assets. Whether they consider the banks they own solely as auxiliaries or as independent businesses that can generate profits.

According to the experts, in the period between 2008 and 2012 it became clear which of the shareholders were taking it seriously, and which of them had engaged in the banking business only because in the pre-crisis period one ruble invested by the shareholders could have been converted into 10 rubles. The banking business margin is being reduced, which results in a reasonable attrition of shareholders: the owners not satisfied with the current state of affairs are either closing up their banking businesses, or "forgetting" about them, or trying to sell them at the best, in their opinion, price.

Against this background, an important bank capitalization factor is the emergence of a new strategic investor from among the international financial institutions (such as the International Finance Corporation, IFC), or large public or private institutions, in the opinion of the Senior Partner of the Financial Audit Practice Group of CPA BDO Anton Efremov, "the funds obtained from the shareholders and raised at the market must be given out as loans to fairly reliable borrowers". "And here the quality of service and adaptability of business processes become very important. That is, in order for the bank to ensure business growth and retention of the positions reached, a combination of two major factors is required: availability of shareholders' funds and ability to place funds in safe loans and instruments with sufficient income," explains Anton Efremov.

"It is important for the shareholders to be able to maintain the required level of capitalization of the bank, because the yield does not always keep pace with the growth of the assets, and without additional injections of capital the growth may slow down. The banks which showed the highest growth rates, as a rale (except for the specialized retail banks, where the yield is very high), obtained fresh capital from the shareholders," notes Alexander Danilov.

ALL-ROUNDER OR MONOLINER?

Both in the pre-crisis period and now, the banks are using completely different business models. It can be a universal model or a monoline one focused on a limited number of products and services. As the Russian market practice has shown, the universal banks are the most stable, in the times of crisis as well. The organizations focused on the development of retail traditionally show higher levels of profitability, but they, as the majority of the experts polled believe, face harder times during the crisis when there is a shortage of liquidity and the level of non-performing loans is growing rapidly because of the deteriorating financial condition of the borrowers.

In the opinion of the Partner for the Financial Sector Audit Services for KPMG in Russia and CIS Marina Malyutina, in Russia, of course, there are examples demonstrating success of both universal and monoline models. "Many banks focused on specific operations were able to optimize their processes and build a very successful business. In contrast, certain small banks that tried to encompass the entire spectrum of the possible operations failed to ensure the effectiveness of their work as a result. On the other hand, if we talk about the major banks, it must be noted that they are expected by the customers to offer a versatile product line, and here often there is simply no choice between the universal and the monoline model at all," says the expert.

"The question of whether to deploy a full range of banking products becomes critical for the bank when it has already entered the top-200 by assets, and is selecting the strategy for further development. It is clear that by selecting a monoline model at this stage, the bank immediately sets the limits of its growth, at the same time taking increased risks associated with the low business diversification. For this reason, the banks which can be characterized as pure monoliners are not too many among the major financial organizations," Stanislav Volkov explaines.

Anton Efremov (CPA BDO) also finds the universal model more efficient, but with a particular specialization depending on the particular bank's available expertise and technology for the provision of services to certain specific industries, customer groups, market segments. "It might be an important competitive advantage factor. For example, not all banks have been successfully engaged in retail, some banks have a successful experience of work with the customers from the military-industrial complex or oil and gas sector or with public enterprises, while others possess the experience and technology to work with the small and medium business or trade customers," says the expert.

Alexander Danilov (Fitch Ratings), in his turn, believes that in terms of asset growth, the business model chosen by the bank is not of great importance, as the demand for the services is preserved both on the part of the corporate clients and individuals.

DO NOT FORGET ABOUT TECHNOLOGY!

Another feature of the post-crisis period is that you cannot maintain your positions and continue to grow in a competitive environment without implementing and continuously updating advanced technologies. Karina Artemyeva (National Rating Agency) notes that the use of high technology enables the banks to streamline their business processes and ensure increased sales with reduced labor costs. The high-tech banking business also allows for more dynamic and appropriate decision-making and control over the bank performance and risk change dynamics. The latter aspect is very important: the Russian banks have not yet forgotten the days when the improperly assessed risks led to the collapse of some players, and put others on the brink of financial disaster.

Also becoming ever more important is the factor of the banking transactions security, the experts emphasize. The leakages of personal data or funds from the accounts adversely impact the banks' reputation, preventing the inflow of the new customers and forcing the existing ones to look about for other organizations to place their funds.

Advanced technologies are especially important for the banks specializing in retail, and for the large universal financial and credit organizations performing a large number of transactions on a daily basis. It is impossible to build such business without a sophisticated technological platform, the experts say. "For small corporate banks with a limited number of customers and transactions this factor becomes less significant, although with the competition becoming more intense its importance will be increasing," says Alexander Danilov (Fitch Ratings).

However, according to Marina Malyutina (KPMG in Russia and CIS), this medal has its reverse side. Advanced technologies are known to be used not only by the banks but also by the organization increasingly encountered in the competition with the banks: payment terminal systems, Internet payment systems, etc. Therefore, the financial and credit institutions often have to follow the advice from the fairy tale "Through the Looking Glass": take all the running you can do to keep in the same place. This not only entails increased costs to acquire new high-tech solutions - sometimes out of the fear of falling behind the competitors the banks fail to thoroughly analyze the benefits they can get from using a particular IT product or IT service.

However, according to Mikhail Ma-tovnikov (Moody's Interfax), only the banks that have climbed the rankings ladder high enough start thinking about the advanced technologies. "Technologies don't make great difference in that part of the list where there are banks with a couple of dozen corporate clients and several hundreds of individual clients," explains the expert. If the shareholders continue investing in the further development of these banks, then, of course, the IT-support issue will come up for them as well sooner or later. And it better be sooner rather than later: the competition is not standing still, and it is impossible now to "hide" from the stronger players even in the remote regions where many small banks were able to carry on business so far.