http://bosfera.ru/bo/2011/12/razvitie-v-regionah
Dmitry Leus: “The Development of the Russian Regions is Our Means of Survival” part3
- Dmitry Leus: You must be a very reliable client then... [laughs]. No, of course, there are such people, but they are not in the majority. We have a lot of clients who know that Bank Zapadny has been working on the credit market for over five years – and has survived the crisis. Of course, we will have to increase our rates at some point, to be in line with the market, but we will never be able to offer the highest interest rates. In fact, our experience has shown that even during times of strong discrepancy in deposit interest rates, capital outflows do not exceed 20-30%. - You are working on a joint project with the pharmacy chain “Rigla”. A small bank collaborating with a big network of pharmacies...? What is the nature of your collaboration? - Dmitry Leus: We are currently launching a pilot project during which Bank Zapadny will be present with a small bank counter in ten “Rigla” branches. For “Rigla” this generates an inflow of new customers mainly interested in our services but also having a look at the pharmacy’s offering – and vice versa. At the same time, such an approach brings the bank closer to its clients. Traditionally, a visit at the bank has to be planned long beforehand and involves long waiting hours. In contrast, here the client finds himself in a quite natural way right in front of the bank’s counter and can easily profit from the full spectrum of our services ranging from account opening, deposits, loans, and credit cards. I repeat that the project just started, but if everything goes well its prospects are excellent. “Rigla” disposes of a large network across the country with points of sale in top locations. In addition, also in collaboration with “Rigla”, we have started to implement a joint loyalty programme. If the interest payments from Bank Zapadny’s deposits are spent in a “Rigla” pharmacy, the client receives a 20% discount on the pharmacy’s products. In reality, to get such a discount is impossible, as medicine prices are regulated by the state, but here the costs are borne by us. We offer a similar product for credit cards. - Why did you choose a pharmacy chain as your strategic partner? Is it to enhance your visibility? - Dmitry Leus: This is not a coincidence. A person visiting a pharmacy is psychologically speaking in the ideal state of mind for us. It is a perfect place to combine physical and financial health, implying a certain concern about one’s condition and a strong resolution to enhance or at least to conserve it. We were offered a partnership with the chain of coffee houses “Shokoladnitsa”, but refused in light of the coffee-house’s connotation of relaxation
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and socializing. Our banking products need focused customers. In general, I feel that the pharmacy’s customers will appreciate to have an open window into the banking world, and that people may grow used to it. - In addition to these unconventional plans, you are systematically opening new conventional branches. More than 15 branches were opened since 2011. Can you tell us more about this rather aggressive growth strategy? - Dmitry Leus: I don’t think our strategy is aggressive. Rather, it is a survival strategy. We have simply understood that our development in the Russian regions is a top priority. Our experience has shown that the default rate on loans in the regions is by far lower than in the capital. In a small town everybody knows everybody. And the local security officer is most likely an ex-chief of police who knows his way around. In such an environment it becomes very difficult for creditors not to service their debt, or not to return their loans, because of the negative publicity it immediately creates in the neighborhood. Moscow is different. When we launch a new lending product in the capital we immediately get hundreds of suspicious applications coming from fraudsters who are testing whether there is a weak spot in our scoring or underwriting processes. Today such fraudsters dispose of very sophisticated mechanisms. Normal clients only materialize in a second phase. In the periphery, however, this pattern is significantly shorter – if not fully absent. - You have increased your capital. With what?
- Dmitry Leus: With revenues, in addition to the issue of new shares.
- Did the current shareholders repurchase these shares?
- Dmitry Leus: Yes.
- You have also issued bonds. Who are their buyers and what is their yield? - Dmitry Leus: We have a good idea of who the potential bond buyers may be, as we have a well-known underwriter. Even if the market is not purchasing our bonds, our underwriter and partners have committed to purchase them. The funds raised will flow into our pipeline products, but it is still too early to speak about yields. - In September you surprised observers with having Bank Zapadny audited by KPMG. When I recently checked who audited Bank Moscow – a publicly listed company – it turned out it was no one from the Big Four. This begs the question why you hired such an expensive auditor. Is this only linked to the bond issue or are there deeper reasons? - Dmitry Leus: You are right in noticing that this was an expensive audit, in particular for a bank of our size. The reason is simply that we already today strive to comply with tomorrow’s standards. At the end of the process, auditors usually recommend what needs to be changed or improved. We listen carefully to this advice. If we want to go public – and going public is the epiphany of every business – the right asset structure is of key importance. If a globally
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recognized auditor acknowledges our structure, this already means an 80% rate of success. We recently visited the London Stock Exchange and were told that a public listing is possible without a credit rating, but it is not possible without an international audit. Investors think the same way. This is why we believe that having a good auditor will provide us useful guidance and help us avoid mistakes going forward. In short, a KPMG audit is an investment into the future. - An IPO is a long-term goal. What about the short term? Are you planning to attract investors? - Dmitry Leus: Certainly, but let us first ask: with what objective do we wish to attract investors? We want to become a model bank with an absolutely transparent business and a clear focus on improving processes in line with international standards. This must be the objective – and not the dissolution of our shares through a financial investor. This is why we are only interested in attracting an investor such as, for example, the European Bank for Reconstruction and Development. Put differently, we are looking for a partner ready to share his know-how, expertise, and experience, and guide us by best practices and model behavior – not unlike an older brother. This must be the objective. With such an investor on our side we will walk gently into the future.
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