IFCs

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1st round Case Changellenge >> Cup Russia 2011:

Bankers of the World: The role of the Bank of Moscow in International Financial Centre creation Changellenge >> Capital team wrote this case solely to provide material for Changellenge >> Cup Moscow. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Data represented in this case is not necessarily actual or true and may have been changed to preserve confidentiality. Changellenge >> Capital prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact info@changellenge.com.

Introduction ÂŤColleagues, we met last December, but some time has passed since then, and I would like to hear now about what has been done over this period, and what concrete steps have been taken in developing the Moscow financial centreÂť. Dmitri Russian President (March, 4, 2011)1 It has been approximately two years since the President and the Prime Minister of the Russian Federation raised the question concerning the development of Moscow as an international financial centre (IFC). A suitability of attracting members of financial society, self-regulating organizations, financial market professionals and specialists from leading IFCs to develop and implement this task was recognized. In August of 2008 the Moscow Government released an order concerning immediate arrangements of developing Moscow as an IFC. In July of 2009 the Russian Federation Government approved of activities to create an international financial centre in the Russian Federation. In June of 2010 in order to start an implementation of the given task the Working Group under the Presidential Council for the Financial Market Development was formed to create an international financial centre in Russia. First Deputy Prime Minister of the Russian Federation I.Shuvalov was charged with the project, A.Voloshin was appointed a head of the Working Group. In August of 2010 the Bank of Moscow was also invited to become a member of the Working Group. Nevertheless, despite the fact that the Bank was working on certain issues of the IFC forming (within the Group as well as independently), the preparation of a complex IFC forming Strategy becomes necessary only at the moment. In 2010, a long-awaited law against the improper use of insider information and market manipulation was passed. At the very end of the year an international advisory council to establish and develop a Global Financial Centre was established. Respected foreign and Russian financiers have become its members. Finally at the beginning of this year the decision to merge the two Moscow stock exchanges - the MICEX and RTS - was made, which should make the work of the Russian stock market more understandable and user-friendly for investors. And on March 3, 2011 the Russian President signed a decree "Of measures to improve the government regulation of financial markets 2". The decree provides for the accession of the Federal 1

www.kremlin.ru 1


Service for Insurance Supervision (FSIS) to the Federal Financial Markets Service (FFMS) with the transfer of Federal Financial Markets Service‘s Control and Supervision of insurance activities functions and the establishment of specific opportunities for the joint service which includes the legal regulation functions, control and supervision over the financial market, subject to banking and auditing. Thus a mega-regulator is finally created in the Russian financial market. The idea is not new and is quite logical. It is not only investment companies, but also insurance companies and pension funds which are institutional investors. Moreover, it is not uncommon that they are combined within one financial holding. On March 4, the President of Russia Dmitry Medvedev held a regular meeting regarding the issue of the formation of the Global Financial Centre (GFC) in Moscow. According to Medvedev, the countries of G20 are now trying to exert the global financial system to the maximum in order to ensure their own financial security and economic stability. Therefore, operating financial centres, both international and regional, will remain the most effective instrument of the international influence and the solution to the national problems which are posed as targets by separate states. As RIA Novosti reports3, the President stressed that the creation of the GFC in Russia directly depends on the solution of two problems. "The first challenge is the financial architecture of the Global Financial Centre. The centre should be established in Russia, where all the main types of financial instruments would be presented, "- Medvedev said. In this regard, international accounting standards for issuers and for regulatory and tax authorities should be introduced as soon as possible. The second issue to which Dmitry Medvedev drew attention is the urban infrastructure of the GFC. "Our task - he stressed - is to bring Moscow to the level of the leading financial capitals". Naturally, criteria and standards that are accepted in the world will be used. The second major practical issue that was discussed at the meeting on March 4 – is the prospects of implementation of the international financial reporting standards (IFRS) in Russia. This topic is aurally presented for more than a decade in Russia and a number of regulations were adopted in this regard. The largest Russian companies working closely with foreign investors have been providing financial statements according to the IFRS for the past several years. For example 61 companies from the top hundred in Russia do so and also 45 companies from the second hundred. Nevertheless, the Deputy Prime Minister and the Finance Minister of Russia Alexei Kudrin acknowledged that the application of a number of IFRS will be difficult as some of them do not have any countertypes and some are too much in conflict with the existing ones in Russia. The Minister of Finance considers that six international standards (out of 38) can be fully applied in the nearest future in Russia. At the same meeting, the Mayor of Moscow, Sergei Sobyanin told about six important aspects of the development of Moscow as the Global Financial Centre. The first one is the development of the city transport system. The second is the development of health services of the capital. The third is education, both at school and at a higher level. The fourth is the environment protection. The fifth is the development of information technologies in the city. The sixth one is the security issues in the city. On March 8, 2011 "Interfax", referring to The Financial Times and The Wall Street Journal, reported that the advisory board will be formed of the heads of some of the world's largest investment banks in Russia that will work with the establishment group of the Global Financial Centre. The international advisory board, according to the newspaper, will include senior officials of the Bank of America, Blackstone, BNP Paribas, Goldman Sachs, JP Morgan and Unicredit Bank. At the same time, it was reported that the Russian government establishes a fund of $ 10 billion for a joint investment with the world's leading companies. According to Bloomberg such funds as Apollo Management, Blackstone and Carlyle, as well as the biggest sovereign investment funds like Singaporean Temasek Holdings and Chinese China Investment Corp. have already received the offer to participate in the project. Though, according to the unofficial statements4, the Carlyle‘s representatives have already refused the Russian authorities. The Fund had a negative experience on the Russian market – in 2005 Carlyle closed its Moscow office for the reason of extra risks for investments. Since then, it appears, the company‘s management has not changed its mind. ―Russia did not prove it‘s the place where Western Funds of direct investments can make profits despite the occurring risks‖, said one of the Carlyle‘s directors David Rubenstein last week. All these pieces of information have again raised the question of creation of the the International Financial Centre in the city of Moscow as a priority task. Strange as it can be, among all the questions, touched upon at the latest meetings, were examined almost all the aspects of the development of the Moscow Financial Centre except one. Today, the Centre of Strategic Development of the Bank of Moscow has to develop and present by the next meeting with Igor Shuvalov the whole complex of measures to assist the creation of the Moscow Financial Centre in Moscow. These measures should represent, first of all, the development of the human capital of Moscow instead of global reorganization of the financial structure or modernization of legislation (these are the government‘s tasks). 2 3 4

http://www.fcsm.ru/ru/press/interviews/index.php?id_3=7079&year_26=2011&month_26=3

The newspaper "Voice of Russia‖, March 6, 2011, Aleksandrov Ivakhnik RBC Daily: http://www.rbcdaily.ru/2011/03/09/world/562949979822984

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Increasing the citizen financial activity and competence, development of respective services oriented on the population involvement in the economic turnover, forming an institute of financial consultants and intermediaries etc. must be the top-priority subject of the Strategy. Your immediate chief Yakov Borisovitch Perelman has formed the following additional requirements to the strategy according to his own examination of the problem: ―Take notice that your developed arrangements should not only solve socials problems but also satisfy the Bank interests, increase banking product sales, expand its client base. The Bank of Moscow is primarily interested in practical recommendations, realization of which is possible within 5 years. Ideas of financial instrument usage activation, innovation channels of financial service promotion, cross-sell development mechanism, forming the client management – these and other topics can be the subject of your team's research. Do not abandon the analysis of the leading IFCs and the best European banks work. What is widespread in Europe nowadays may only be fashion trends and not actually practiced in Russia. We also recommend taking a closer look on the Russian Federation (particularly Moscow) competitive advantages which can be used in the creation of the IFC – an opportune time zone, a system of values similar to the western one, a broad internal market. This is the basis on which your case solution logic can be built. It shouldn't be forgotten that the IFC forming is not only an ambitious and fine-looking task but is also a real project which should be carefully thought and proposed practically feasible initiatives. Forming a regional financial centre should become the top-priority goal as it is important to be competitive in comparison with our nearest neighbors: Poland, Ukraine, the Baltic States. The Bank of Moscow is expecting calculations from you to corroborate your suggestions (this is a minimal requirement). In case you build a complex financial model such an approach will be welcomed and marked respectively by the jury‖.

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Content Introduction ....................................................................................................................................... 1 Financial Centre ................................................................................................................................ 5 The main participants of the Russian capital market ....................................................................... 10 Review of Capital Market ................................................................................................................ 12 Plans for capital raising. Investors. .................................................................................................. 13 The main categories of the public and the extent to which they participate in the use of financial products .......................................................................................................................................... 16 Financial products and their penetration on the Russian market of physical persons ..................... 19 The bank of Moscow ....................................................................................................................... 21 Appendixes ..................................................................................................................................... 26 Appendix 1. Rating of the world's financial centers GFCI 2007-2008 .......................................... 26 Appendix 1 (Continuation). Rating of the world's financial centers GFCI 2007-2008................... 27 Appendix 2. The GFCI World....................................................................................................... 28 Appendix 3. The dynamics of the international financial centers ................................................. 28 Appendix 4. The structure of assets and liabilities of the key player ............................................ 30 Appendix 5. Data on the stock market ......................................................................................... 35 Appendix 6. Data on the bond market ......................................................................................... 37 Appendix 7. Russian pension system .......................................................................................... 38 Appendix 8. Investment potential of individuals ........................................................................... 39 Appendix 9. Method of calculating of the components of the index of confidence to financial institutions.................................................................................................................................... 40 Appendix 10. Research ............................................................................................................... 41 Appendix 11. Using of banking products ..................................................................................... 44 Appendix 12. Digital office of the Bank of Moscow ...................................................................... 45

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Financial Centre Main information about financial centres Bank robber Willie Sutton reputedly (he denied this later) replied to a reporter‘s inquiry on why he robbed banks by saying ―because that‘s where the money is‖. In a circular fashion, why do we have financial centres? Probably the most important reason is ―because that‘s where the clients are‖. ―Global financial centres are places with intense concentrations of financial professionals and their firms transacting international business‖. Financial centres funnel investment toward innovation and growth. Vibrant, competitive financial centres give cities economic advantages in information, knowledge and access to capital. A strong financial centre, whether domestic, niche, regional, international or global, connects the wider economy to the global financial community. Cities that are part of the global financial network gain from global trade and growth. Inward and outward investment opportunities increase the wealth of cities that have financial centres and the wealth of their citizens. Successful financial centres can and do fulfill more than one role:  „Global‟ financial centres that are truly global foci, where only a few can claim that role (London, New York, Hong Kong and Singapore);  „International‟ financial centres such as Seoul or Shanghai or Frankfurt that conduct a significant volume of cross-border transactions;  „Niche‟ financial centres that are worldwide leaders in one sector, such as Hamilton in reinsurance or Zurich and Edinburgh in fund management;  „National‟ financial centres, often within federal countries, that act as the main financial centre for financial services within one country, such as Toronto or Frankfurt;  „Regional‟ financial centres that conduct a large proportion of regional business within one country, e.g. Boston or Vancouver. Global financial centres are not hub-and-spoke arrangements. A Sydney mortgage bank may well be working on regional financial deals but the bank‘s international dealings could be direct with counterparties in London or New York City. You cannot compartmentalize financial services distribution neatly into a typical retail model – a central warehouse, then a regional distribution centre and finally a local store. In addition to this, at present time the World Financial Centre in the country becomes a necessary condition of a strong economy. The countries with the World Financial Centres possess a series of advantages: a multilayer and stable financial market, sovereign economy, maximally open markets that join the global division of labor from the position of strength and freely convertible national currency. The absence of developed internal markets leads to the dependence from foreign capital, the necessity to get isolated from the global economy, flight of capital on foreign markets and weak currency. Thus, it‘s difficult to underestimate the role of the Moscow Financial Centre in the modern world. The national financial system that exists in the form of the world finance centre is now the most important factor of the global rivalry between countries. In the next 20-30 years the trend will not but strengthens. The survey made in November 2009 – January 2010 by the Institute of Postcrisis World among 247 experts of 54 countries showed that in the next 10 years the main factors determined the competitive advantages of countries will be human capital (45%), natural resources (36,1%), new high technologies (32,9%), efficient financial sector (19,4%), innovations in administration of the government (17,1%). Moreover, the human capital and the innovations in administration of the government are two obligatory conditions in forming an efficient financial sector. The final aim of the development of the financial centre in Moscow is to provide it with the financial conditions for a stable and quality economic growth by attracting wide categories of foreign investors to: increase the volume of capital investments into the real sector, increase the capitalization of the financial sector, reduce the expenses of financing and world diversification of risks. Nowadays the rates of the world and regional financial centres are being gradually formed. These rates help compare the advantages of certain financial centres. In the future they can become criteria for the efficiency of programs of the financial institutions‘ creation. The most accurate rate of this kind is GFCI - Global Financial Centres Index- in London‘s City published by the research company Z/Yen Group Limited. It was published for the first time in March 2007. This index is counted on the so called factors estimation model which includes rates of countries on certain formal indices with the evaluation of financial experts. Different aspects of competitiveness are being analyzed like people (qualified staff, flexibility of the labor market, business-education), business-environment (the regulation of business, taxation, corruption level, easily realized business projects), availability of the market (the securitization level, multilayer financial markets), infrastructure (the cost and availability of real estate objects), general competitiveness 5


(the difference between cumulative competitiveness and the sum of the above mentioned factors of competitiveness). According to the latest GFCI rate for 2010, currently the rate of attractive world financial centres is the following: 1) London, 2) New-York, 3) Hong Kong, 4) Singapore, 5) Tokyo, 6) Shanghai, 7) Chicago, 8) Zurich, 9) Geneva, 10) Sydney. Moscow occupies the 68th place, Saint-Petersburg – the 71st. However, it‘s important to point out that this rate of financial centres cannot remain changeless, as well as investors‘ interests. You can find different GFCI rates in the Appendix (Appendix ―The Dynamics of the Positions of the World Financial Centres‖)5.

International Financial Centres The most important feature of modern financial world is high competition. According to the latest GFCI rating, although London, New York and Hong Kong are ranked first, second and third respectively, there is no essential difference between them. Besides, Singapore is very close to the first triple. Whilst many industry professionals still see a great deal of competition, policymakers appear to recognize that working together on certain elements of regulatory reform is likely to enhance the competitiveness of both centres. The main question of the global financial society nowadays is who will play the main roles in the nearest and further future? Is the situation going to be the same? Or will the financial activity centre move from the West to the East following the main industrial one? The frightening tendency of Asian expansion becomes more real for the Western traditional financial centres. In the latest rating 4 out of 10 most important financial centres are situated in Asia – Hong Kong, Singapore, Tokyo and Shenzhen. Some experts predict they will play the leading role in the world financial system in the following years. However, the majority of experts suggests that in the following 10 years London and New York will keep their leading positions in the world financial system as they have maximum current indexes of the most significant factors, such as the presence of qualified specialists and favorable and predictable business conduct environment. 17 out of 500 world's biggest universities are situated in London, 19 – in New York. 11 out of 100 tip universities granting MBA degree are in London, 9 – in New York. The another key factor which contains complex state support of the financial sector evaluation, economic liberties, transparency, financial sector regulation predictability and tax treatment, shows that Singapore is the 1st, Hong Kong – the 2nd, London – the 3rd. In infrastructure development indicator Tokyo is the leader, Chicago is on the second place, London is on the third. Traditional financial centres such as London and New York lose to younger financial centres such as Singapore, Hong Kong and Tokyo in many aspects but nevertheless remain the leaders. Why is that? The financial centre reputation is the answer: the older and more reliable financial centre is, the more attractive it is to investors. Geneva, whilst being well-connected, is seen as a high quality specialist in the field of Asset Management, rather than offering a fully diversified service, and is hence assigned a profile of Global Specialist. Amsterdam, Dublin and Paris are Global centres with strong international connections. They do not however exhibit sufficient depth in financial services to be considered as Global Leaders, but as Global Diversified Centres6. In the previous years Asian financial centres have shown remarkable growth, with Hong Kong and Singapore as the leaders. They are well known globally, and have a rich environment of different types of financial services institutions. Beijing and Shanghai are well connected and are assigned the profile of Global Specialists – they do not yet offer a sufficiently developed and diversified service to be Global Leaders. Seoul and Tokyo are assigned the profile of Transnational Leaders although Tokyo is very close to becoming a Global Leader and we would expect them to attain that status soon. There are 4 Middle East financial centres in the GFCI 2010 rating the leader of which is Dubai. In the previous years many experts predicted that Dubai would have leading positions in the world financial systems but the situation has radically changed during the last year: financial crisis revealed considerable problems in the development of Dubai as a global financial centre. However, despite all the problems, Dubai remains the strongest Middle East regional centre. The role of North American counties in global financial system development is difficult to underestimate. American dollar has been a world main calculation currency. Despite the financial crisis of 2008 and all the pessimistic predictions, dollar and American financial system stability remain almost absolutely constant relative to the exponentially growing USA national debt. High position of American financial centres in the rating is mainly explained by a strong internal market. Moreover, North American cities benefit from great legal and political frameworks and economic stability, while also being great in knowledge creation and information flow, though scoring less in comparison to the top European and 5 6

Attachments "The Dynamics of the Positions of the World Financial Centres" GFCI 2010 6


Asian cities in several dimensions such as ease of doing business, financial flow and business centres7. Size of the internal market has great significance to the USA. Lots of specialists think that the size of North American internal market and high domestic demand have played a very important role in the development of New York as a global financial centre. Chicago has importance as well as New York. Chicago is not just strong in derivatives trading, for which it is probably best known, but is a real ‗all-rounder‘ featuring in the top ten in the Asset Management, Banking, Insurance, Professional Services and Government & Regulatory sub indices as the latest Z/Yen research shows. World experience shows that the IFC forming effects the economy beneficially. For instance, Dublin IFC encouraged creation and development of modern financial infrastructure, provided investment inflow in telecommunication infrastructure and created high-paying jobs. Its main advantage is a combination of well-educated English-speaking population and relatively low cost base, due to what this country has the lowest unemployment rate in the Euro zone. In 2007 there appeared a tendency of higher added value services which created higher-paying jobs. Hong Kong IFC attracted more than 3845 foreign companies. Almost a third of them opened their regional centres on the territory which favored quick economic growth. Apart from that, IFC forming led to creation of the world's largest freight service airport, second largest container port and one of the leading telecommunication centre in Asia-Pacific region. IFC creation in Dubai assisted in positioning this centre as a potential Middle East regional financial junction due to gained experience and build confidence in the financial market. Singapore IFC stimulated the national sector of the financial service development, and nowadays Singapore banks are considered as ones of the most developed in the region. World experience in the forming of and international financial centre without a doubt will be useful in the Moscow and an IFC development strategy

London Gross domestic product (2005): $452 billion8 GDP (2020): $708 billion Growth rate: 3% GFCI Ranking: 1 MasterCard Ranking: 1 Population (2010): 8,556,900 Purchasing power (NYC=100): 92% By 2020, London is expected to leapfrog Paris and become the Europe's richest city as measured by GDP. London's 3% growth rate is high for a major city in the developed world. London is ranked as the No. 1 city on MasterCard's Centres of Commerce index, owing to the vast volume of its financial markets. It's comparable to New York in equities and commodities trading but is larger in bond and derivatives trading. The downside? It's expensive. The purchasing power of the average Londoner is less than their New York peers. Currently London is the world's largest financial centre according to the GFCI 2010 rating. London's dominating position in global financial market is caused by many reasons. Its historical development is probably the most significant one. London is the oldest financial centre not only in Europe but in the world. It's been London that has been playing the main part in both global money market and capital one due to strong economy and the pound sterling position as a world gold standard for a long time. For many years London was a financial capital not only of the UK but of all the British Empire countries (Canada, India, Australia etc.) which resulted in strong economic and financial connections between the countries. Connections with the USA in all areas of economy are traditionally strong as well. English being the native language and the dominant international language of business is also playing its part. London as a financial centre uses its geographic advantages well. Its location in a central time zone allows it to act as a bridge between US and Asian markets. Creating an enabling environment of business conduct and investor protection is a key to capital rising. There is a preferential tax treatment for the foreign investors in the UK as the income tax rates are relatively low and foreign exchange reserves for nonresident aren't taxed at all.

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According to Mastercard ―The Worldwide Centres of Commerce‖ Index Here and later data is published according to ―World‘s Most Economically Powerful Cities‖ by Forbes, 2008 7 8


One of the advantages of London as an international financial centre is a business friendly environment (e.g. in the City of London the local government is not elected by the resident population but instead by business - the City of London is a business democracy). Well-developed infrastructure is another factor of a financial centre efficient functioning. There is no financial centre without infrastructure. According to the PwC Cities of opportunities‖ 9 report in infrastructure level of development London is on the 3rd place losing only to Tokyo and Chicago. One the most famous elements of London infrastructure is The London Stock Exchange which is one of the European largest and oldest exchanges and one of the most famous world stock markets. From conducting its business in the coffee houses of 17th century London, the Exchange is one of the world‘s oldest stock exchanges and can trace its history back more than 300 years. The Exchange is the most international of all the world‘s stock exchanges, with around 3,000 companies from over 70 countries admitted to trading on its markets. And over 400 firms, mainly investment banks and stockbrokers, are members of the London Stock Exchange. The London Stock Exchange has these core areas: the Main Market that includes the companies which meet the Financial Services Authority requirements and Alternative Investment Market (AIM) 10 that allows smaller companies to float shares with a more flexible regulatory system than is applicable to the main market. The City is home to banks, brokers, insurers and legal and accounting firms. More than half of the UK's top 100 listed companies (the FTSE 100 11) and over 100 of Europe's 500 largest companies are headquartered in central London. Over 70% of the FTSE 100 are located within London's metropolitan area, and 75% of Fortune 50012 companies have offices in London. Currently London produces nearly 20% of the UK GDP 13 while gross regional product of the metropolitan area reaches almost 30%. London's largest industry remains finance which includes banking service, insurance, asset management and employs almost 300000 people. London financial exports make it a large contributor to the UK's balance of payments.

New York GDP (2005): $1.13 trillion GDP (2020): $1.56 trillion Growth rate: 2.2% GFCI Ranking: 2 MasterCard ranking: 2 Population (2010): 19,006,000 Purchasing power: 100% In absolute terms, the economy of New York City is second only to Tokyo. In fact, there are only 14 countries in the world with bigger economies than New York. And though the city has a reputation for a high cost of living, the average New Yorker can buy more than counterparts in London, Paris, Tokyo and Hong Kong.

Hong Kong GDP (2005): $244 billion GDP (2020): $407 billion Growth rate: 3.5% GFCI Ranking: 3 MasterCard ranking: 6 Population (2010): 7,055,000 Purchasing power (NYC=100): 49% Hong Kong benefits from its physical proximity to the Chinese mainland and its historical connection to Western markets. MasterCard ranks Hong Kong the best business centre in the world, based on a composite of its ports, airports, hotels and commercial real estate development. 9

http://www.pwc.com/cities

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It is in this market is mainly hosted by Russian companies. FTSE 100 Index (Financial Times Stock Exchange Index) - Stock index, calculated Agency Financial Times 12 Fortune 500 - the list of the largest companies in the US on the American version of the magazine «Fortune» 13 Already mentioned study of Forbes 8 11


Singapore GDP (2010): $255 billion GDP (2020): $402 billion Growth rate: 3,3% GFCI Ranking: 4. MasterCard ranking: 4 Population (2010): 5,076,700 Singapore is unique city: in fact it is a one city country. Singapore's external trade is of higher value than its GDP, making trade one of the most vital components of the economy. Thus it has always been very important for the city to develop itself as a business destination. At the city made it as both GFCI and MasterCard rankings have shown. Moreover nowadays Singapore is the world's fourth largest foreign-exchange trading centre after London, New York and Tokyo14. And finally The World Bank ranks Singapore as the world's top logistics hub.

Tokyo GDP (2005): $1.19 trillion GDP (2020): $1.6 trillion Growth rate: 2% GFCI Ranking: 5. MasterCard ranking: 3 Population (2010): 35,676,000 Purchasing power (NYC=100): 96% Tokyo is the world's most populous city by the U.N.'s reckoning, and it has the largest economy. By PricewaterhouseCoopers' projections, Tokyo will still have the largest economy in 2020, though New York will be getting closer. Tokyo's huge size comes at a price: Of the 151 largest economies, its growth is expected to rank at No. 140.

The creation of Moscow Financial Centre Obviously, financial centres do not only have authority in the world economy but can as well influence politics. A strong financial market is becoming an obligatory condition for the countries claiming to be the world leaders. If Russia doesn‘t want to be isolated from the world economy and lose any influence on the world political arena, it should seriously think over the possibilities of strengthening its positions in the world financial system. Currently Russia has a more or less developed bank loan system, but the stock market can hardly compete with the global ones. The stock market in Russia is a typically huge developing market. It‘s characterized, on the one side, by high pace of positive quantity and quality changes, and on the other side – by a number of complex problems that impede a more efficient development of the market. Most of the indices of the market‘s capacity place Russian stock market among the first five countries in the rate of developing markets. The number of quality indices moved Russia to the leaders among the developing markets. However, other quality indices (like the market‘s liquidity, dividend yield, the number of traded companies etc.) show Russia is left behind the leading developing markets, not to say the developed ones. On the one hand, the Russian stock market has already begun fulfilling the macroeconomics function of transformation of savings into investments. More and more enterprises of the real sector begin considering it as the main source of attracted resources for financing investments in basic capital and rivals‘ takeovers. On the other hand, the Russian stock market is not yet a significant instrument for the population to earn money as well as the source of investment resources for most of companies. Thus, it can‘t fulfill the whole spectrum of its functions. The unbiased globalization processes in the world capital market raise a question of the survival of the national financial market in Russia. There remains a problem of building an efficient market infrastructure that can satisfy the needs of local and foreign investors. Finally, a serious constraining factor in the stock market‘s development in Russia is a poor investment climate. This fact impedes foreign long-term investors from coming to Russia where still an urgent problem of lack of foreign investors exists 15. As a result, in the next 10 years the Russian stock market has two absolutely different alternatives: to stop its existence becoming a part of the world financial market or turn into a developed market. 14 15

"Annual Report 2008/2009". Monetary Authority of Singapore. Report "The Russian stock market and the creation of an international financial centre" 9


The consequences of the first alternative seem to be terrible: the Russian enterprises may see the expenses of capital raising highly increased, and the possibility of efficient allocation of the capital gone away. The lack of investment opportunities can even lead to a slowdown of the middle class formation and the outflow of the most skilled workers abroad The financial market disappearance will deteriorate the financial condition of the state. The reduction of opportunities for capital raising by the national companies will lead to a slowdown of the dynamics the economy and tax revenue reductions. The transfer of domestic enterprises into other jurisdictions may lead to a drastic cut down of tax payments made by them within their current jurisdiction. An increased vulnerability of the national currency will reduce the investment prospects of all instruments denominated in this currency, including government securities, which will significantly decrease the state‘s debt financing ability concerning the emerging deficits. The outflow of skilled labor also results in the tax payments budget reduction. In this regard the concern of the Government seems to be quite understandable. If the decisive actions are not made now, it might be too late to change anything. However, not all experts believe that Russia will achieve the desired result or it can accomplish the task quickly. For example, Lucio Vinhas de Souza, World Bank economist reports ―Moscow is unlikely to become an international financial centre and can only aspire to be a regional financial hub‖. Hу is added by Dunkan Niderauer, the head of New York Exchange: "The vital things are: the economy that has great potential growth, stable currency, stable political system, a well-functioning capital market, good, but not excessive, regulations, talented specialists". Interesting information is provided by Robert Idelson from M2M bank: ―Moscow has already become a local financial centre but it is difficult to imagine that in terms of private banking it can compete with Europe or the USA. Even Russian elite prefer to keep the money in Europe, the USA or Asia – directly or mediately. If we look at the Russian capital market, it is obvious that its overregulation impedes to obtain funds. We‘ve heard a lot about a big advantage – Moscow‘s time zone. In fact, this is not the advantage: global players have offices in Hong Kong, New York and London. This axis is already formed. Moreover, financial markets need 100% predictability – we can not say so about Moscow‖. Finally, according to the words of Ilya Ryabyi from MasterCard: ―The biggest problems are those connected with business dealing. But they are very easy to overcome – much easier than improving living standards. Business, including financial one, choose places where it is easier to exist. From the creation of financial center in Moscow first win tough Muscovites. And after all – ordinary Muscovites‖. However, opinions stay opinions and the real measures already need to be taken now. With the formation of the GFC a number of tasks with regard to the development of the financial market of Russia were planned: Attraction of the foreign and domestic resources to the economy of Russia to finance the modernization, to form a brand new financial infrastructure, productive assets and technologies, to invest in the human capital. An increase in the investment efficiency through the use of market instruments and infrastructure, an investment instruments development and risk diversification, a transaction costs cutback. Engagement of the new technologies (in the form of purchases, direct foreign investments, attraction through the capital shares), including the creation of innovative platforms. An increase in the Russia‘s competitive ability globally and its acquisition of the leadership in the CIS and Eastern Europe, a promotion of Russian products and financial services on the foreign markets. Control over the prices for Russian assets and the ownership structure: the transfer of assets pricing (both of the raw materials and the shares of domestic enterprises) into the jurisdiction of the Russian Federation in the area of the Russian national currency. Engagement of the new technologies (in the form of purchases, direct foreign investments, attraction through the capital shares), including the creation of innovative platforms. An increase in the Russia‘s competitive ability globally and its acquisition of the leadership in the CIS and Eastern Europe, a promotion of Russian products and financial services on the foreign markets. Control over the prices for Russian assets and the ownership structure: the transfer of assets pricing (both of the raw materials and the shares of domestic enterprises) into the jurisdiction of the Russian Federation in the area of the Russian national currency.

The main participants of the Russian capital market Since it is the stock market has to undergo significant changes, the most interesting topic of research is its current status. Private investors, companies, the government, banks, tycoons, foreign investors, pension capital fund, mutual funds and insurance companies are the main players on the Russian financial market. Banks have the largest share of assets (about 29%), the government ranks the second place for total assets (22%), and foreign investors take the third place. 10


Private investors. Gross financial assets of the Russian population amounts to 26% of GDP. For comparison, this indicator amounts to 279% of GDP in the USA. Bank deposits are the only type of assets by which financial assets of private individuals are compared with the same indicator in the USA. The volume of other kinds of long-term investments of Russian population is very small. Companies. Banking deposits of companies are $330 bln, or 21% of GDP, which is higher than in the US, where corporate deposits are only 17% of GDP. The main reason for this is the lack of alternative opportunities for companies to put their capital to work. Russian companies are surprisingly highly indebted, with some $725 bln in debt. The majority of this is to Russian banks, with another large amount in syndicated debt to Western banks. In Russia the domestic bond market for companies is tiny. Government. The Russian government has assets of $500 bln, held mainly in foreign bonds, with a value of around 33% of GDP. In addition, the government owns $298 bln in listed equity market assets, according to our calculations, or some 20% of GDP. Liabilities are low at just 10% of GDP in Russia, versus well over 100% in the US. Banks. Russian banks have $1trillion in assets, or 70% of GDP. This is comparable with the US, where commercial banks have assets equal to 100% of GDP. The reason why the two are comparable in size in spite of the smaller amount of assets in Russia is that in the US, there are many alternatives to banks, but in Russia (as in many other emerging markets) the banking sector acts as the key financial intermediary to the economy. In Russia, there are far fewer consumer loans than in the US, and the corporate sector is disproportionately important. Both banking systems are largely funded by deposits. The Russian banks have a far smaller share of bonds outstanding, however, as well as a relatively large amount of syndicated debt, which we estimate at $95 bln. Oligarchs. There is no detailed data on the assets and liabilities of the Russian oligarchs, however, there are have some inferred numbers. Oligarchs and management teams own $299 bln in equity in declared stakes in listed Russian companies, as well as around $73 bln in what we assume to be closely held stakes. This is a total of 25% of GDP, which is relatively large, being more than four times the size of the total institutional money. However, because of the lack of institutional money, these stakes are hard to monetize, and we believe that this gives rise to an interesting conundrum: Russian oligarchs have enormous paper wealth, but that wealth is dependent on relatively small free floats of shares largely owned by foreigners. So, it should be in their interest to ensure that foreign minority investors are well treated and that dividend streams are high. However, minority shareholders are for the most part not especially well treated, and dividends are low. It is this dynamic that makes the Russian market so volatile and dependent on foreign perception, and that drove it to such low levels in the dark days of 2008. Foreign capital. There is remarkably good data on the amount of foreign capital in the equity market. Foreigners own about 75% of total volume of shares. Besides, they own $20 bln of ruble debt, some 13% of the market, as well as $97 bln of hard currency debt, some 70% of the market, and almost all of the $291 bln in syndicated debt (to both companies and banks). There is a separate question, of course, as to how much of this foreign money is in fact Russian investors recycling their money back into the market, but this issue is remains an open question. Foreigners therefore own 39% of Russia‘s total GDP through syndicated debt, traded debt and equity. While this is lower than in the US, it is a much larger share of the total amount of capital available as a result of the lack of domestic capital. Pension funds. The Russian pension system has a total of $48 bln in assets, half in the government fund, VEB, $4 bln in managed government funds and $20 bln in private funds. This is a total of just 3% of GDP. This is very small in the global context. The US pension system has 52% of GDP in private schemes and 28% in public schemes. Moreover, there are some markets like Chile, where assets in the pension system are as high as 65% of GDP. It is nevertheless worth noting that there are other markets like Germany or France which have yet to grasp the nettle of moving from a pay as you go system, and which also have very small amounts of long-term pension assets. Mutual funds. Data from investfunds.ru imply that the total size of the Russian mutual fund industry is no more than $14 bln16, less than 1% of GDP. Of this, $3 bln is in open-ended PIF funds (the main source of pooled equity investment) and $7 bln is in property funds, which are often used as a vehicle for private property investment. In contrast, the US has mutual fund assets of 66% of GDP, in Poland it is 8% of GDP, and many other markets have mutual funds of well over 10% of GDP. Insurance companies. According to the insurance regulator, the insurance sector runs $12 bln of funds, less than 1% of GDP. Of these, just $2 bln are in equities, In contrast, the US system has 34% of GDP.

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http://investfunds.ru/

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Review of Capital Market Stock market The stock market of Russia is, above all, a developing market. The ratio of the total market capitalization and GDP makes it big enough in the global context, but the necessary infrastructure is underdeveloped. An immaturity of the necessary institutions, the lack of an adequate legislative protection of investors and, consequently, a high country risk does not make the market attractive enough for both foreign and local investors. One of the most important features of the Russian market is high volatility. Furthermore, the positive news is often perceived suspiciously, while negative information is able to bring down the entire market. Secondly, the Russian stock market is characterized by high concentration, both in terms of capitalization and turnover. 20 largest issuers account for more than ¾ of the national market capitalization. This index is gradually decreasing, and this reduction is quite stable. However, it is still extremely high compared to the majority of the foreign stock markets. Thirdly, the stock market in Russia is characterized by low liquidity (this applies not only to the stock market but to the bond market as well). Liquid stocks are only those of the major companies. The share of the 30 most liquid stocks is 98.9% of the total exchange-listed stock turnover. At the same time the trading volume is large (more than $ 5 billion a day). This is due to too high a frequency of the transactions made by Russian market participants. In particular, all the shares in the public ownership of Sberbank make a full turnover in the market during the week. Another specific feature of the Russian stock market is the concentration of the capitalization in certain industries. First of all it is fuel and energy complex. The share of oil and gas companies is particularly high. According to the Stock Market Development Centre this industry accounts for almost a half of the total capitalization of Russian companies. Significant roles in the overall capitalization structure also belong to the financial sector, the energetic, ferrous and nonferrous metal industries and the communications. The machinery, transportation and chemical industries, the trade industry, the constructions, the service sector are presented extremely weakly in the sectoral structure of the stock market. A dynamic and stable growth of capitalization is hardly possible without a substantial industrial diversification of the stock market. An equally important feature of the Russian market is the use of insider information. There are rumors in the professional environment that the ―inside‖ part of the cost structure of large investment companies is up to 40%. With regard to the ownership structure, the state's share is estimated to be 29%, oligarchs and management companies - in 29% of foreign strategic investors and corporate clients - about 12%. The proportion of shares in free float is 30%. Given the fact that some owners prefer not to disclose the package share and hide it nominee, the real proportion of shares in free float is likely to be lower. Perhaps it is closer to 20-25%, ie, the value of these shares is approximately $ 250 billion. Share of free float is relatively small compared with other markets and market share controlled by the state and the oligarchs - is great. Notable is the fact that Russian and foreign investors prefer to invest in different asset classes. First ones, as a rule, are more inclined to bet on the assets, the prospects are connected with the reformation of the sector (IDC Holding, OGK-2, IDC Urals, RusHydro). Foreigners are also much more attracted issuers with good growth prospects, such as Sberbank, MTS, Magnet 17 and Novatek18.

Government bonds market By "government bonds‖ the current legislation means both federal securities and securities that belong to the constituent entities of the Russian Federation; along with these securities there are also exist regional bonds which are issued by municipal entities. The most part of an external debt of Russia falls on the bonds, thus more than a half is Eurobonds. The point is that the securities of constituent entities of the Russian Federation and regional bonds have smaller volume than federal securities and corporate bonds. The Bank of Russia‘s bonds are not the government bonds officially, even though they have the same reliability level. They are short-term securities and are used for commercial banks' liquidity management, and other investors can't buy them. It is well-known that market volume of the government bonds of Russia is not large. The aggregate public debt is equal to 64 billion dollars in rubles obligations and 25 billion dollars in Eurobonds. It is a

17

Magnet - the largest (by number of stores in July 2010) Russian chain of grocery stores, discounters. Headquarters - in Krasnodar. 18 Novatek - Russian Gas Company, the second-largest producer of natural gas production in Russia. 12


very small size in comparison with a huge public debt of the USA with its Treasury Obligations Money Market accounting for $8,6 trillion, and the municipal bond market which is equal to $2,8 billion. The biggest part of the ruble government bonds belongs to local investors. In addition, more than a half of these bonds belongs to credit organizations and about a quarter belongs to pension funds. Physical persons have a rather insignificant part. Almost all the debt syndication belongs to foreign investors; they own about 70 % of the country‘s trading foreign debt obligations.

Corporate bonds market Development of the Russian corporate bond market is characterized by steady increase in quantity of emitters, lengthening of terms of loan and volume increasing. Along with ruble bonds Russian companies actively involved means from foreign markets by making their own Eurobonds. Though this market, generally speaking, is not a part of the Russian stock market, but for the enterprises, the capital consumers, it makes real alternative to involvement in financing by means of making internal ruble bonds or by means of bank crediting. Currently the total volume of trading inner debt obligations made by Russian corporate borrowers is equal to $58 billion and the trading foreign debt accounts for $60 billion. This is also a small amount in comparison with American corporate bond market which accounts for $4.3 trillion and its property market debts is comparable to the corporate bond market. Experts believe that the most part of ruble corporate bonds as well as the most part of a ruble state debt belongs to Russian investors (61 % belongs to banks), and the most part of Eurobonds belongs of foreign investors. As for the near-term outlook of the Russian corporate bond market there is the information that the Russian corporate borrowers will aspire to involve about $20 billion of a pure debt in rubles annually and $20 billion in foreign currency.

Plans for capital raising. Investors. Considering the investors in the stock market traditionally the following groups can be stated: the government, the corporate sector, private investors, non-residents, collective investment institutions and pension funds. From the viewpoint of formation of the financial centre collective investment institutions, pension funds, insurance companies and private investors are the most interesting – the ones are considered institutional investors in the developed financial markets and deliver a significant portion of funds to their economies. And in many respects it is their pace of development that determines the development of a stock market as a part of a financial centre.

Investment funds The growth of capitalization and liquidity of the stock market should be based on the internal investment resources and the rapid growth of collective investments among them. The relative level of development of mutual funds industry in Russia currently is significantly behind the vast majority of stock markets, except for Romania and China where the open-end investment funds legislation became operational much later than in Russia. Despite the rapid growth of the economy and the stock market in Russia in 2000-2009 the relative performance of mutual funds figures in Russia are close to zero. The growth of the Russian stock market over the next 10-15 years and its transformation into one of the largest global capital markets sets an ambitious target of a quality change of the collective investments industry in Russia. The following factors determining the dynamics of the assets of collective investment institutions should be indicated:  Factors that determine the amount of assets (the number of funds, the average size of the fund's assets, the number of management companies (MC), the average asset size and number of funds managed by one MC).  Determinants of the growth of assets (the number of personal accounts of shareholders, the average account size, the factors determining shareholders‘ inflows). Among these factors the number of personal accounts of shareholders and the average size of the fund's assets are manageable. The dynamics of the number of owners of personal accounts shows a steady growth currently. The lag in terms of the average fund size is much greater than the one in the number of funds between Russia and the developed countries. The analysis shows that this factor carries much greater potential for the further growth of the total assets of the collective investment industry in Russia. Investment markets of countries can be divided into three groups according to the level of development. 13


Offshore international centres. Include three countries - Luxembourg, Ireland and Hong Kong playing the roles of international offshore companies for global investment funds. In 2009, the shares of assets of open-end investment funds registered in Luxembourg, Ireland and Hong Kong were, respectively, 5296.9, 349.3 and 333.0% of GDP of these countries. These countries are characterized by high levels of stock market development. The uniqueness of these countries for stockholders (fund investors) of international funds is a preferential tax treatment, a simplified registration form for funds and stability of business conditions and opportunities of the data analysis of resources. Interestingly, as Luxembourg has a long history as a centre of attraction for international investment funds, Ireland and Hong Kong have become such centres only in the last 10-15 years. Countries with high levels of investment funds development. There are 18 countries, including the United States, France, Canada, Australia and Great Britain where the contribution of net asset value of investment funds to GDP ranges from 10% to 100%. The average level of share of NAV of investment trusts in GDP is 26,5% for these countries over the past 15 years. There are active stock markets playing important roles in national economies and investments in most of these countries. With that, the assets of investment funds are very sensitive to the profitability of domestic stock markets. Countries with a moderate level of development of investment funds. Joins a group of 14 countries including Japan, Germany, Finland and Norway whose shares of investment funds in GDP range from 1% to 10%. In many countries a significant role in savings driving and investments belongs either to the national (Germany, Japan, Turkey, Finland, Norway) or foreign (Slovakia. Poland, Czech Republic, Argentina) banking capital or to the retirement savings plan system (e.g. Chile). These countries usually show notably lower rates of capitalization and liquidity of the stock market than countries in the first and second groups. Russia, China and Romania present a separate category of markets in terms of the level of development of open-end funds. The relative index of the level of development of investment funds in these countries is close to zero. It reflects the still insufficient participation of people's savings in the country's investment and the capitalization of companies. The most realistic benchmark for the growth of investment funds in Russia is a model the development of Japanese and German stock markets which assumes the achievement of the share of investment funds in GDP at a 10-15% level. In this case, if the ratio is achieved, mutual funds will become effective minority investors in the domestic stock market.

Pension funds There are three main parts to the Russian pension system. The main part is a pay-as-you-go system, and this has been supplemented in recent years by some state and private asset accumulation, although these are still relatively small. The total pension assets under management are $48 bln, or 3% of GDP. The main foundation of the Russian pension system is a pay-as-you-go system. Each year employers make mandatory payments of 20% of salary (up to a $14,000 salary cap) into a government fund. In 2010, this will raise $59 bln. The government then adds $93 bln to this, and pays out $152 bln directly to pensioners. Clearly, then, in this system there is no saving or room for the accumulation of long-term money. The increase in pension payouts has been enormous, rising from 6% of GDP in 2007 to 10% today. Only recently has the state needed to fund it to such a degree. For those who were born after 1967, 6% of the payroll goes to individual accumulation accounts, where the plan is that they will be used after 2020. An individual may choose where to put this money, with the choice to select either one of the 164 non-government pension funds or the state asset management company controlled by VEB19. If a person makes no choice, the money is left with VEB. As with most systems like this, most people choose the default option, and VEB ends up with most of the money. The VEB funds have accumulated $24 bln, while the non-government pension funds have $4 bln. The flow to these funds is $13 bln a year at present, a little under 1% of GDP. At present, the government has proposed that this accumulation system be shut down and resources are diverted into the payment of current expenditures. However, a final decision on this has yet to be made Employers now deduct about $ 2 billion a year, and employees - almost nothing. As a result, large Russian funds, replenished by employers, have a total of $ 20 billion in cash. Funds, which means deduct the employees themselves are still very small Thus, by the level of development of Non-State Pension Funds, Russia is the world's outsider, trailing not only from countries with developed stock markets, but the majority of emerging markets. As a result, the role of Non-State Pension Funds in the stock market remains virtually unnoticed. 19

Bank for Development and Foreign Economic Affairs (Vnesheconombank, VEB) - Russian stateowned corporation. It has not banking license and is an agent of the state foreign debt servicing, collection of accounts receivable of the former USSR, the management of the assets of the Pension Fund of Russia, as well as loans and guarantees to Russian exporters. 14


Many experts believe that an important condition for the rapid growth of pension funds is the availability of a dynamic investment fund industry. As targets of a level of development of private pension funds in Russia may be indicators of the country with the average parameters of the coefficients "Pension reserves to GDP" and "Pension Reserve / Capitalization". The country should have a high level of stock market development and have a strong banking system. As such a landmark can be identified Japan, the stock market which presents a balanced pension reserves. The share of investment and pension funds in Japan's GDP is respectively 13.3 and 4.4% in capitalization - 12,2 and 4,2%.

Individuals Individuals are the most important part of investors‘ structure on the developed share market. In countries with a high level of welfare system population guides the progress of the national share market. It‘s population that the most conservative global investors with a long-sighted investment first take into account. The individuals‘ involvement into investment business is the most important factor in the structure of a multilayer national share market within which the biggest part of investment business is concentrated. The investment activity on the stock market depends on three groups of factors which are the individuals‘ income and welfare (the value of accumulated investment assets), the degree of the development of the private pension system (i.e. the individuals are responsible for the investment in the market of its own pension capital), the households‘ commitment to invest in securities instead of other alternative investment objects. According to the table attached below, in Russia, only those groups of individuals those gain more than 50 thousand dollars per year to spend on the household are able to invest. Based upon the average rate of the individuals‘ capital invested in securities (what makes about 1 % of the income per year) with the income of 50 thousand dollars, the household can save about 1 thousand dollars per year. Thus, about 6 million households out of 53 million household have a real investment potential in Russia. By 2012 the number of households with an investment potential will probably have increased to 12 million, and to 20-22 million by the year of 2020. Theoretically, the level of the population‘s revenue can be described as the most important factor that determines the individuals‘ activity in the investment business on the financial market. But the problem is that the Russian index of the individuals‘ revenue is inferior not only to the countries with a high income per capital, but also to many countries with a significantly lower income. So, for example, in India the income‘s level per capital (as to the purchasingpower-parity) 3,1 times lower than in Russia, but the number of people investing in shares is higher. The Chinese level of income per head is 1,8 times lower than in Russia, but the number of the Chinese who invest in shares is 10 times higher than in this country. If the ratio between the level of income and the number of people investing in shares in Russia corresponded to the worldwide figures, the number of Russians who invest in shares would increase to 5% of the population which makes more than 7 million people. Apart from the level of income, the number of people investing in shares is influenced also by the following factors: efficiency of the protection of the minority shareholders‘ interests, the standards of the corporate governance, the level of the individuals‘ awareness about the means and forms of investments, about their rights as investors, as well as the general level of the financial competence of the population. The population‘s participation in investment business can take two main forms which are the direct participation of the individuals in investments (with the help of the brokerage service of professional participants of the stock market) and the participation of the population in the investment and pension funds. There is also an intermediate form of the individuals‘ involvement in the investment business which consists in the service of the beneficial ownership of securities on the basis of an individual contract about the trust management. The priority of one form of the individuals‘ investments organization over another must be determined by the country‘s particularities of investment activities which, in its turn, depend on a series of parameters including cultural and historical traditions. In Russian professional environment there has recently become popular an idea of the development of the collective investment funds. However, other countries‘ experience gives evidence to the fact that the mechanism of minor private investors‘ activity within collective investment funds is not so successful. The example of the Russian particular way of thinking can be the minor private investors‘ aspiration to invest in certain jointstock companies‘ shares. That‘s why the stimulation of the Russian population to invest in shares is the most popular direction in strengthening the population‘s role on the stock market. The reason for this is that it‘s mostly the direct investment of the population in securities that can bring the biggest influx of funds on the Russian stock market in the coming years. Besides, it‘s necessary to point out that under certain conditions the individuals‘ high activity in investments on the stock market with the help of brokers may lead to the destabilization of the stock market if investors tend to speculate instead of long-range investing. The number of potential long- range 15


investors is currently much higher than the number of minor short-range stock-market speculators. Enabling this reserve of the growth of the number of investors on the stock market will lead to its higher stability. Thus, the involvement of the public in financial markets is one of the main targets of the formation of the GFC in Moscow. And due to the lack of development of collective investment institutions and other market investment mechanisms available to the public banks are able to become the main link between the financial market and the public. The more so as an increase in the financial activity of the public is included in their sphere of interests: the more people are financially active, the more potential customers the bank has. And banks have to become the vehicles of the financial information, since the majority of Russians are unfamiliar with both investment instruments and other financial products, and have only the slightest idea of how they can make use of various financial services

Investment preferences of individuals When considering people‘s investment preferences, you have to keep in mind that people‘s primary goal isn‘t to multiply their money, but to save it. The driver of the segmentation of the nation‘s savings is a reliability and invulnerability to risk. According to NAFI studies (12.21.2010), every second Russian (48%) considers the real estate to be the most reliable form of investment, and every third chooses bank deposit. At the same time, no more than 4% of the population believes in the deposits security in commercial banks. Gold and valuables are also considered as one of reliable forms of saving spare money. Every fifth Russian remarked this. Accumulation of money in rubles and keeping it in cash is considered to be reliable for 12% of respondents, and not for more than 7% of Russians it is safe to keep money in dollars and cash euros. During the financial crisis, people preferences have changed in favor of bank deposits. And at first sight it seems counterintuitive. Firstly, people realized that this crisis would be continuative, so it is better possibly to save money than to spend savings, in case of even worse situation. Secondly, the government has significantly increased the amount of insurance indemnity compensation under the government guarantees of bank deposits up to 700 000 rubles. Thirdly, in 2009, many banks offered attractive interest rates on deposits which for the first time in many years has led to possibility of receiving the income from bank deposits not only nominally but also virtually adjusted for inflation. Finally, after all perplexities of the crisis no massive upheavals that led to the loss of deposits on the banking market have occurred. The growing interest and confidence in bank deposits from the population of the country is due to this fact.

The main categories of the public and the extent to which they participate in the use of financial products It is fairly obvious that one of the main factors hindering the development of the financial sector is a weak development of collective investment institutions, which, in its turn, is directly related to the low investment activity of the public. What is the reason of this? It is possible that the public is not yet ready to actively participate in financial transactions. The history of the market economy is just 20 years old in Russia while the US public has more than a century experience in private investments.

Description of financial activity of individuals The level of financial activity of the Russian population is quite low as compared with Europe and the US. However, recently the improvement of this indicator has been observed. According to the research every fifth Russian (19%) is going to use any of financial services within the next few years. Besides the most popular financial service is a loan but no more than 9% of Russians are intending to ask some credit in a bank. Among those who are planning to do this, the most popular credit is a consumer credit - 62% of future borrowers intend to issue this credit. Car loan attracts a quarter of potential borrowers, and 23% desire to use mortgage. Another 9% of future borrowers are going to start using credit cards. The second most popular thing is debit cards. 5% of Russians are going to draw up a card (including for salaries, pensions, scholarships). 4% of people are going to make a bank deposit (a time deposit or a call deposit). No more than 4% of Russians intend to use any insurance program, investment services or non-state pension funds (NPF) services. Such low level of financial activity of the Russian population is a consequence of financial illiteracy of the modern Russian society. According to the Head of the Treasury Department Andrew Bokarev at the conference upon the problems of financial literacy: approximately 62% of Russians prefer not to use any of the financial services, regarding them to be too complex and incomprehensible. The fact is that according to opinion polls, most Russians make decisions about managing their finances and pension 16


savings not on the basis of received information but on the recommendations of friends, fellows, and concerned assistants of banks or companies. Especially it concerns certain financial products: not more than one third of Russians is aware of the operating system of so-called co-financing of pension savings, only 45% know about the deposit insurance system. In addition, only half of 45% polled knows about the deposit insurance system, having heard the name they can not explain its essence 20. Since June 2008, the National Agency for Financial Studies conducts the constant monitoring of the financial literacy of the population. Its research and surveys allow to estimate the level of financial literacy and to monitor the dynamics of this indicator. However, it is important to understand that such studies may cover only a small sample, and as a consequence, not quite accurately reflect the current situation. As a result, data from various studies may differ significantly. According to the polls conducted by NAFI, the value judgment of the financial literacy of Russians is increasing: in comparison with that of 2008, the proportion of Russians who consider themselves financially literate, has increased: today 22% of the population determine their knowledge as 'good', 44% - as satisfactory. The share of those who defined knowledge as ‗awful‘, has dropped from 21% to 7%. However, the dynamics of objective indicators of financial literacy is not so optimistic. Most Russians do not keep records of family, and 13% of respondents admit that they don‘t even approximately know how much they have received and how much they spend in a month. Percentage of respondents who do not keep such records, has not diminished and it has even increased from 56% in December 2008 to 69% in February 2010. Nowadays, financial institutions offer different types of public services, with the varied conditions of these services. To select the appropriate service it is necessary to conduct a preliminary analysis of the proposed financial products and compare them. However, only one third of Russians practices the comparison of conditions for providing services. What is concerned about the stock market, according to the MICEX studies, 39% of investors and potential investors are aware of the stock market better than others, but they also do not know many aspects of investments. 22% of polled are competent in certain aspects, but still do not know many things. 30% admit that they do not understand investments, and the remaining 9% know almost nothing about the stock market and investments. The main problems of competence of present and future investors are connected with bad knowledge of the stock market and its institutions, lack of knowledge of modern financial instruments and modern realities of circulation of securities21. These indicators of financial literacy cause the major concern. According to the NAFI report "Criteria for financial literacy and ways to improve it", the high level of financial literacy in the country has the most positive impact on the economy of the state, and the standard of well-being, and income of its citizens. Firstly, it increases the level of financial products‘ usage, transparency of the financial market and market stability. Secondly, it helps to increase the number of honest borrowers, reducing credit and reputational risks faced by banks. Thirdly, the high level of financial literacy increases the financial prosperity through the rationalization of the family budget, increasing the planning boundaries, developing the ability to finance during a family‘s life. Besides it provides the protection from fraud and increases the financial security of citizens. Another important factor of the low financial activity of the population is negative experience connected with the financial market. During the 90-s the confidence in the banking system and the financial market in general has been lost as a result of freezing of accounts in Sberbank, loss of savings due to the 1998 default and frauds with the financial pyramids. To estimate the degree of public confidence in financial institutions the index of confidence in financial institutions is used. The total index of confidence in financial institutions in 2010 amounted for 97 points. The index, reflecting, population's expectations about the reliability of financial institutions 22 (confidence in the safety of funds, compliance and the absence of fraud with clients) was 97 points last year. The degree of confidence in the financial system over the past two years has remained almost invariable; the absence of positive or negative dynamics shows the certain stabilization in the expectations of the individuals. However, it is important to understand that distrust of financial institutions is directly connected with low financial literacy. According to the NAFI studies only a quarter of Russians can recognize the financial pyramid. 26% give the right answer to this question - the financial institution that promises 35% growth of investments in a year and guarantees a return on investments. While 9% believes a pyramid scheme to

20

http://www.minfin.ru/ru/press/speech/index.php?id4=9653,May,12,2010 http://www.iblf.ru/files/common/finlit/conf91208/micex912.pdf 22 The Index calculation is presented in Appendix 21

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be a mutual fund reporting a 35% return of its shares over the previous year, while 8% of respondents believe it is a bank deposits with 12% per annum.

Segmentation of banking products’ users The structure of the population is heterogeneous and the degree of financial activity varies by age, social status and wealth. Taking it into consideration, you've come to the conclusion that it was time to learn the study report, which has already been delivered a couple of days ago, namely, to the report, "Segmentation of banking products‘ users." During the segmentation of users of banking products the members sample were to satisfy the following conditions: Men and women 21 -65 years; Restrictions on income: a level sufficient to cover basic needs, and more; Use any banking product (account, deposit, card, credit, mutual funds). As a result of segmenting consumer banking products 8 segments that differ according to the finance, styles of life, age, social status and income were pointed out. The number of segments, within the constraints of the target audience accounted for 19.5 million. The «yuppie» segment (18%), age 25-35 years, a high income. Usually specialists, managers. 34% live in Moscow, 66% in the regions. They are oriented to modern values, keep up with the fashion, go to the expensive, prestigious shops, like to travel abroad, to use the Internet. «Yuppie» believe that they understand the system of banking products well, and they are ready to buy on credit if necessary. They actively use bank products. The level of use of services of the Moscow Bank is above average (10% of people in this segment use the services of the Moscow Bank). Now they use debit cards, car loans, mortgages. Within the next six months they are going to use auto loans, credit cards and mortgages. The segment of wealthy middle-aged people(21%), age 36-47 years, a high income. Basically, managers, experts. 36% live in Moscow, 64% - in the regions. They are oriented to the modern values. They like to travel, to pamper themselves and actively use the Internet. Representatives of this segment rate their knowledge of banking products as average, they are ready to take a loan credit only on a last resort. They actively use bank products. The usage of services of the Moscow Bank of Moscow (8%) is above average. Now they use the system of deposits, credit cards, auto loans. Within the next six months they are going to take a deposit or credit card. The segment of active middle-aged men (11%), age 36-45 years, their income is above average. Basically managers, experts. 20% live in Moscow, 80% - in the regions. They are oriented more to traditional values. They spend their vacations at home or in the country, they are very serious about the opinion of other people, do not go to expensive shops, while actively using the Internet. Members of this segment rate their knowledge of banking products as average and they tend to make purchases on credit. They actively use bank products. Today they use cash in the bank loan, credit cards, loans from stores. Within the next six months they are going to use a credit card. Services of the Bank of Moscow enjoy 6%of polled uses the services provided by the Moscow Bank. The segment of "carefree young proletarians" (12%), aged 21-30, the average yield. Their employment status is usually experts, employees and workers. 13% live in Moscow, 87% - in the regions. They focus on the modern values, try to stand out of the crowd, like competition, are inclined to heed the advertisement and are actively using the Internet. They estimate their knowledge of banking products as a midi and are fully accessible for the use of credits. They use banking products with moderate activity. Today they use cash credits in banks, credit cards and take loans in stores. These products are supposed to be used in the next 6 months. The part of the Bank of Moscow in this segment is 4%. The sixth segment is made by the so called rational young people (3%), the age group 25-35 years, with the income higher than average. Mainly, women. The professional status – specialists, industrial and office workers. 28% of them live in Moscow, 72% - in provinces. They are oriented on the modern values. They keep up with the fashion, like to stand out in the crowd, love travelling across Russia, use Internet. This group believes it‘s not well aware of the bank services, and has a suspicious attitude towards loans. They are inert in terms of bank products. The Bank‘s of Moscow services are used by 7% of the respondents of the segment. The seventh segment is pre-pension employees (18%), the age group 43-55 years, the income is average. Mainly, women. Mainly, industrial and office workers. 10% lives in Moscow, 90% - in provinces. This group is oriented on traditional values. They spend their holiday in a country house, in their spare time they watch TV or look after the house. They believe they hardly know anything about the bank products but are ready to make a loan. The activity of using bank products is moderate. The use of the Bank‘s of Moscow services is lower than the average (2%). At present time they make a cash loan in a bank or in a shop. They are planning to practice the same services in the next 6 months. The eighth segment is pensioners(14%), the age group 55-65 years, with the income lower than the average. Mainly, women. Mainly, industrial workers and pensioners. 14% lives in Moscow, 86% - in provinces. This group is oriented on traditional values. They buy only necessary goods, they prefer 18


spending their holiday in a country house or at home, in their spare time they watch TV or look after the house, do not use Internet. They believe they hardly know anything about the bank products and are not ready to make a loan. No activity in using bank products. The use of the Bank‘s of Moscow services is lower than the average (2%). At present time they prefer a deposit. They are planning to practice the same service in the next 6 months. Today there are 6 segments that make 83% and about 15 million people that can be attracted to use the Bank‘s of Moscow services. These groups are the Yuppies, the successful middle-aged, the active middle-aged, the carefree young proletarians, the rational young people and pre-pension employees. To attract these segments to an active use of different bank‘s products it‘s highly important to draw the image of the Bank of Moscow which should be oriented on the necessity of these groups in an active way of life, a high social status that reflects their ambitions. The range of attractiveness of the bank products established on the basis of the estimation of the average sum and the cash volume on each product is the following. The Yuppie are more interested in a car loan and a credit card; for the successful middle-aged it‘s a cash loan in a bank, a car loan, a credit card; for the segment of the active middle-aged the most popular service is a deposit; the carefree young proletarians prefer a cash loan in a bank and a credit card.

Financial products and their penetration on the Russian market of physical persons The latest 10 years, being relatively favorable, have made a contribution in the forming of a middle-class which is the main target group in the promotion of the bank‘s services. The key task of the bank is understanding the way it can help its clients to solve their problems. That‘s why, currently, one of the main trends in the retail bank service system is to set close relationships with client, guiding them through all their life providing with different type of necessary services like deposits, loans, plastic cards, investment products and other services.

Deposits The bank‘s deposit is one of the most popular bank products. The bank‘s time deposit is the most popular means to save accrued capital in Russia. According to the Bank‘s of Moscow data 23% of the respondents23 have a deposit in a bank while 18% are planning to make one. (Picture 1 in the Appendix 3). In this regard, 20% of the respondents have one deposit, 2% has 2 deposits, 1 % has more than 2 deposits. The sum of the most frequently made deposits vary from 26 to 100 thousand rubles with the term of a year. Choosing among different types depositors are usually guided by the interest rate, the clearance of conditions, the possibility of refilling a deposit and an early withdrawal of a deposit. The current account is not less popular among depositors. According to the research, at present time 36% of the respondents have a current account and 24% is planning to have one in the near future for their pension accruals, other welfare payments and for the salary.

Loans Another popular type among the bank‘s services is a loan which, in its turn, has lots of varieties offered by banks, from consumer loan to mortgage and issue of a credit card. No-purpose loan is the most popular one among banks‘ offers. Currently 15% of the respondents have had a bank loan and another 10% is planning to get one in the next 6 months. 13% of them have one loan, 1% has 2 loans and the rest 1% disposes of more than 2 loans. The most frequent cash credits vary from 50 to 100 thousand rubles with the term of 1-3 years. The main purposes for these loans are usually repairs, construction and necessity induced by the family circumstances. Choosing a type of loan and a bank, a depositor is guided by the height of the interest rate, the necessity of providing a guarantee and better conditions for the employed clients. Another decisive factor (for 28% of the respondents) to make a choice is the term of issuing. The rest of the respondents are ready to wait for some time if this guarantees a loan with a lower interest rate. As to the mortgage loan, 3% of the consumers have practiced it and another 3% is planning to make one this year to improve their housing conditions. The most frequent mortgage loans vary from 1 to 2 million rubles for a period of 10-15 years. The main purpose for this type of loan is usually to

23

Respondents cover 19,5 mln population of Russia and include citizens of cities with more than 500 000 people living, at age 21-65, with income enough to use banking products and which currently use any of banking products. Total population of people at age 21-65 in cities 500 000+ is 26,5 mln. Total population of cities 500 000+ is 38,0 mln. 19


buy a flat on the second market as the first housing property. Choosing a mortgage program a client is guided by the height of the interest rate and the term of issuing. For the recent 10 years a car loan has gained much popularity. At present, 8% of the consumers have got a car loan and 6% is planning to receive one. The sum of the most frequent car loans varies from 250 to 500 thousand rubles for a period of 1-3 years and more. Choosing a type of a car loan a client is guided by the height of the interest rate, the possibility of choosing the term of paying, the clearance of conditions and operation, requirements to the list of documents necessary to receive a loan.

Plastic cards Plastic cards are gaining more and more popularity in terms of its issue in order to receive the salary or other payments, or to buy goods. According to the research, 9% of the consumers use a debit card while 7% is planning to get one in the next 6 months. Debit cards facilitate the process of shopping making it more secured and comfortable, as well as dispose of cash money anywhere in the world. Thus, the main purposes of having a plastic card are shopping and keeping money. Choosing a type of a debit card and a bank, a client is usually guided by the commission rate at ATM, the means of refilling the account and the availability of the information on card‘s operations. Credit cards are more popular that debit cards, 12% of the respondents claim to have a credit card while another 9% is willing to start using it. The main purposes of having a credit card are getting cash and non-cash payment of goods and services. The main factors in the choice of the card‘s type are the commission rate for cash withdrawal at ATM, the interest rate, the clear conditions of issuing and operations of the card, the means of refilling the balance. However, using plastic cards in day-to-day life can be limited by the underdeveloped infrastructure, as some shops still do not accept cards. Another important disadvantage of non-cash payments is a more difficult control under the expenses. Other disturbing disadvantages connected with non-cash payments by a credit card are spending extra time at the cash desk and a constant concern about the card‘s safety. Besides, the shops that accept plastic cards often have a bit higher prices.

Investments Investment services offered by the bank of Moscow are new yet rapidly developing and include investment in UIT (Unit Investment Trust, the main instrument of the collective investments), pension accruals, assets management and brokerage services. At present the Bank‘s of Moscow data show that 0,3% of the population has already invested in UIT while 0,4% is planning to invest. It‘s important to distinguish the beneficial ownership of the unit investment trust and the trust management of the pension accruals: unlike pension capital on the savings account of the Pension Fund of Russia which is blocked until the person is retired, the investments in UIT can be withdrawn any time along with the earnings when the person has paid off the units. The banks offer to clients the service of the individual trust management, as more and more investors now pay their attention to the share market and derivatives. Investing assets on these markets offers more profitable prospects though traditionally more risky. The service of the assets‘ trust management by professionals qualified in stock market business usually helps reduce the risk. The alternative to the trust management is the brokerage service, the possibility of efficient management of the assets and the direct participation in the securities on-line auction. Brokerage services include experts‘ analytics, current investment ideas, operations with derivatives to hedge risks as well as modern information technologies that significantly reduce risks and enable to gamble on the stock market at your computer wherever you are situated. At present time, according to the estimations of the Bank of Moscow, 0,6% of the investors has already practiced the brokerage services while 0,7% is planning to recourse to this kind of service.

Other services Currently banks are offering, for the sake of clients‘ convenience, different means of paying the housing and public utilities, for example, with the system of internet-banking which allows you staying home, or by the withdrawal the sum from the bank account, or at ATM with the help of a plastic card. However, most of the Russians maintain a conservative attitude regarding the means of housing utilities‘ payment and make them at postal or Sberbank offices (34% and 46%, respectively). Special housing utilities payment machines introduced at the offices of Sberbank are used only by 10% of the population. As to the remote means of payments of the housing and public utilities (through Internet or a mobile phone), they are not popular at all among the Russians (1%) 24.

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http://nacfin.ru/novosti-i-analitika/press/press/single/10447.html

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Besides housing and public utilities‘ payments, banks are offering to their clients the service of keeping jewelry in individual safe boxes, or currency exchange and checks operations, as well as the operation of investments in precious metals.

Innovations in banking The last twenty years are responsible for the history of the Russian banking industry. Nowadays, many can‘t even imagine how surprised the people were at the sight of the first ATM appeared in 1991. Some of them recall that were bewildered having seen ―a case with money with no guard‖. In 1991 appeared the first plastic card, though the first POS-machine to pay with a plastic card was established in Moscow only in 1994. Some time earlier, in 1992-1993, appeared the first banks specialized in mortgages offering to clients the purpose housing accumulative accounts to receive a loan for a house. The year of 1995 saw the first 1000-ruble-bank-notes with the print for the visually impaired issued by the Bank of Russia. This special print was situated in the left low corner of the bank-note and represented the relief squares and dots. But the real breakthrough in the banking system became the internet-banking which was born in 1997-1998. There already existed the electronic system of online payments WebMoney Transfer based on the online purse system. Now it‘s one of the biggest system of instant online payments in ru- net. The bank services become more and more available and easy. In 2004 clients learnt about a new function of the Mobile banking that lets check up the balance of the current account, make different payments and transfer money from one account on another by a mobile phone. And, finally, the last ten years represent the development of the investment products. In 2007 appeared the investment deposits that invest the part of the sum received by a depositor into the instruments of the stock market. But the crisis of 2008 made people address to more reliable investments that may diversify risks. Banks, in answer to this, have begun offering multi-currency deposits, which means the money can be kept in several currencies at a time. The latest banking innovations are oriented on the more comfortable cooperation with clients. For this purpose, banks have created web-sites of interactive communication with clients and offered the possibility of money transfer between cards. Nobody knows, what kind of bank products are awaiting their turn!

The Bank of Moscow The Bank of Moscow is one of the leading universal commercial banks in the Russian Federation providing diversified variety of services to corporate clients as well as natural persons. Currently the Bank of Moscow is giving service to more than 100 thousand corporate clients and more than 9 million natural ones As to the net-assets the Bank of Moscow occupies the sixth place immediately after Sberbank, VTB, Gazprombank, Rosselhozbank and VTB24. As to the shareholders‘ equity, the Bank of Moscow is the forth. The history of the Bank of Moscow began in 1994. At the time there were several authorized banks working with the Moscow Government, and this made the guaranteeing of the transparency and system control of the budgetary streams, necessary to the city economy development, difficult. So there was an idea to create an integrated bank in order to consolidate resources and to increase their usage efficiency. The official history of the Bank began in March of 1995 when by the Moscow mayor order the public corporation «Moscow municipal bank — the Bank of Moscow» was founded. During the first years of its activity the Bank was concentrating its main efforts on the development of the joint projects with the city budgetary institutions, implementing the city economy formation priority tasks, providing services to the key budgetary accounts. However, during the following two years the Federal and City Treasuries were founded and an integrated bank to work with the Moscow budget was no longer strongly necessary. 1997 was a key year to the Bank of Moscow. The priority and strategically significant tasks were retail banking development and the formation of an extensive branch network (from Kaliningrad to Kamchatka). The Bank positioned itself as a federal one. During 1995-1997 banks were doing their first steps in retail banking, offering the population not only traditional savings deposits but also credits and credit cards. Nevertheless, the year 1998 default shattered the population well-being and slowed the Russian banking system and, consequently, the citizen involvement in the market processes down. During 2000-2003 the economy was slowly rehabilitating, the population income and its buying power were growing, the number of the potentially creditworthy borrowers was increasing. Throughout that period many marketing researches had been carried out, which results showed that citizens were becoming interested in the banking products and the confidence in the commercial banks was growing. 21


The bank response was retail banking extension, new services were being provided: consumer crediting, mortgage, credit cards. It would seem the retail banking sales volume should have increased dramatically, the banking service «buyer» and «seller» should have met at last... But it didn't happen! Despite the willingness to consume banking products which the public opinion poll results had shown, retail banking client base average growth was no more that 3,9% per year. Such a result was doubly unsatisfactory as the researches showed the retail banking client base should have grown by at least 15-20% per year. Retail banking marketing specialists were trying to figure out the reason. Additional researches showed that in 2002-2003 the Russian society was facing the so- called 25 «spiral of silence » effect: the public opinion poll participants, who showed their willingness to become bank clients and consume bank services, passed not their own but the majority opinion - the position that the media was furthering: «to be a bank client is modern, prestigious and in tune with the times». It is important to understand that before the crisis and under its own inertia after it the majority of retail banks was stressing not on particular rational advantages of their products and services but on promotion the bank public image in their advertising. Banks were trying to create an image of élite establishments oriented on business oriented men of property. Members of incipient middle class (ordinary citizens), while giving credit to such ideas in the public opinion polls, didn't correlate themselves with the bank advertisement characters and didn't become the banking products consumers. In order to overcome the population stereotypes and to develop active retail banking the Bank of Moscow developed a brand new concept of positioning its services «Petrovitch, the financial consultant». Petrovitch (drawn by an artist A. Bilzho) is not a member of élite but «one of the crowd», an adviser who can consider any problem with humor and give a valuable advice on financial services (to which population wasn't quite used to at the moment). It is difficult to underestimate this advertising campaign social significance. With the help of Petrovitch's image, that became very popular among the clients, the Bank managed to get considerable results in solving a social problem of assistance in increasing the bank social function and transforming them into available and comprehensible establishments for everyone, which can help solve financial problems. According to the research team «ZIRKON» data in April of 2004 the number of families keeping savings in the banks increased. In March almost a third of respondents (31,4%) stated that they had savings in the bank, when in September of 2003 almost 10% less people stated that, and in September of 1999 there were just a little more than 10%. Aside from the social effect, the popularity of Petrovitch positively influenced the Bank activity result: it favored its rating growth in the retail capital formation sphere. The Bank was rated second amongst the Russian banks on the investment means volume in 2003 losing only to Sberbank. The number of corporate clients increased on 17% (advertising campaign «Petrovitch, the financial consultant» was also oriented on small and medium businesses), the number of natural persons — on 68%. The other advertised in the Petrovitch campaign banking product sales volume also increased. In 2004 the Russian financial market was introduced to the widespread European «financial supermarket concept» based on three principles: 1) product diversity (big product line for the natural persons as well as for the corporate clients, permanent client-oriented services development); 2) universality: «wherever you go — we are to help» (an integrated list of services in any branch of the bank); 3) self-service (interactive and online service development, maximum convenience for the client). It should be noted that the given concept was interpreted as a guideline by all the banking market key players, competitor products and services were no longer exclusive but repeated one another in

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The Spiral of Silence is a political science and mass communication theory propounded by the German political scientist Elisabeth Noelle-Neumann. The theory asserts that a person is less likely to voice an opinion on a topic if one feels that one is in the minority for fear of reprisal or isolation from the majority. 22


many ways, differing from each other only in the interest rates, speed of service and product provision conditions. A new stage of struggle for client began — the banks were calling for a rational choice. The Bank of Moscow was also sticking to that logic with their main slogan being «Yes, it pays to trust us». As the Russian banking market was being developed a necessity of transition to a more complicated but more creative level of competition rose. The Bank of Moscow raised to the challenge immediately. In 2007 the Bank brand repositioning process began, a new creative concept «Guide»: the Bank of Moscow is the bank to help you» was formed. Within the concept the Bank positioned itself as a reliable partner, accompanying a person throughout their whole lives, supporting them in every important situation (from the birth of a child to the pension). The «Guide» concept is not just an advertising campaign but also a philosophy of business conduct, which is to command client loyalty. It was important to make the Russian client (unaccustomed to life cycle management) understand that the longer they interact with the Bank, the more advantages they get. The advertising campaign «An interview with animals» was picked as the idea visualization. It gave an instant good impression using the image of the cute «characters» giving competent advice. The new concept introduction resulted26, first, in the Bank position on the financial market consolidation, second, in the brand recognition growth, and third, the victory in the «Bank of the year» contest in the «Advertising campaign of the year» nomination. Later on, the Bank of Moscow overcame the crisis of 2008 and managed to become a part of top500 world financial brands. Despite the economy crisis (even considering it), client (natural as well as corporate ones) support remained the Bank priority. The Bank of Moscow was the first one to offer a new, especially topical in crisis, service, - credit indebtedness restructuring by means of due date prolongation and changing of payment structure and parameters. Apart from that, the Bank took advantage of temporary «credit slackening» and concentrated its efforts on insurance service development which may result in significant advantages on the market. Currently the Bank is developing the afore-mentioned «Guide» concept, creating innovation products and client services considering world's best practices and Russian market tendencies. The main trend defining the retail banking future development is providing clients with wide range of online service — web-banking, sms-informing, interactive zones, self-service, electronic commerce, etc. Since 2010 the Bank of Moscow has been a Moscow Government and federal structure partner on implementing the «Electronic government» and «Informational city» programs. Considering the abovementioned directions of development one of the Bank strategically significant projects was implemented — a digital office situated in the centre of Moscow (Tverskaya, 8) was opened. It is the Bank of Moscow innovation office, which works 24/7, includes interactive self-service zone, automatic depositary, twentyfour-hour safe access, video call-centre, video wall, info boxes accessing The Integrated state service portal.

The directions of the Bank’s of Moscow business The Bank of Moscow has traditionally a strong position in the corporate field. More than 100 thousand corporate clients chose the Bank of Moscow in 2010. In February, 2011 the volume of loans issued to legal persons was more than 539 billion rubles what appeared to be 7 billion more than the same index in 2010. Are these figures high? One can judge from the fact they provided the Bank with the fifth place among creditor banks of the corporate field. The cash volume of settlement and time accounts of the companies in February, 2011 made about 96 billion rubles (respectively, the sixth place in the rate of banks‘ corporate deposits volume) As to the retail banking business, the number of clients – physical persons – is over 9 million people, 52% out of them falls within the regional offices of the Bank of Moscow. Imagine, in fact almost the third citizen of Moscow has chosen the Bank‘s of Moscow services. The volume of loans in the retail sector provokes some concern, as the Bank of Moscow occupies only the eleventh place in this rate. The leader is, certainly, Sberbank, but a high density of the rate gives a chance for a further development. Only for the last year the volume of loans made by physical persons has become 15% lower and is a bit less than 22 billion rubles that moved the Bank down from the eighth place to the tenth in this rate.

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The overall client capital (bank funds and issued debt instruments included) has grown by 39% during 2007 and was in a total amount of 459,4 billion rubles. The retail banking debt capital (plastic card balance included) was 121,3 billon rubles. The total amount of plastic cards emitted by the Bank of Moscow was 8,7 million on 2008, January, 1st. The amount of ATMs has grown by 28% during the year and exceeded 1,5 thousand. The Bank loan portfolio (both corporate and natural clients) was 330,1 billion rubles in the beginning of 2008 and has grown by 38% after 12 months. The retail banking volume of credit more than doubled and was 69,2 billion of rubles. (according to the Bank of Moscow Annual Report 2007 data)

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To overcome negative tendencies in retail business and to strengthen its positions in corporate sector the Bank must act decisively. It‘s very important in banking business to satisfy at best all kinds of clients, retail as well as corporate. In other words a bank should have a wide variety of products to offer. As a universal bank, the Bank of Moscow offers a whole spectrum of services for physical and legal entities. One of the most popular service for legal entities is a cash-management service, i.e. opening and keeping accounts for residents and non-residents, online transfers, refilling the account etc. In 2009 the American bank J.P. Morgan Chase Bank awarded the Bank of Moscow with the «Quality Recognition Award» for the best quality of payments among Russian correspondent banks. The loans to legal entities and the trade financing service are not less popular than the cash-management service. Besides providing general services, the Bank of Moscow backs small businesses in Russia issuing loan warranties for small and medium enterprises via the Credit Fund of Small Businesses in Moscow. As companies‘ financial investments in the form of deposits are the prevailing investment instruments in Russia, the Bank of Moscow pays a particular attention to the development of deposit operations. As to the investment business of the Bank of Moscow, it is now one of the leaders of corporate securities on the Russian market. The Bank of Moscow is one of the biggest emitters of corporate securities. In total, since the establishment the Bank of Moscow participated in more than 220 obligations‘ issues with the whole volume of 690 billion rubles, 89 times as an emitter. A significant part of services for legal persons occupies the currency control and the development of payroll projects. The services for physical persons can be nominally divided between general services for physical entities and Private Banking. Private Banking service of the Bank of Moscow consists of two main parts. First is the Relationship Management, a system responsible for the relationships with clients on the basis of feedback principle through a personal manager. Second is the Asset Management, a client‘s assets‘ trust management in accordance with an individually developed strategy. As to the retail services, it‘s difficult to set out a popular bank product unavailable in the Bank‘s of Moscow line of services. The Bank‘s services include all kind of loans, investments with different options and all kinds of plastic cards. During the last few years the Bank has been actively developing investment products destined for physical entities. As a result, in 2009 the Management Company of the Bank of Moscow became the winner of the Russian Market of Collective Investments contest in the Company of Mass Investor nomination and the laureate in the Company of Shares Fund nomination. The Management Company, the Pension Reserve of the Bank of Moscow kept the first place during the year of 2009 among private management companies in the rate of pension accruals‘ volume transferred to the Pension Fund of Russia. Besides, in May, 2009 the National Rating Agency, after the research and analysis of banks‘ activity, has again proved the individual security rate of the Group of Management Companies of the Bank of Moscow (the Management Company of the Bank of Moscow and the MC the Pension Reserve) on the AAA level which stands for the maximum security. Another investment service provided by the Bank is the brokerage service. Besides this, the Bank of Moscow offers currency exchange operations, settlement operations, operation on the precious metals‘ market as well as depositary services and pledge realization. The Bank of Moscow tries to keep up with the time developing the Internet-banking and the Mobile banking systems and introducing the newest information technologies. The result is a creation of an innovational office, called the Pattern Point1, which has facilitated banking operations for clients. The Retail Business Department is in charge of the development and promotion of the bank services. This Department will guide the realization of your strategy. Three branches of the Department will be responsible for a certain part of the project within the proposed strategy of the stimulation of the population‘s financial activity and the increase of the bank products‘ sales. The efficiency of every branch‘s work will be responsible for the success or failure of your project. The first branch consists of engineers of bank products and technologies. The employees of this branch along with the Marketing Centre of the Bank of Moscow study the necessities of the target group and develop on the basis of these necessities and current trends of the banking market so called business models and concepts of new bank products and services. This group is as well in charge of new focus offers that will satisfy clients‘ needs and interests. Besides, the engineers within the branch work along with the Advertisement and PR Department of the Bank under the determination of the most effective channels of bank products‘ promotion. This branch develops models for retail as well as corporate business. The second branch represents retail sales offices. Among the main aims of this branch is, first of all, to manage the process of sales in offices, subsidiary offices and branches of the Bank. Second, this group provides clients with the qualified service (the front office‘s work). Third, The sales branch includes the Call Centre as well as agent sales, i.e. cooperation with the Bank‘s partners – car dealers, market 24


outlets etc., off-site presentations destined to promote the payroll projects. Thus, these offices are responsible for the quality service offered to the client, increasing his or her loyalty to the bank and creation of a comfortable financial environment. The third branch, being somewhat independent, is the Private Banking that works with well off/VIP clients. As to the regional structure of the retail business direction, there are no fundamental differences between offices in Moscow and in provinces. The Bank of Moscow has been actively developing its retail chain. However, there are some particularities in the retail offices‘ activity that depend on the economic features of the region and the structure of its field employment.

As for now you have all the necessary information to build a strategy and only 7 days to fulfill this task, because Mr. Shuvalov cannot wait as it‘s by the next meeting that the Bank of Moscow is supposed to present its strategy to support the creation of The International Financial Centre in Moscow. This means that on the 21st of March your immediate chief Yakov Borisovitch Perelman will be waiting from you a developed plan of measures to cultivate the human capital in Moscow in the Bank‘s interests. You should present not only the strategy itself but your calculations as well. The deadline is 23:59, the 20th of March.

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Appendixes Appendix 1. Rating of the world's financial centers GFCI 2007-2008 City London New York Hong Kong Singapore Tokyo Shanghai Chicago Zurich Geneva Sydney Frankfurt Toronto Boston Shenzhen San Francisco Beijing Washington D.C. Paris Taipei Luxembourg Vancouver Jersey Melbourne Seoul Montreal Guernsey Munich Dubai Dublin Osaka Edinburgh Isle of Man Amsterdam Qatar Hamilton Cayman Islands Stockholm Wellington Madrid

GFCI 8 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 14 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 34 34 37 38 39

GFCI 8 Rating 772 770 760 728 697 693 678 669 661 660 659 656 655 654 654 653 649 645 639 634 627 626 622 621 617 616 610 607 605 601 600 598 595 592 592 592 587 585 584

GFCI 7 Rank -1 -1 3 4 5 11 6 7 8 -9 13 12 14 -9 -15 -15 17 20 21 -18 23 -18 -26 -28 -26 22 33 -24 -31 34 -28 -24 35 36 -31 -28 38 44 -45

GFCI 7 Rating 775 775 739 733 692 668 678 677 671 670 660 667 652 670 651 651 647 642 638 643 623 643 617 615 617 632 610 618 612 606 615 618 604 600 612 615 595 582 581

GFCI Change in Rank 0 -1 0 0 0 5 -1 -1 -1 -1 2 0 1 -5 1 -1 0 2 2 -2 2 -4 3 4 1 -4 6 -4 2 4 -3 -8 2 2 -3 -6 1 6 6

GFCI Change in Rating -3 -5 21 -5 5 25 0 -8 -10 -10 -1 -11 3 -16 3 2 2 3 1 -9 4 -17 5 6 0 -16 0 -11 -7 -5 -15 -20 -9 -8 -20 -23 -8 3 3 26


Appendix 1 (Continuation). Rating of the world's financial centers GFCI 2007-2008 City British Virgin Islands Brussels Bahrain Milan Sao Paulo Copenhagen Glasgow Vienna Kuala Lumpur Monaco Rome Mexico City Rio de Janeiro Oslo Johannesburg Gibraltar Malta Mumbai Helsinki Prague Bangkok Mauritius Jakarta Lisbon Bahamas Buenos Aires Manila Warsaw Moscow Riyadh Istanbul St. Petersburg Budapest Athens Tallinn Reykjavik

GFCI 8 Rank 40 40 42 43 44 44 46 47 48 49 50 50 52 53 54 55 55 57 58 59 60 61 62 62 64 65 66 67 68 69 70 71 72 73 74 75

GFCI 8 Rating 582 582 578 577 573 573 572 571 569 567 563 563 561 557 555 554 554 550 549 543 537 535 534 534 529 528 523 517 506 503 496 491 467 465 451 441

GFCI 7 Rank 37 39 -41 47 40 -41 52 43 51 48 49 57 -54 -45 -54 53 56 58 60 62 61 60 -63 65 59 -63 66 67 68 69 74 70 72 73 71 75

GFCI 7 Rating 596 591 587 579 590 587 570 583 571 578 574 563 566 581 566 568 565 562 573 543 549 552 535 529 557 535 527 520 516 507 470 501 481 480 488 447

GFCI Change in Rank

GFCI Change in Rating

-3 -1 -1 4 -4 -3 6 -4 3 -1 -1 7 2 -8 0 -2 1 1 2 3 1 -1 1 3 -5 -2 0 0 0 0 4 -1 0 0 -3 0

-14 -9 -9 -2 -17 -14 2 -12 -2 -11 -11 0 -5 -24 -11 -14 -11 -12 -24 0 -12 -17 -1 5 -28 -7 -4 -3 -10 -4 26 -10 -14 -15 -37 -6

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Appendix 2. The GFCI World

Appendix 3. The dynamics of the international financial centers Appendix 3.1. Top four Centres GFCI Ratings over time

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Appendix 3.2. Leading European Centres over GFCI editions

Appendix 3.3. Leading Asian Centres over GFCI editions

Appendix 3.4. Leading north American Centres over GFCI editions

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Appendix 3.5. Middle Eastern Centres over time

Appendix 3.6. Top Offshore Centres in GFCI 8

Appendix 4. The structure of assets and liabilities of the key player Appendix 4.1. General structure of assets in Russia, 2010

Source: Troika Dialog estimates

30


Appendix 4.2. Household assets/GDP, % of GDP, 2010

Source: Central Bank, Rosstrakhnadzor, State Statistics Service, US Federal Reserve, Troika Dialog estimates

Appendix 4.3. Household liabilities/GDP, % of GDP, 2010

Source: Central Bank, US Federal Reserve, Troika Dialog estimates

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Appendix 4.4. Corporate debt in Russia, $ bln

Source: State Statistics Service, Cbonds, Central Bank

Appendix 4.5. Corporate debt/GDP, % of GDP, 2010

Source: State Statistics Service, Cbonds, Central Bank, US Federal Reserve

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Appendix 4.6. Bank assets/GDP, % of GDP, 2010

Source: US Federal Reserve, Central Bank

Appendix 4.7. Foreign investor financial claims on Russia, $ bln, 2010

Source: Cbonds, Central Bank, Lionshares, Troika estimates

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Appendix 4.8. Size of Russian mutual funds, $ bln, 2010

Source: Investfunds.ru, Troika Dialog estimates

Appendix 4.9. Total sources of assets/GDP, % of GDP, 2010

Source: Central Bank, Lionshares, Cbonds, Investfunds.ru, Troika Dialog estimates

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Appendix 5. Data on the stock market Appendix 5.1. Market cap/GDP, % of GDP, 2010

Source: Bloomberg

Appendix 5.2. Equity market ownership, %, 2010

Source: Companies, Troika Dialog estimates

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Appendix 5.3. Ownership of equity free float, %, 2010

Source: Central Bank, Lionshares Troika Dialog estimates

36


Appendix 6. Data on the bond market Appendix 6.1. Traded government debt/GDP, % of GDP, 2010

Source: US Federal Reserve, Cbonds

Appendix 6.2. Ownership of Russian government bond market,%, 2010

Source: Troika Dialog estimates

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Appendix 7. Russian pension system Appendix 7.1. The scheme of the pension system

Note: Arrows represent annual money flows. All flow amounts are estimated for 2010. Numbers in the boxes represent assets accumulated by the entities. Source: State Pension Fund, Investfunds.ru, Troika Dialog estimates

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Appendix 7.2. Pension payments, % of GDP, 2010

Source: Peterson Institute

Appendix 8. Investment potential of individuals Appendix 8.1.Distribution of households in Russia in annual income Category of investors

Number of households, mln.

Millionaires Higher than medium Medium Lower then medium Without current potential

0,2 0,9 4,5 20,0 27,4

Total income, 1000$ per year per household >1000 >250 >50 >20 <20

Savings in securities, $ per year (savings rate, %) 200 000 (20%) 25 000 (10%) 1 000 (1%) 200 (1%) 0

Source: Gosstrakh, Rosstat and expert estimations

Appendix 8.2. Percentage of population with a monthly income at purchasing-power parity above a certain level, %

Standard global definition of the middle class by the criterion of per capita GDP (about $ 500 of income in purchasing power parity per person per month) in 2011 will match 55% of Russia's population, or 78 million people.

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Appendix 9. Method of calculating of the components of the index of confidence to financial institutions.27 As the components of the index of confidence to financial institutions use the estimates of reliability (compliance), transparency (disclosure) and the profitability of financial institutions. The procedure for calculating the index: for each of the three indices calculated partial index – thŃƒ proportion of positive responses is subtracted the proportion of negative and this difference is added 100. The aggregate index is the average of the partial indices and measures change in confidence to financial institutions as a whole. Also calculated: The index of the current situation, which is equal to the average of the indices of reliability and transparency over the past year, as well as the index of worth the investment. Expectations Index, which is equal to the average of the index of expectations of reliability and transparency in the coming year. Index values vary from 0 to 200: if the index is greater than 100, "optimists" more than "pessimists", if equal to 100, the percentage of "optimists" and "pessimists" is the same, if less than 100, the "pessimists" more.

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Appendix 10. Segments’ profile «Young Leaders» Segment share: 13%. Sample: 397 people. Geography: 34% live in Moscow, 66% in the regions. Socio-demographic profile: Average age: 25-35 years (81%). No sex differences. Single or have a young family (54%). Average income per family member: a high (35 000 rubles. Throughout Russia, 38 000 rubles. In Moscow, 32,000 rubles. In regions). Education: Higher education (72%). Executives (24%), professionals (40%). The main sources of income: salary (86%) and income from businesses (11%).

Attitude to finances: Make purchases on credit if necessary (58%). Well versed in financial products. Use technical means to control their finances (44%). Current banking products Payroll Card Current Account Deposit Credit at the store Debit Card Cash loan in the bank Credit card Car Loan Mortgage

65% 31% 19% 11% 16% 14% 14% 15% 8%

«Affluent middle-aged» Segment share: 19%. Sample: 565 people. Geography: 36% live in Moscow, 64% in the regions. Socio-demographic profile: Average age: 36-47 years (54%). No sex differences. Married (77%), one child or no children (8454%). Average income per family member: a high (35 000 rubles. Throughout Russia, 398 000 rubles. In Moscow, 32,000 rubles. In regions). Education: Higher education (51%). Executives (35%), professionals (31%). The main sources of income: salary (89%) and income from businesses (14%).

(41%). Medium assess their knowledge about financial products. Rarely use technical means to control their finances (34%). Current banking products Payroll Card 63% Current Account 41% Deposit 32% Credit at the store 9% Debit Card 17% Cash loan in the 13% bank Credit card 10% Car Loan 14% Mortgage 4%

Attitude to finances: Ready to take loans only in extreme cases

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«Active middle-aged man in the street» Segment share: 103%. Sample: 318 people. Geography: 20% live in Moscow, 80% in the regions. Socio-demographic profile: Average age: 36-45 years (53%). No sex differences. Married (80%), have children (56%). Average income per family member: more than medium (18000 rubles. Throughout Russia, 22 000 rubles. In Moscow, 15,000 rubles. In regions). Education: Higher education (53%). Executives (31%), professionals (31%). The main sources of income: salary (94%).

Attitude to finances: Tend to make purchases on credit (48%). On average rate their knowledge of financial products. Trust more to domestic banks (57%). Current banking products Payroll Card 63% Current Account 35% Deposit 23% Credit at the store 10% Debit Card 16% Cash loan in the 14% bank Credit card 11% Car Loan 15% Mortgage 2%

«Thoughtless young proletarians» Segment share: 16%. Sample: 473 people. Geography: 13% live in Moscow, 87% in the regions. Socio-demographic profile: Average age: 21-30 years (71%). No sex differences. Young family (60%). Average income per family member: a medium (14 000 rubles. Throughout Russia, 18 000 rubles. In Moscow, 11,000 rubles. In regions). Education: Higher education (51%). Professionals (28%),. The main sources of income: salary (89%) and help of family (21%).

Attitude to finances: Completely open to the use of credits (100%) Do not know how to save money (61%) Current banking products Payroll Card 60% Current Account 28% Deposit 12% Credit at the store 19% Debit Card 9% Cash loan in the 24% bank Credit card 15% Car Loan 6% Mortgage 3%

«Rational Youth» Segment share: 4%. Sample: 119 people. Geography: 28% live in Moscow, 72% in the regions. Socio-demographic profile: Average age: 25-35 years (73%). Mostly women (59%). Single or common law marriage (61%). Average income per family member: higher than medium (18 000 rubles. Throughout Russia, 20 000 rubles. In Moscow, 16,000 rubles. In regions). Education: Higher education (54%). Professionals (32%), workers (21%), employees (22%).

The main sources of income: salary (83%) and help of a family (20%).

Attitude to finances: It is believed that the loan can be taken only in extreme cases (82%) Poorly informed about financial products. Current banking products Payroll Card Current Account Deposit Credit at the store Debit Card

65% 35% 19% 10% 8% 42


Cash loan in the bank Credit card Car Loan

13%

Mortgage

3%

8% 4%

«Pre-retirement Sloggers» Segment share: 15%. Sample: 448 people. Geography: 10% live in Moscow, 90% in the regions. Socio-demographic profile: Average age: 43-55 years Mostly women (62%). Married (73%), no children (61%). Average income per family member: a medium (14 000 rubles. Throughout Russia, 18 000 rubles. In Moscow, 11,000 rubles. In regions). Education: College (59%). Workers (39%), employees (27%), professionals (18%)The main sources of income: salary (86%) and pension (26%).

Attitude to finances: Current and potential borrowers - are fully open to credit (100%). Poorly versed in banking products. Current banking products Payroll Card 60% Current Account 30% Deposit 25% Credit at the store 16% Debit Card 6% Cash loan in the 21% bank Credit card 11% Car Loan 6% Mortgage 2%

«Retired» Segment share: 17%. Sample: 500 people. Geography: 14% live in Moscow, 86% - in the regions. Socio-demographic profile: Average age: 55-65 years (51%). Mostly women (61%). Older couples (55%) without children (69%). Average income per family member: below average (12 000 rubles. Throughout Russia, 16 000 rubles. Moscow, 9000 rub. In the regions) Education: specialized secondary education (50%), medium (18%) Workers (28%), pensioners (26%). The main sources of income are wages (70%), pension (46%)

Attitude to finances: Believe that the loan does not need to take under any circumstances (54%) Low awareness of financial products Current banking products Current banking products Current account Payroll Card Deposit Credit at the store Debit Card Credit Card Cash loan in the bank

48% 46% 31% 4% 4% 4% 4%

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ÂŤMeager youthÂť Segment share: 6%. Sample: 180 people. Geography: 4% live in Moscow, 96% in the regions. Socio-demographic profile: Average age: 21-27 years (54%). Mostly women (59%). A large proportion of unmarried (46%). Average income per family member: below average (10 000 rubles. Throughout Russia, 13 000 rubles. Moscow, 8000 rub. In the region) Education: Bachelor's degree (46%) Workers (29%), professionals (26%), employees (23%), unemployed (7%), students (4%). The main sources of income: salary (86%), and various allowances (21%) and help of family (21%)

Attitude to finances: Believe that you can take the credit only in extreme cases (67%), a very large percentage does not take a loan under any circumstances (31%) Poorly versed in banking products Do not use technical means to control their finances (72%) Current banking products Payroll Card Current Account Deposit Credit at the store Debit Card Cash loan in the bank Credit card Car Loan Mortgage

64% 33% 14% 12% 9% 9% 5% 2% 2%

Appendix 11. Usage of banking products

Source: The Bank of Moscow estimates

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Appendix 12. Digital office of the Bank of Moscow The main trend that dictates the development of the retail branch is the necessity to be constantly online. Recently the Bank of Moscow has opened the first newest Digital office or the so called Pattern Sales Point. This is another step on the way to the Moscow Financial Center, a contribution to the development of Digital banking. The new office comprises innovational technologies and advanced technical ideas along with a, traditionally for banks, conservative style. The Pattern Sales Point works 24 hours per day with no breaks, days off or holidays. Most operations are carried out without the manager‘s help. There is also safe-depository working day and night. Corporate clients may refill their account with the return via special night safe-depositary. ―We are the first in Russia to introduce the function of video-call-center at ATM. Now our clients can ask any question making a call to our call-center managers, as well as making a video-call to communicate visually thanks to the screens fixed on the cash machine‖, said the vicepresident of the Bank of Moscow Smirnova-Krell. In 2011 Moscow offices are planned to go under a large-scale technical reconstruction. The second Digital office is supposed to be opened in Saint-Petersburg in June-July 2011, said the director of the Retail business group of the Bank of Moscow Stanislav Stanek. In general, according to Stanek, during this month the directors‘ board of the Bank of Moscow is planning to adopt a preliminary version of a plan of the banks‘ offices technical reconstruction. The Digital Office will be opened as well in Yekaterinburg and other multi-million cities with a significant number of young and progressive clients. ―Our innovation is to collect all world technologies at one spot and further multiply them‖, say the representatives of the Bank. For the time being, clients can check out the whole spectrum of technological novelties in the office in Tverskaya and look through financial magazines on the shelves, learn about current financial information on the electronic panel, or play together with the smallest clients of the bank in children‘s self-service kiosk. The address: Tverskaya street, 8, Moscow

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