BNP Paribas: Striding Along Russia

23.10.2009 — Analysis

The financial crisis does not prevent foreign bankers from conquering the markets of Russia and the Urals. In his interview to RusBusinessNews Philippe Delpal, President of BNP Paribas Vostok, CEO of Cetelem (Russia), reveals the secrets of doing business.

- BNP Paribas started its activities in Russia in 1974 and became one of the most popular financial institutions in the country. Now bank continues to conquer Russian regions and in 2009 it has opened its branch in Yekaterinburg. Which challenges did you meet when entered Russian banking market? What do banks need to do in order to be successful in Russia? 

- In fact, BNP Paribas Group has been present in Russia since 1974 through its Representative Office. Today BNP Paribas develops its three core activities in Russia: firstly, Retail Banking Services via three entities: BNP Paribas - retail banking services to individuals, small enterprises and corporate clients (CB "BNP Paribas Vostok" ООО), which was launched in the early 2008 and is currently present in 5 major Russian cities including Yekaterinburg with 25 banking branches.

We have also a consumer finance business line in the point of sale under the brand - Cetelem which is active in Russia and Yekaterinburg since 2007, and Arval - operational leasing and fleet management company. 

The second activity - Investment Solutions- today is presented via Cardif - life insurance services specialist. And last but not least Corporate and Investment Banking ("BNP Paribas" ZAO).

Talking about Russia it has first of all to be mentioned that despite the crisis it is still a market of huge opportunities which allows developing banking business from scratch. Since the beginning of 2008 we have already installed and expanded our presence in Moscow, St. Petersburg, Nizhny Novgorod, Rostov-on-Don and Yekaterinburg. And we now provide a broad spectrum of retail banking services. Cetelem is now present in 19 regions of the country and is working with leading federal and regional retail partners.

However, Russia has also its specifics which create challenges to those who steam to attract Russian clients. First, penetration of the banking services in Russia is rather low and this creates some difficulties in reaching clients in the regions. Secondly, relatively low financial literacy of the Russian customers requires from banks not only to provide high-quality banking services but also to explain and consult clients in order to improve their understanding of the banking products, which is especially important for lending. In addition, Russia's 11 time zones are another challenge which requires synchronization of all business and IT processes in order to maintain efficiency over the whole territory of presence.

There is also a particularity of relations between banks and clients in Russia: people often change banks and can have deposit in one bank, a loan in another and make transfers via the third one while in Europe there is a tradition of long-term relations with one or two banks which can last for generations. This is the model we try to build: long-term clients relations based on confidence beneficial both for bank which is sure in its client and can, for example, grant a loan or support his/her business project easier and for client who can be sure that his bank will be near when needed.

To be successful in a banking business in Russia a bank needs to be able to deliver high-quality products and services and support all kind of clients' personal and business projects. At the same time you need to anticipate clients' needs and constantly create new products matching clients' expectations and changing market environment. At BNP Paribas and Cetelem we are flexible, we look at the market, we invent and that's how the optimal offer for both individual and corporate clients is being created. And, once again, pay attention to relations. You have to treat client as a partner in order to create relations which are truly worth to last for a long time - this is a base and trajectory for the banking system development in Russia.

And, obviously, in a market like Russia such traditional and, I would say, obligatory components as bank's stability and financial strength, strong risk-management, balanced credit portfolio and use of modern technologies are crucially important and we see the real positive effect of combination of all these elements in BNP Paribas Retail Banking in Russia.

- Are there any specifics for 100% foreign subsidiaries in Russia? Does your system of doing business differ from those of Russian financial institutions? 

- First, even being a 100% subsidiary of BNP Paribas Group we are legal entities (CB "BNP Paribas Vostok" LLC and "BNP PARIBAS" ZAO) which operate under Russian law and we follow all the same legal and accounting standards as Russian banks. 

But in fact, as a subsidiary of a global-scale European leader in financial services which is one of six strongest banks in the world (according to Standard & Poor's), we have to pay special attention to maintaining the Group's reputation in Russia and we are thus obliged to follow all regulation requirements and business ethics as carefully as possible. The other specific feature for us is that we have to prepare reporting both according to Central Bank of Russia standards (RAS and IFRS) and to Group's global standards. 

In the part of the business model we rely on the balanced business model with the strong risk management system and development strategy which allows us to attain excellent results in all business lines.

High quality of services which I have already mentioned and innovative marketing approach are also incidental to BNP Paribas manner of doing business worldwide. We do believe that banking can be friendly and nice and going to a bank can bring positive emotions. We implement this unique approach on the Russian market and maintain the same level of quality in all regions of presence.

- Many Russian banks did not survive during the crisis and had to leave the market. What is your receipt to survive in crisis? 

- First and foremost, it is strong risk-management. Over the booming years many banks, and not only in Russia, forgot about the importance of the risk control and have been overexcited about the growth which could not obviously last forever. BNP Paribas was and remains one of the few banks in the world which withstands current crisis the best: the Group has showed 1.6 billion euro net profit in the 2Q 2009 and has bought Fortis Bank becoming the 1st bank in the Eurozone. These results are due to its strong risk-management policy which is followed in all countries of presence and which allows to maintain stability and continue development even in the global crisis period. 

For the moment the right balance between managing risks and developing business needs to be found for all banks and happily Russian banks start to understand the importance of such approach. Crisis is not only a disaster but also an opportunity and you have to be a high professional to take this chance. In BNP Paribas we use this time to continue our development on the market - this year we have entered Yekaterinburg and Rostov regions which are among the most economically developed in Russia.

- What is the difference between Russian crisis in the financial system and a French one? 

- First, Russia was stroked by the crisis later and stronger than France and this was quite unexpected. In France as well as in Russia the reasons for crisis were nearly the same but its impact was different. We should not forget that France is not an exporting country and dynamics of oil and commodities prices is not the major factor of the financial and economical state of the country, while Russian economy is still very much dependent on the global commodities market conjuncture. 

Talking about the banking sector, unlike most European and especially Anglo-Saxon countries France did not see crucial deterioration of assets or bankruptcies of the major players of the banking system as French banks have traditionally been following rather moderate strategies of development and were careful in their risk-management. However French government has granted considerable amounts of money to French largest banks in order to boost the support of the real economy and BNP Paribas actively took part in this plan.

At the same time the Russian government took all necessary measures to support banks and succeeded to prevent the liquidity crisis which was a real threat to the system. Still some big Russian banks could not escape the sanitation process which means that they could not exist without external help anymore.

Global crisis unveiled also another problem in Russia which is not relevant to France: a lack of long-term funding on the market and limited or restricted access to the foreign financial resources. Thus, decrease of the foreign investments (down by 30% in 1H 2009) became a considerable problem for the business, banking and production sectors in the country.

Due to some economic and historical reasons (French banking market is much more mature than Russian one) some lending activities were not rolled back by the banks in France as it has happened in Russia (mortgage market is a striking example).

In general it is not quite correct to compare Russian and French financial crises: their difference is linked to the differences of the economies and financial systems of both countries while the origin of the crisis is the same. Russia is usually compared to other BRIC countries and I would like to mention that disregarding the crisis Russia remains attractive for foreign investments in the long-term prospect and has a good potential for recovery.

- What is the difference between Russian and French typical borrower? Which loans are most popular in France? 

- There are some differences which are mostly linked to cultural and historical reasons as lending in France has longer history than in Russia: for example Cetelem, which is the European leader in consumer finance, boasts more than 54 years history and this is longer than the whole history of the Russian banking market. But with the development of the banking in Russia differences between Russian and French borrowers and their behavior become less obvious.

To give you an impression, I can name just 3 small examples: French borrowers are usually much more pragmatic and the part of impulse purchases is quite low while in Russia in points of sale a lot of goods were purchased with a loan spontaneously, however crisis has changed this practice and people in Russia become more careful in their purchases too.

The other interesting distinction is that in France in the times of economic difficulties people try to save money while in Russia some first tendency is to spend: for example in the beginning of the crisis in Russia many people were trying to spend money which they couldn't save because of the devaluation and inflation.

And, finally Russian customers often try not to go to the bank for a loan but to borrow money from their friends and family - this is due to historical reasons and I am used to say that friends and family are our main competitors in terms of lending. However, this tendency is also changing and people in Russia get used to banking services. In general in all countries different groups of borrowers have different characteristics and it mostly depends on the social circle than on the country. 

- Did your bank tighten requirements to the borrowers because of the crisis?

- BNP Paribas in Russia uses efficient system of risk management which is based on the technologies and international experience of BNP Paribas Group and adopted to the Russian market specifics. We constantly update it according to the changes of the market and thus adjust our requirements to the borrowers in line with the changes in economy. We have optimal acceptance rate and in the same time carefully evaluate borrowers using our scoring system in order to reduce risks.

Taking into account the changing client profile one of the measures taken was the correction of the borrowers evaluation work in order to avoid the mistakes which could be provoked by the speed of changes.

Both BNP Paribas Retail Banking and Cetelem (consumer finance) have few main criteria to assess borrowers in each and every case: it is a good credit history of the borrower, correspondence to the banks' requirements to borrowers (age, record of work, length of work at the last place etc.).

At the same time in the framework of the Responsible lending policy BNP Paribas and Cetelem assess the credit burden which every borrower can support in order not to let client in the situation of the overindebtedness when he or she would not be able to repay his debts.

- Which investment projects do you support in Russia? Which fields are most interesting for you?

- Russia is one of the very important markets for BNP Paribas and as well as in France and Europe we are interested in supporting the real economy here. We do not name concrete projects or partners but we consider interesting opportunities and try to support projects in various industry sectors including automobile, agriculture, food and beverage, service industries, etc.

- You have opened a branch in Yekaterinburg - why did you decide to enter the region during the crisis period? Is it difficult to start business in metallurgy region, severely impacted by the crisis? Which difficulties did you meet and how do you deal with them? Is the competition tough in the Middle Urals?

- Being a part of one of the six strongest banks in the world according to Standard & Poor's - BNP Paribas, we continue our development in Russia in line with our expansion strategy and we choose regions we enter relying on a whole complex of macro and micro-economic criteria with regard to the long-term prospects of the regions' development. 

We consider Urals and Yekaterinburg in particular as economically attractive region which is basically a promising market for retail banking services development. Need in diverse banking services grows and the demand is high enough. As for the competition is really tough in Moscow and St. Petersburg and in regions there is still enough room for new players especially of such scale as BNP Paribas. Yet we see that the competition is now tightening but it is a positive tendency which is partly due to the development of the banking system and partly - to the crisis which required from banks more efforts to attract customers. From the other hand crisis has had a negative impact on some players, so we can see the recomposition of competitive landscape and new leaders that emerge.

- Which products and services are you going to propose in the region?  

- In Yekaterinburg BNP Paribas proposes a whole spectrum of retail banking services to individuals, small enterprises and corporate clients. For individuals we offer current accounts, wide range of attractive deposits, payment cards, loans (mortgage, personal, auto), transfers and payments, banking services packages, deposit boxes etc. 

We constantly extend our offer to clients and introduce new products and services, for example we have recently launched banking services packages which allow clients to get access to the different combinations of the most popular banking services on beneficial terms. We also diversify our deposit offer which now includes term deposits as well as deposit with the payment of interest in the day of opening and replenished deposit. We also propose special conditions to our payroll clients and employees of the corporate partners.

On the top of this we offer a whole spectrum of services to corporate clients which can benefit from BNP Paribas global network of 85 countries and experience in the banking field. For small businesses and corporate clients we provide cash and settlement services, deposit transactions; lending operations, documentary operations, trade finance center (for corporate clients). We also have a Trade Finance center in Moscow which works in collaboration with other 90 BNP Paribas trade centers around the world. All this allows matching needs of our clients in banking support for their private and business activities.

- Do you plan a further expansion in the Urals?

- We do plan to continue further development in Russia and Urals is not an exception. Still it is now premature to name any concrete figures or plans for the region - we intend to expand our offer, introduce new products and services. We expect to conquer and retain good positions in all regions of presence.  

- What are your plans for the further development in Russia in whole?

- From February 2008 when the first branches were opened in Moscow and St. Petersburg, BNP Paribas Retail Banking (CB "BNP Paribas Vostok" LLC) has already opened 25 branches in 5 major Russian cities: Moscow, St. Petersburg, Nizhniy Novgorod, Rostov-on-Don and Ekaterinburg. BNP Paribas Retail Banking will continue to expand branch network in Russia at the same pace, offering full range of financial products and services to individuals, small businesses and corporate clients.

BNP Paribas has important competitive advantages which allow us to successfully develop business in Russia: BNP Paribas is one of six strongest banks in the world according to Standard & Poor's which proves our stability and financial strength on the global scale and CB "BNP Paribas Vostok" LLC is A- rated by RusRating agency which makes us one of three banks with the highest ratings of the Agency in Russia and confirms our solidity on the local level. All this gives a true confidence to our clients as they work with one of the strongest banks in the world. We do endeavor to give to Russian customers access to the banking services of international quality provided by one of the leading banking Groups in the world.

The interview has been prepared by Maria Truskova