Page 20 - bne magazine February 2022_20220208

20 I Companies & Markets bne February 2022
“In the first nine months of 2021,
the bank doubled net income y/y to RUB58.7bn – the highest in Otkritie’s recent history. At the same time, asset quality remained among the highest on the market”
In the first nine months of 2021, the bank doubled net income y/y to RUB58.7bn – the highest in Otkritie’s recent history. At the same time, asset quality remained among the highest on the market, with non-performing loans (NPLs) at less than 3% of the total portfolio.
“Today we are a normal bank. At the same time, the CBR
had created a so-called “bad bank” on the basis of Trust Bank [which also failed during the crisis] and put all the bad debt from the rehabilitation programme into that,” says Levin. “The CBR also took PromSvyazBank [which also failed] and used that to create a bank that specialises in the defence industry.”
Nevertheless, Otkritie remains directly and 100% owned by the CBR. Three of the central bank’s employees sit on Otkritie board of directors, as well as the Deputy Minister of Finance, but to that the bank has added five independent directors and the CBR maintains Chinese walls between the management of the bank and the department that regulates the banking sector. Mikhail Zadornov, a well-known banker and former Finance Minister, is the CEO and heads the board.
Zadornov is best known for taking over the state-owned behemoth VTB’s retail arm, VTB-24, and building it up into one of Russia’s leading retail banks. Levin also has 30 years of experience and is the former CEO of Russky Standart Bank that pioneered the unsecured retail lending in Russia that caused a revolution in the way Russian banking is done in the noughties.
New business model
The business model was restructured. Previously Otkritie had focused on term deposits, but under the new model Otkritie has been targeting various niche businesses and focusing on becoming a leader in each, sometimes using its subsidiaries to become a leader in a very specific niche.
Levin said one of the first changes was to zero in on both the retail and corporate current accounts business, which provide the main source of funding for the bank’s business. Today 44% of all the bank’s liabilities are current accounts.
Other businesses that Otkritie has made its own are issuing credit cards and payroll programmes for companies, and the bank is especially strong in catering to small and medium- sized enterprises (SMEs).
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“We hold a 10% market share of the SME business, together with our subsidiary online bank Tochka,” says Levin. “Our group has about 530,000 accounts that hold half a trillion rubles ($6.8bn). We are also active in escrow accounts. The law was changed for developers collecting pre-paid apartment sales. Developers used to collect the payments and use the money to build the apartments. Now they have to raise financing for developments and the buyers’ money is held
in escrow while that is going on, so if the project fails they won’t lose their money. We have about RUB150bn in escrow accounts, which makes us the fourth-biggest player on the real estate development financing market”.
The strategy was updated earlier this year where Otkritie will leverage its digital business model and increase cross sales between units as well as by adding more third-party partners, which can be quickly integrated through its OpenAPI.
Levin says this should help the bank hit its annual net income target of at least RUB100bn by 2023 and become a market leader in terms of return on equity (RoE) of at least 15% by 2023, Zadornov said in September interview.
Otkritie remains a universal bank and Levin says that the business is now mostly evenly divided between retail and corporate banking, while less attention is spent on the term deposits business.
“We changed the model to decrease the speculative rates on term deposits, especially in retail, and pay more attention to retail and corporate accounts. As of 30 September we had total liabilities of around RUB2.2 trillion ($27.1bn).”
The bank funds almost all its business from these liabilities and only issues about RUB30bn-RUB40bn a year on the local bond market, and then mainly to build out a curve with bond investors that is available should management want to increase borrowing using bonds in the future.
“We have a healthy loans-deposit ratio of 89%,” says Levin. “The balance sheet is liquid and the obligations side is also healthy. For the first nine months of this year the net interest rate margin was at a comfortable 4.8%.”
The bank’s capital adequacy ratio (CAR) – the share of cash
a bank keeps on call to meet withdrawals – is also healthy at 14.5%, which is well above the mandatory minimum, but not quite the 20% emerging market banks often like to have to deal with economic shocks.
Ratings and privatisation
The bank has returned to fast growth since the problems it had with ratings in 2017, and now they have rapidly improved as a result.
The bank has four sets of ratings in all – two domestic and
two international. Otkritie’s ratings from ACRA have been increased seven notches to AA, while the other Russian ratings