Дмитрий Исаакович Леус
Bank goes public
The
Bank’s annual meeting of shareholders has decided to issue new shares
18.07.2013, 12:49
Bank
actively grows its capitalization: an
increase of RUB 971m already took place in March this year. On May 23, the
annual meeting of the Bank’s shareholders further resolved to raise funds
amounting to RUB 2.5bn by issuing new shares. We have spoken with Dmitry Leus,
Chairman of Bank , about how the Bank plans to invest the new funds and what
rate of return investors may expect.
A Return on
investment of up to 40 percent
- Dmitry Isaakovich Leus, which are
the main parameters of the share issue?
-
Dmitry Leus: The annual meeting of shareholders
resolved to issue 2.5 million additional shares at a nominal price of 1 rouble.
The Bank may thus raise RUB 2.5m in new funds, thereby increasing its capital
base by 127%. As a result, Bank ’s overall capitalization will amount to RUB
5.5bn. We plan to place these new shares on the Moscow Stock Exchange in open
subscription.
- What is the objective of the
current shareholders in conducting an IPO?
-
Dmitry Leus: The Bank is actively expanding. Its
retail loan portfolio grew 2.5 times, its total assets amount to RUB 23.1bn. To
take it a step further, Bank needs fresh
investments. A public placement will provide us with more favourable
refinancing conditions and may even lead to bond placements in the future...
- How did you come to this
conclusion?
-
Dmitry Leus: We have invested heavily in the
Bank’s infrastructure. Since November 2012, we have actively expanded our
branch network and have opened over 21 regional offices. Overall, the Bank
currently has a network of 70 branches stretching from Kaliningrad to
Novosibirsk, and from Surgut to Gelendzhik.
We have equally transformed the Bank’s
governance by implementing a matrix model of management (more than one
reporting line). Our regional offices function like hubs headed by local
banking experts. In addition, branches have received a unified format and
branding with an equally unified client service using Group standards. We have
centralized HR procedures and our employees are highly incentivized.
- What rates of return may investors
in Bank expect?
-
Dmitry Leus: Since the beginning of the year, the
Bank earned 30% on its capital and there is significant potential for future
growth. The Bank’s top management is targeting returns of 35 to 40% over the
next two years. This is our current roadmap - a revised version of our
long-term strategy will soon be published.
- This is the first time you raise
public capital. What type of investor do you plan to attract?
-
Dmitry Leus: The Bank’s business is sufficiently
transparent to being accessible to a wider audience. For the moment, the
shareholders of Bank are its top
management. We are also in negotiations with a number of institutional
investors.
- What is Bank ’s competitive
advantage? What makes it attractive for potential investors?
-
Dmitry Leus: The Bank’s business is very
transparent and easy to apprehend. Every month, over 10 000 Russian citizens
become our new clients. These are individuals and small to medium-sized
businesses. This trend is accelerated by an increased presence of points of
sale all across the Russian regions, thereby doubling our customer base. Our
clients are becoming more loyal and have recourse to more than one product over
a longer service period. Alongside an increase in productivity, we observe that
the profit share stemming from our non-interest business is rising too.
Pensioners
more disciplined than young people
- Let us speak about the Bank’s core
business in more detail. How does the Bank generate profits?
-
Dmitry Leus: In February 2012, the Bank presented
a strategic plan focusing on high-yield product lines. Traditionally, our main
profit centre was in the domain of consumer lending. Our corresponding credit
portfolio constitutes approximately RUB 8bn, with monthly new lending volumes
ranging from RUB 700m to 1bn or, alternatively, 8500 new credits each month. In
this segment earnings derive largely from the Bank’s commission and interest
business. The commissions do not derive from arrangement fees (as this is
against the law in Russia), but rather from the insurance component within a
loan. Credit insurance is not mandatory, but we incentivize clients to buy
insurance by substantially lowering their interest rate in return. The
insurance component constitutes 18.8 to 18.9% of all consumer loans. Put
differently, if we award RUB 700 to 1bn in credits per month we expect
approximately RUB 180m in commissions income from these transactions. On the
other hand, our interest rates for credits vary depending on factors such as
the client’s overall assets and liabilities, his income situation, age, in
addition to other indirect indicators calculated by our credit analysts.
- Does the Bank engage into other
forms of lending?
-
Dmitry Leus: Of course. Our portfolio of mortgage
loans amounts to RUB 1bn, not including RUB 100m in car loans. We continue to
lend to small and medium-sized businesses. However, as you can see, the Bank’s
strategic orientation is directed at high-yield loan products.
- Consumer lending is a risky
business indeed. What is your default rate?
-
Dmitry Leus: Our default rate is not higher than
6%. Bearing in mind that our consumer lending portfolio is of relatively short
existence (1 year), we consider this number as high. We try to create a system
of internal incentives keeping default rates at a minimum. Also, we have
created appropriate IT systems to monitor loans in default and constantly work
on our soft-collection department which works successfully in identifying and
resolving issues with late payers. We are also speaking to the 5 largest
domestic collection agencies. Accordingly, the situation is under control.
Our consumer loans come at a rate ranging
between 50 and 60% p.a. (broken down into a minimal credit rate of 36.9% plus
the credit insurance component of approximately 19%). We tailor our credit
products to market requirements and the composition of our internal credit
portfolio.
- Who is your typical client?
-
Dmitry Leus: There are two categories of clients:
we sell our normal “” loans to clients between the age of 23 and 65. Pensioners
up to the age of 80 may profit from our “Pensioners” loans. I may add that we
consider pensioners as our best clients. They have few liabilities and possess
a very high repayment discipline. In practice, pensioners return loans by far
more responsibly than our younger clients.
- What is the approval rate for
consumer loans?
-
Dmitry Leus: We approve only about 20% of all
applications we receive (whereas our competitors consider approval rates of 40%
as “conservative”). In the beginning, an application lands on the desk of our
scoring experts who use various databases and mathematical models in their
analysis. Then the credit application is passed over to our analytical team.
Next, during the verification process (which we conduct for all credits
regardless of amounts), we ask the potential borrower to provide us with two
mobile and two land-line telephone numbers (private and work), which we call...
When calling the client’s employer we also use an alternative number we usually
take from the telephone directory or any other open source.
- How do you verify pensioners?
-
Dmitry Leus: The process is almost identical. We
have a method which gives us access to average pension payments per region. If
we are not dealing with military pensions, average pension payments in Russia
do not exceed RUB 5000 (USD 152) per month. Obviously, we don’t call their
employers, even if they are still working (unofficially). However, we do call
their neighbours and close relatives. We may also want to speak to their
children about the usefulness of a loan.
Call centres
as main sales drivers
- How does the Bank stay in touch
with its clients?
-
Dmitry Leus: We work very closely with our
clients. In the wake of the reorganization of our back office, we have created
a client service centre in Voronezh, comprising a contact centre, our credit
analysis team, the IT department, and operations.
A year ago, we have created a full-fledged
call centre performing client advisory, sales, and after-sales functions. In
our Bank the main sales agent for new loans is the call centre. Thus, the
client has the opportunity to submit his credit application by telephone. The
actual signing takes place at a later stage when the client is physically in
the Bank. Let me add that our centre is very efficient. Two thirds of the 1500
credit requests we receive daily come in through the call centre.
When a credit has been awarded our quality
management department enters the scene. Their task is not only to monitor
client satisfaction, but also to identify default risk at an early stage. Thus,
we usually give new borrowers a short welcome call and ask them whether they
have taken good note of the credit agreement. In case their phone does not
answer for five days, we contact our security desk. This enables us to
immediately address cases of fraud.
- How manageable is the structure of
the Bank?
-
Dmitry Leus: We use video surveillance systems
allowing us to see what happens in any branch of our regional network. Our
specialists from quality management provide real-time evaluation of our staff’s
behaviour during client meetings and the on-boarding process. A bank is first
and foremost a service provider and we are well aware that only high-quality
service deserves customer loyalty.
- Is it very important for you to
have real-time access to the Bank’s processes?
-
Dmitry Leus: Yes, I think this is important, also
in view of identifying any shortcomings at an early stage - before they become
systemic. In addition, the system informs me about the number of credits
awarded in every branch [Dmitry Leus turns around the screen of his computer
where constantly changing numbers appear...].
The computer system allows us to monitor
the effectiveness of the Bank’s newly created regional branches on-line. For
example, as at April 29, fresh loans amounting to RUB 610m were issued. If we
multiply this amount by 18.8% we get RUB 116m in gross revenues. If we subtract
from this amount costs of goods sold (approximately RUB 80m) and loan loss
reserves, we get the Bank’s net profits.
Bottom line, the Bank’s centralized system
provides decision makers with an objective source of information and may
correct the regional management’s actions if need be. We conduct conference
calls with the regional leadership on a daily basis...
Chatting with
the bank
- Which growth perspectives do you
see for the future?
-
Dmitry Leus: Going forward we intend to actively
develop a number of new financial products. One of them is a lending product
for small and medium-sized businesses which is in the launch stage now. For
historical reasons, we have a well-balanced mortgage loan portfolio we would
like to grow further should we be able to attract funding at comfortable rates.
In addition to cash loans, we would also like to grow credit card loan
solutions and plan market-entry strategies by October this year. Currently, we
are developing our own payment processor for credit cards and plan to integrate
it into the existing IT infrastructure.
- Such projects require substantial
marketing efforts.
-
Dmitry Leus: Correct. The Bank invests
considerably into marketing - approximately RUB 8.5m per month. Hence, every
credit application the bank approves “amortizes” RUB 1000 in marketing costs.
As we lend massively in the Russian regions we used to advertise on Russia-1, a
TV channel with many regional variations, but we didn’t include Moscow and St.
Petersburg. When promoting credit cards we will also use TV as a medium, but we
shall mainly have recourse to the internet and social networks when promoting
credit card lending.
- Will there be changes on the Bank’s
internet site?
-
Dmitry Leus: Of course. For the moment, we only
sell loans via our internet site. The next step will be to accept deposits
on-line too. We also intend to link the Bank’s internet site to social networks
and provide on-line chat rooms with client managers. By the end of this year,
our customers will be able to communicate with their banker via Skype...
Oleg Potapov
Dmitry Leus: “Bank is a socially responsible bank. We care about the financial literacy of the next generation.”
Dmitry Leus
A project called “Lectures on
Financial Literacy”, organized by the local branch of Bank started in Lipetsk today. During the entire
academic year, the Bank’s experts will be giving lectures on finance to the
graduate students of nearby schools.
The first lectures, given on 20 September 2013
at two secondary schools, have been met with great interest from both students
and teachers. DmitryIsaakovich Leus
The Bank’s employees explained in comprehensive
form the basics of personal finance, deposits, and lending. Students were given
an opportunity to ask questions with regard to financial discipline and
household budgeting. The next lectures will be dedicated to topics such as
interest rates, inflation, investments, foreign exchange, and criteria when
choosing the right bank.
Overall, Bank ’s objective is to improve
financial literacy among the younger generation, in addition to supporting
education in general.
“Bank is
a socially responsible bank. It is important that the younger generation
understand how money works in the world and what is the role played by banks in
the economy as a whole. Although not an easy task, improving financial literacy
is essential to our country’s economic health”, said the Chairman of Bank , Dmitry Leus.
“How to Motivate Employees” Dmitry Isaakovich Leus
Dmitry Leus, Chairman of Bank
Any
bank with long-term ambitions uses a system of employee motivation. We spoke with Dmitry Leus, Chairman of Bank ,
and asked him to which motivational techniques he has recourse.
- Dmitry Isaakovich,
what do you understand under the concept of “motivation” and what is its
application?
- Dmitry Leus: Motivation designates the incentive to act or, more precisely,
the activation of motives pre-existing in every human being. Its importance in
the world of business, and in particular in the service industry, is to attract
and keep the most valuable assets we have - human capital.
Since spring 2011, our Bank has been carrying out an active
regional expansion strategy. Within two years, we have created from scratch 40
branches in different regions of the Russian Federation. Accordingly, it was
necessary to also create a system of motivation transforming a mere
geographical presence into a centre of human excellency. Thus, psychological
factors prove to be as important as economic ones in achieving a high return on
investment. In general, good motivation systems are a win-win game: they must
reflect the interests of all stakeholders of an enterprise - employees,
management, and its shareholders.
- Financial incentive is doubtlessly a very effective
means of motivation. Does Bank also
offer career growth?
- Dmitry Leus: Yes,
we also offer the opportunity of career and professional development, which is
a very important consideration for increasing an employee’s self-esteem and his
reputation within the bank.
Our corporate Intranet provides an appropriate platform for
professional development and the creation of a sense of unity and purpose. For
example, a “wall of honour” showcases the achievements of our best talents. In
addition, we display sales figures for each branch on-line. This allows
regional branches to compare their results with other regional branches and
creates a spirit of healthy competition, thereby stimulating outliers to turn
into performers and performers into leaders. The Intranet also helps management
communicate with staff and spread strategic newsletters; alternatively, it may
serve as a forum on which expert communities exchange ideas and innovations.
As part of our motivational programme, we also hold internal
competitions for management vacancies within Group. Regardless of his
geographical location, every employee from the Altai Republic to Kaliningrad is
eligible and has the opportunity to become the head of a newly opened regional
branch. This way we seek to foster a long-term relationship between the Bank
and its employees and to strengthen loyalty among our people.
- Dmitry Isaakovich Leus,
employee training is the cornerstone in any system of professional development.
For example, on-the-job training allows a company to bring new employees up to
speed quickly and expert seminars may enhance the skills of senior staff. Today, many banks have their own in-house
learning platform. Does Bank have
anything similar to offer?
- Dmitry
Leus: Of course. We recently launched a project called the
“Learning Tool” - a most useful platform whereby the employees of our newly
opened regional branches can actively develop their skills. Also, in addition
to in-house seminars, we regularly organize external work groups and corporate
retreats during which new business processes, product lines, or the Bank’s
overall strategy are on the agenda.
- In other words, motivational techniques are a key
instrument in the successful development of the Bank?
-
Dmitry Leus: Yes, absolutely. Like any bank
in full expansion, our heartbeat is always in tune with the challenges of
modern life and their financial repercussions on the capital markets. Our
system of motivation has been instrumental in scaling up our regional presence
and has shown that numbers alone do not add up unless motivated by human
effort.
- What are the
components of your motivational system?
- Dmitry Isaakovich Leus: All the employees of our regional front offices have a basic
salary, in addition to a performance bonus at the end of each month. The programme further aims at
keeping the growth rate of the basic salary under control over time, in favour
of the performance bonus.
Such a system of extrinsic (that is,
monetary) rewards is based on the principle that financial bonuses indeed
encourage an employee to achieve the best results. Although the theory of
extrinsic rewards cannot be generalized to all situations, there is a general
consensus that in the world of banking, which derives its meaning from the
universe of numbers, psychological motivation may be created through, and
measured in, monetary terms.
However, rewards must not be
attributed based on management’s own discretion and opinion, but according to
measurable and verifiable indicators, lest subjective preference give rise to
inequality and damage the team’s sense of unity and common interest. In the
context of its remuneration policy, the Bank therefore monitors staff
performance in three specific business fields.
The first one is business and sales
performance. We set quantitative targets for our front office staff measuring
the acquisition of net new money and the successful sale of lending products to
prime borrowers. In the second field, we set up indicators for quality of
service. In fact, customer service must keep track with the Bank’s geographical
expansion and the growth of its customer base. Put differently, quantity and
quality must grow in tandem. In the third field, we measure the effectiveness
and quality of overall processes, which is the key prerogative of our Moscow
head office.
Alongside performance rewards, the
Bank has recently also come to rely on bonuses for successfully completed
project management. As we are currently actively growing in size, some of our
products, processes, and structures need to be adjusted to reflect this. Hence,
our need for project management has grown in proportion.
Mortgages: Both Sides of the Medal part 2 - Dmitry Leus
Decades, not years
When taking the decision to apply for a mortgage, the
first thing to assess is one’s own financial strength. A maximum of prudence
should be used, as mortgages are serviced over decades.
However, according to the Head of Mortgage and
Consumer Lending at SMP Bank, Natalia Konyakhina, the loan’s term can be
determined by the borrower himself. “Basically, people take out a mortgage for
10 to 15 years and repay within 5 to 7 years”, she says. “The longer the term,
the greater the interest premium paid to the bank, warns Dmitry Leus from
. “If income allows it, I advise early mortgage repayment”.
When making a decision about buying a property with a
mortgage, it is important not to be frightened. In fact, for most people
mortgages are the only way to turn into home owners, without having to save up
for years (and see these savings finally eroded by inflation). According to Dmitry
Leus, mortgages are a time-tested, relatively comfortable, streamlined, and
affordable tool to solve the housing question.
On the other hand, it would be misguided to take
mortgages lightly. Repayment is mandatory and must be made on a regular basis,
unless your home be repossessed. Accordingly, it is necessary to calculate what
portion of family income can comfortably be spent on repayment - without living
on bread and water.
What it takes
While deciding on a mortgage, it is not only the
borrower who assesses his financial capacities. So does the bank...
“The borrower must have a stable job”, argues Natalia
Konyakhina. It is a good sign if the borrower already owns an
apartment, a secondary residence, a car, or any other assets of value. Equally
important is a positive credit history”.
“An official proof of income is an icebreaker for most
banks”, says Dmitry Leus. “However, even the existence of historical
income figures as, for example, evidenced in an applicant’s official tax
declaration, cannot guarantee that such income will always be available over
the mortgage’s life”. Therefore banks are more and more often using internal
questionnaires to document the income history of their potential clients. As a
consequence, interest rates may be slightly higher.
The average borrower’s age is between 27 and 45, but
the range may be wider. “Our applicants tend to be between 21 and 60 years
old”, says Dmitry Leus.
Better not bet
Another important aspect worth consideration is the
loan currency. “It is better to take out a mortgage in the currency of the
borrower’s income, in order to avoid increased mortgage costs due to exchange
rate fluctuations”, says Natalya Konyakhina.
“For borrowers with income in Russian roubles, the
mortgage should, of course, only be taken in roubles”, agrees Sergey
Arzyantsev. “It is nonsense to take a mortgage loan denominated in
dollars/euros, thereby entering into a bet on whether the dollar/euro currency
pair will weaken against the rouble”. “If the borrower's main income is in
roubles, the mortgage should definitely be in roubles too”, confirms DmitryLeus from . “This will at least help avoid taking an unnecessary currency
risk”. According to Dmitry Leus, it is important not to be naive about
floating rate mortgage proposals, which are normally linked to such instruments
as the MosPrime (Moscow Prime Offered Rate), or the Libor (London Interbank
Offered Rate), or to the Central Bank’s own refinancing rate“. I am very
cautious with regard to this option”, says Dmitry Leus. “Interest rates
can only go up right now and, in general, when it comes to mortgages, exchange
rate uncertainty is an undesirable additional burden for the borrower”.
On the other hand, by making a simple calculation, one
can see that floating rate offers can look quite attractive. For example, one
bank offers 9.75% for the first five years, and 4.5% above MosPrime (today at
6.64%) during the remaining years.
Mortgages: Both Sides of the Medal - Dmitry Leus
Dmitry Leus: “If income allows it, I advise early
mortgage repayment”
Buying a property is certainly not a situation when
one should “jump in feet first”, in particular when it comes to taking out a
mortgage. Which are the main points potential mortgage buyers should keep in
mind?
Suppose you decided to improve your housing situation:
buy your own flat, move from a two-bedroom flat into a three-bedroom apartment,
or move closer to the centre. The decision is taken..., but you cannot afford
it. That is the exact moment when the concept of the mortgage comes to mind.
Some view mortgages as a form of modern enslavement
but, honestly, saving millions is a difficult task for common mortals. Of
course, mortgages have their advantages and disadvantages. There are a lot of
small but important details borrowers should know in order to avoid trouble.
One thing is clear - on your road to the paradise of home owners, do not stop
at the first bank, and do not blindly agree to all conditions.
Take it or leave
it
In summer 2011, the mortgage market was very
attractive for borrowers - thousands of offers, promotions, discounts, as
lenders competed to win over customers.
Then came fears over the possibility of a “second
wave” of the crisis. And things on the mortgage market began to change...
Currently, banks have started to raise interest rates
on loans, including mortgages. For the moment the increase is still small, not
over 1 percent, but that may change...
“In the current macroeconomic environment, new home
owners wishing to apply for a mortgage should act quickly”, recommends the Chairman
of Dmitry Leus, justifying his position by expert opinion stating that
interest rates are not expected to fall in the short to mid-term. Quite the
opposite: “in fact, in crisis situations, banks not only tend to increase
interest rates, but also to adopt more restrictive mortgage approval
processes”, explains the banking specialist. “In other words, client
applications run a greater risk of being rejected, as assumptions are tested
against a more pessimistic scenario, and documentary evidence requirements with
regard to client data such as income history undergo higher scrutiny”, says DmitryLeus.
“Many banks have begun to tighten credit conditions.
This is the result of increased costs of credit resources. Better to jump on
the bandwagon of low rates right now”, equally confirms Sergei Arzyantsev,
Head of Mortgage Lending at Nomos Bank.
