среда, 20 января 2016 г.
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
