UNIVERSITY OF FINANCE AND ADMINISTRATION
Faculty of Economic Studies Field of Study: Business Management and Corporate Finance Follow-up master´s study programme in the full-time formPolina BulyginaThe determinants of foreign banks expansion to Russian banking sector
DIPLOMA THESISPrague 2017Final Thesis Supervisor:
Mgr. Ji?í AmlerAcknowledgements This Diploma Thesis would not have been possible without the support of many people. Many thanks to my supervisor, Mgr. Ji?í Amler, who read my numerous revisions and inspired me, his assistance and professional comments helped me a lot. Also thanks to all respondents who helped me with the research. And finally, thanks to my family, who endured this long process with me, giving support and love.
DeclarationI hereby declare that I have compiled this final thesis on my own and all the quoted literature as well as other sources used in the thesis are listed in the bibliography. The electronic copy of the thesis is identical with the hard-bound copy. I approve that this diploma thesis is published pursuant to Section 47b Act No.111/1998 Coll., on Higher Education and on the amendment and modification of other acts (the Higher Education Act), as amended.
AbstractThe main aim of the Diploma thesis is to analyze the core principles and main elements of the banking expansion to the Russian market and its usage and implementation, to familiarize the reader with the current situation on the market and to describe what are forecasts and tendencies for the Russian market. The principal result of this work would be to affirm and highlight the significance of the core principles of banking internationalization. The theoretical part composes of a description of the main theories, concepts and strategies, whereas the practical part acquaints activities of Raiffeisen Bank, Deutsche Bank and UniCredit Bank.
Conclusion proves the assumption that foreign banks have entered the Russian market to support bilateral trade relations between Russia and their home countries and those foreign banks have entered the Russian market by following existing clients from home market.
Key words:Expansion, banking sector, Foreign banks, Russian banking sector.
Table of contents TOC o “1-4” h z u Acknowledgements PAGEREF _Toc480103105 h 2Declaration PAGEREF _Toc480103106 h 3Abstract PAGEREF _Toc480103107 h 4Key words: PAGEREF _Toc480103108 h 5Table of contents PAGEREF _Toc480103109 h 6Introduction PAGEREF _Toc480103110 h 71. Theoretical Concepts of Banking Internationalization PAGEREF _Toc480103111 h 101.1 Reasons for banking Internationalization PAGEREF _Toc480103112 h 101.2 Entry mode of Foreign Bank into Russian Market PAGEREF _Toc480103113 h 151.3 Strategies used for penetration PAGEREF _Toc480103114 h 171.4 Previous studies on Banking Internationalization PAGEREF _Toc480103115 h 231.5 Effects of regulations and costs of Entry to Foreign market PAGEREF _Toc480103116 h 282. Institutional mode of Entry PAGEREF _Toc480103117 h 312.1 The legal status of foreign banks in Russia PAGEREF _Toc480103118 h 312.2 Forms of presence foreign banks and their peculiarities in Russia. PAGEREF _Toc480103119 h 352.3 Areas of Business activities of foreign Banks PAGEREF _Toc480103120 h 383. The position of foreign banks in Russian sector and its marketing strategy PAGEREF _Toc480103121 h 413.1 Dynamics of Banks coming to Russian market PAGEREF _Toc480103122 h 413.2 PEST analysis PAGEREF _Toc480103123 h 463.3 SWOT analysis PAGEREF _Toc480103124 h 484. Methodological analysis of banking expansion into the Russian Market PAGEREF _Toc480103125 h 504. The summary of central hypotheses PAGEREF _Toc480103126 h 524.1 Data for the analysis PAGEREF _Toc480103127 h 524.2 Analysis of Raiffeisen bank PAGEREF _Toc480103128 h 534.3 Analysis of Deutsche Bank PAGEREF _Toc480103129 h 604.4 Analysis of UniCredit bank. PAGEREF _Toc480103130 h 644.5 Estimation of Models and overview of results PAGEREF _Toc480103131 h 67Conclusion PAGEREF _Toc480103132 h 69Bibliography PAGEREF _Toc480103133 h 74Appendix PAGEREF _Toc480103134 h 79List of tables and graphs PAGEREF _Toc480103135 h 82
IntroductionThe end of the XX and the beginning of the XXI century marked the transition of the world economy into a new qualitative state, associated with its increasing globalization. Under these conditions, international banks act as intermediaries in the global financial markets and participate in almost all areas of international economic relations, allowing the movement of international capital. Powerful informational sector has a great influence on the process of internationalization of capital. Global activity of international banks directly effects on the national economy both the countries where they are based and the recipient countries of foreign direct investment and, consequently, on the world economy as a whole.
In the context of globalization, there is a strengthening of relations between parts of the world economy. In this regard, States participating in the globalization process allows expanding the scope of their economic and political influence which increases the ability to protect the interests of domestic companies and banks when entering foreign markets.
Russia, like other countries with transitional economic, actively integrate into the world economy. Russia’s integration into the global economy will promote the participation in international economic organizations, including WTO accession and cooperation with the Basel Committee. This process is accompanied by various changes both taking place in real and financial sectors of the national economic. The essential factor reinforcing the need to accelerate the integration of Russia into the world economy is the increasing need for additional financial resources to ensure economic growth. In addition, the reserves of Russian industry growth, provided a weak exchange rate of the national currency and low prices in comparison with world domestic prices for certain types of resources, in the early 2000-s was exhausted. In this connection, encouraging of foreign banking capital could be an additional factor for the improvement of competitiveness of the domestic banking system, which is up to now the main source of long-term resources for investment in the real economy. However, representatives of banking community should have a clear idea about international banks’ strategies and methods of their implementation in the emerging markets, about problems encountered in the process of leaving abroad, as well as the premises of foreign expansion. Otherwise there is a risk of losing the Russian banking system, its “national sovereignty.” The study of foreign experience of international banks allows to avoid serious strategic miscalculation, and, consequently, financial losses for Russian banking system.
The assignment for the country in 2003 an investment rating by international Moody’s agency, the expected liberalization of law and the Russia’s accession to the WTO gives the actual need to discuss the issue. In this regard, the problem of improving the regulatory regime of foreign activities in Russia, and especially the development of such measures for attracting them to the Russian market, which would be both cost-effective and at the same time do not contradict to the terms of Russia’s entry into the WTO, is very urgent.
My aim of the Diploma Thesis is the study of the empirical results on the effects of foreign banking expansion to Russian banking sector. To achieve the goals I consider the relevance of the arguments and reasons for bank internalization. In my work I am supposed to assume two hypotheses:
Hypothesis ? 1: “Foreign banks have entered the Russian market to support bilateral trade relations between Russia and their home countries.”
Hypothesis ? 2: “Foreign banks have entered the Russian market by following existing clients from home market.”
My diploma thesis is divided into theoretical and practical part and will be structured as follows:
In the first chapter, I describe the basic methodology of the outputs to foreign markets. To do this I return to the main motives of large companies to go International and what goals the company has set by planning to enter the international market. As well I analyze how the gradual economic, political and cultural integration of the world in conjunction with the regional integration impact on the globalization of large companies and banks.
The second chapter of my work is dedicated directly to legislation process related to Russian banking sector. Essentially towards management in the Russian banking sector attributed by the Constitution of the Russian Federation to the jurisdiction due to the special significance for the national economy. As well I discover how is established the legal framework of the market: financial, currency, credit, customs regulation and money issue. Then I turn to forms of presence foreign banks and ways of penetration into Russian market. Accordingly what guided the bank in the selection of the market and the study of which parameters it is necessary to pay attention.
The third chapter, I analyze the prospects for the development of the Russian banking market by making a SWOT analysis, PESTEL analysis and the Analysis of the Dynamic of Banks that was coming to the Russian market. Consequently I determine in accordance with the conducted analysis of the actual situation of the banking system, strengths and weaknesses of its activities, defined reserves which can be successfully in both domestic and foreign markets.
In chapter four, the issue is focused on the bank expansion nowadays and trends influencing international bank expansion. Especially I analyze location-specific factors of the Russian market and motivations and strategies for entry into the Russian market by analyzing the activity of Raiffeisen bank, Deutsche Bank, UniCredit bank. Based on the theoretical arguments and empirical evidence considered in the first and second chapters of the work and using survey results it is possible to summaries the central hypotheses.
In the conclusion of the Diploma thesis, I will attempt to predict the development of the expansion of foreign banks as well as answer the question concerning the possibility of the foreign banks to enter the Russian market in spite of strong competition in the international markets and to operate in this direction in the long term. To achieve the objectives, I use the following methods in of my diploma work: method of studying literature and documents, the theoretical analysis and synthesis of the material, logical method, the formalization (main selection) observation method, comparative method (comparison for conclusions), quantitative methods (statistical) prediction method and the historical method. The information for work I will take from historical works, modern publications on financial analysis, as well as variety of Internet sites, where the stats, schedules, etc.
1. Theoretical Concepts of Banking Internationalization1.1 Reasons for banking Internationalization
International banks have an increasing importance in the development of economic processes both in the world economy, and the economy of individual countries, which may be analyzed and predicted on the basis of study of its activity. Without studying the activities of international banks and international corporations is not possible to adequately assess and predict the development of the basic processes in the global economy. The emergence of global financial markets and the need to factorship to them, that is maintenance of capital migration leads to the need of the creation of international banks. Since the global financial market stays in a constant motion, there is a need for the presence of financial intermediaries. The role of financial intermediaries in the global financial markets, which ensure the movement of international capital of foreign banks, is assumed by international banks as one of the main participants in the financial market.
The formation of international banks went gradually and it was characterized as processes of internationalization, concentration and integration of capital. The main reasons for the internationalization of capital were its concentration, increasing competition in national markets, the need to provide financial resources, creation of global financial markets and creation of global informational and financial networks facilitated the process of moving the capital.
International banks operate around the world, their affiliates or subsidiaries are present in various regions of the world in different legal forms of ownership. Financial activities of these banks are done according to their interests and their customer’s interests who have the widest geography. International banks actually follow moving financial flows. Thus, large banks grew international by serving multinationals and forcing to carry out operation on global financial markets by establishing branches and other subsidiaries abroad. The internationalization process of bank’s capital by boosting foreign direct investment was taken on global dimensions in the 90th. During this period, according to the IMF report “On the international capital markets” the most attractive segments were the emerging markets of Latin America, Central and Eastern Europe. From point 1.2.1 of this report it is clear that, for example, in Central Europe, the share of banking assets controlled by foreign banks, which amounted in 1994 to 10% increased by 2001 more than 50% (controlled by foreign banks means the share of their equity Bank exceeding 50%).
The rapid growth of foreign capital participation in the Central European banks took place in the period of privatization and the restructuration of the banking systems of these countries in the early 90s. First small and medium-sized banks were sold, and then there was the privatization of the largest state banks. Hungary is the one that the first started the privatization process, currently it has the largest share of foreign capital in the banking system – about 57%, almost immediately followed Poland with 53% . In Latin America there was some interest in participating in the banking capital in the 90s. Especially active attempts have been made at the time by largest Spanish banks. Chile ranks the second place in the presence of foreign banking capital (54%), from her little behind Argentina (49%). In Mexico foreign bank capital owned 19% in 1999, but after the sale of the second and third largest banks in the country in 2000 to foreign shareholders, this figure increased dramatically – up to 40%. In Brazil, where the banking system is under the strict control of the state – this figure stood at 17%. Due to the recent financial crises in Latin America and Southeast Asia, the situation with the presence of foreign capital is unlikely to change in the direction of increasing.
The process of internationalization preceded and then accompanied the process of concentration of the banking capital. Bank capital concentration based on the principle of industrial concentration, since the effect of reducing costs by increasing the scale (economies of scope) takes place not only in manufacturing but also in services, including financial services. The main cause of the initial concentration of capital banks that uses the effect of increasing the scale of operations for reducing costs and improving their competitiveness was the increase in the concentration and size of financial organizations. Furthermore, only large banks could provide sufficient resources for the development of more powerful industrial corporations.
Bank capital of the developed countries century was characterized by concentration during the XX. For example, in the United States the total assets of commercial banks increased from 11 billion up to 3.3 trillion dollars from 1900 to 1990.This trend is also observed in modern reality. Along with the concentration centralization of bank capital also occurs, i.e. displacement of smaller banks by larger and unification large banks with the largest. In the US, the number of bank mergers was about 2672 for the 1953-2000. About 300 of largest companies accumulated at that time about 58% of the total deposits.
In Germany were allocated 9 major banks before the First World War, then, in the 50-ies the number dropped to 6, and for 2002 there were 4 major German banks that accumulated half the total amount of bank deposits; in Germany the share of three of largest banks accounted for over 51% of the total deposits at the beginning of 2000.
Thus, I can conclude that there were lots of reasons for internationalizing the banking system. Speaking more globally it is possible to find common theories about the internationalization of banking sphere. The theoretical concepts explain this phenomenon according to the next reasons.
Firstly, the “comparative advantage theory” that was introduced by Ricardo and then by Hecksher and Ohlin after what was applied by Aliber, who explained that banks which have the chance of being international are placed in countries with a competitive advantage in issuing bank products and services. Due to his concept banks with comparative advantage in producing banks services will be the leader in the world market. This kind of banks due to its higher relative profits will access to the world capital market on successfully terms. This fact will force its increased market share because of lower costs and as a consequence increase benefits. The bank will not sell its advantage and internalize it with the help of wide range of form of representations.
However, this theory is not perfect and was criticized by other economists. The concept explains the optimal producer of certain bank product but it does not explain the methods, the issues of convenience, the nature of capital that used to fund the cross-border expansion or the transactions costs associated with the banking relations.
The second theory “industrial organization theory” was explained by Grubel who identified bank-specific benefits in different spheres of international banking. This internationalization may not be aimed at generating advantages in a new place but instead as aimed at preventing losses in some pre-existing activity. But the bank’s clients will also face transaction costs when they change the bank. We should note that this theory does not analyze costs of international expansion and the role of capital plays in an international expansion. This phenomenon should be undertaken when the expected marginal cost of expansion does not exceed the expected marginal gain. This concept might be only included as a specific application of the general theory of internationalism.
The third theory is regarded as an “international investment theory” and explained that a major aim for existence of international banks lays in the subsistence of environmental imperfections in the international fiscal market. The theory was based on the “straight jacket” regulation on capital flows in the 60th in U.S. where this regulation became the reason of expanding overseas. Another point belonging to international investment theory is that of the benefits gained from geographical diversification. Rugman showed that the total risk of international bank’s global assets it lower that of a domestic bank.
The next concept is “internalization theory” made by Coase and Hymer and the idea is that banks need to internalize the imperfections of international markets. The international policy of a bank may be described as a “network effect” that presented in a bank in order to allow its clients to refrain from the imperfections of the international financial market.
Thus, there are many possible reasons why banks want to start banking abroad. First of all, foreign banks may establish banking relations with domestic banks that have international activities. Second, such banks may be eager to find beneficial niches of the market. Third, there may be a purely speculative aim to establish an existence in the industry.
1.2 Entry mode of Foreign Bank into Russian Market
The globalization process of the world economy, the deepening of international specialization and co-production lead to the accelerated development of global trade and increasing international investment volume. Increasing volumes of international financial transactions significantly affected the profitability and stability of the banks in resident countries and in the countries of their presence, which resulted as increase in internationalization processes. Banking organizations are forced to follow its customers into new international markets, what motivates to consider internationalization as the main vector of strategic direction. The problem of selecting and implementing the bank’s strategy is the most important in the present conditions, since it affects the expansion on the customer base and, consequently, its profitability and competitive stability. A universal integration strategy in the banking sector does not exist. Each bank should develop its own unique internationalization strategy taking into account its characteristics, traditions and experience, the availability of existing and financial capacity.
Currently, there are several stages for getting access to world markets. Four main phases of the Internationalization of banking organizations:
– Output abroad;
– Expansion of credit organizations
In entering to the international market (I phase), the bank’s management is primarily conducts a socio-economic analysis of the host country, namely:
– Study of the competitive environment;
– Study of the legal framework and tax legislation;
– Determination of political risks, etc.
Commercial banks have a range of organizational and institutional forms of expansion of international activities (II phase):
– Offices, carrying out communication for research such as head bank office and its clients;
– Operating units (branches, agencies, subsidiaries, additional offices); – Subsidiaries and joint local credit organizations with a license to carry out a full or a limited range of services;
– Offshore structural units (in some countries) for the benefit of customer’s covert operations, as well as to minimize taxation.
The main motive for the creation of international organizational and institutional units of a commercial bank is to expand the customer base and as a result – to attract additional capital. In this connection it should be commensurate revenue potential ad hoc structure with its planned costs. At the same time, the results of the international activities of banks unite with the results of its domestic operations in the general financial report, in which it is impossible to determine to what branch falls a certain gain and loose. Therefore, calculating the efficiency of units produced is usually not possible. Therefore, the expansion of the banking structure through the opening new international operating units is very responsible and highly risky activity.
The consolidation of banking organization’s internationalization (III phase). The global increasing competition in the global market growing a trend of concentration and centralization of bank capital. The most likely direction of development of the global banking system becomes the consolidation of banks through mergers and acquisitions. Consolidation processes will lead to the emergence of strong banks that can allow them to be positioned competitively in the new markets. It gives the opportunity to be highly developed banking organizations that dominate in the expensed counties.
Such banks as BNP Paribas, Deutsche Bank, ABN AMRO Group, Credit Suisse Group, Santander, have an aggressive strategy to capture new credit and financial markets. These banks can be called international because of their value. They are characterized by:
– ??Wide network of correspondents;
– Large volume of assets;
– A solid customer base;
– Developed infrastructure representative.
These banking organizations are the leaders in the expansion of credit organizations throughout the world.
1.3 Strategies used for penetrationEach bank in entering the international market adheres to a particular strategy of internationalization. These strategies can be grouped into four main types.
Accelerated strategy adheres to banks, leading an aggressive policy. Many of them have started the process of internationalization at a moderate pace, opening its subsidiaries in the major financial and economic centers of the world. Then, gaining experience, they increased their degree of internationalization to expansionary type. Establishing the initial stage of its subsidiaries in Germany, Switzerland, France, the UK, banks have sought to access Euro-market and post their financial assets profitable.
The main purpose of this type of banks was the expansion of the banking network providing a wide range of services, as well as the acquisition of business skills abroad.
Illustration 1: Process of banking internationalization in 1970-2010; Source: author
Analysis of the data in the scheme shows that the process of internationalization is accelerating with each passing decade. Banks of this type have made their choice in favor of the international expansion of its influence and aggressive internationalization policy. A striking example is the accelerated internationalization of Deutsche Bank. This bank organization meets the stereotype of a European bank in searching of a truly global strategy. In 1873, Deutsche Bank established offices in Shanghai, Yokohama, and London and so on. Since that time, the bank opens credit organizations worldwide. Currently, Deutsche Bank holds a leading position in the world in terms of assets and formulates the following corporate objectives:
– Further development of the bank’s credit facilities, increasing presence in other high growing foreign markets;
– Strengthening the presence in retail banking;
– Expanding the range of lending services.
Thus, the Accelerated internationalization strategy has made Deutsche Bank one of the largest international banks.
Banks with Moderate internationalization strategy consistently tend to increase presence in the international markets. These banking organizations initially develop its branch network in the country and then gradually expand its activities in individual countries. Compared with the accelerated strategy moderate internationalization of banking organizations gets through the access of external markets gradually, without an increase in the pace of integration.
The best example of Moderate internationalization strategy can be a Dutch bank Rabobank. Originally won the trust of its customers in the country, the bank began to increase its branch network in economic centers around the world. Rabobank Group consists of 143 independent banks, including the head bank Rabobank Nederland. It also includes division of Rabobank International, which provides services to individuals and large corporate customers in 30 countries, being the representative of the head structure in key financial centers around the world. Bank’s customers are both large international companies and small businesses operating in different sectors of the global economy. Rabobank Group has the highest credit ratings from leading international agencies and occupies the 6th place in the list of the safest banks in the world.
Next strategy of internationalization of banking structures – Installed strategy. It implies a certain balance between the established international and domestic banking. The banks that adhere this strategy include HSBC, Citigroup, JPMorgan. Currently, all of them are active in Europe, Asia, Africa, America and the Middle East. If we follow the historical trend of banking international structures, it is possible to suppose that they followed initially accelerated internationalization strategy earlier. At that time their purpose was to create a worldwide banking network. However subsequently, when these banking organizations had achieved this goal (1985-1988), they moved to installed strategy.
Retreating strategy. Some banks at an early stage of its development have achieved a high level of internationalization. Later, for various reasons, they have taken the decision to reduce its foreign assets. Often not selling foreign assets occurs during periods of shortage of liquidity, and especially in the times of crisis. However, the strategy of retreating may be involved when a decision to reduce foreign assets made for the long term, regardless of the crisis. The cause of this is the verge of bankruptcy, the rebranding of the bank or initially incorrect location of its branch network. The retreating strategy adhered to such well-known banks such as Barclays, National Westminster, Bank of Tokyo-Mitsubishi UFJ, Manufacturers Hanover, and so on. Analysis of the 34 largest banks in the world, operating in 1970-2010., allowed to group them by types of internationalization strategies.
Thus, the research of practices of international banks shows that the accelerated type of strategies is the most effective type.
There are lots of internationalizing strategies for banks that economic theory provides, but we have to admit that there are only two classifications of effective types of strategies. The first one was discussed earlier.
And the second classification of strategies is taken from the theoretical concepts on banking internationalization and distinguishes the following strategies used by banking expansion abroad:
– Follow the customer strategy,
– Leading the customer strategy,
– Market-seeking strategy,
– Follow the leader strategy.
«Follow the customer» strategy is provided by the earlier-mentioned “industrial organization theory”, according to which the growth in multinational banking takes places because of the foreign direct investment abroad by organizations. Banks reply to the extension of their customers abroad to protect their bank-client relations. Even if the banks do not follow their customers abroad, the customers will however install banking relations which could extend to displace any other domestic banking relationships. There are significant expenses connected with studying of the banking requirements of a particular corporation. Thus, a banking relation composes of a stream of data and information. This flow of information allows the bank to estimate any new loan offer at low marginal cost because most of the evaluation has occurred preliminarily. Consequently, the lower marginal cost lets a bank’s offshore branches a comparative advantage above its accumbent competitors. Due to market failure, the information stream can’t be sold or evaluated inside the market and so should be exploited in the own bank. Because of the asymmetries of information, Grubel shown that the bank can’t trade its knowledge about the customers and obtain a fair price.
The non-universality of the US banking industry makes it more difficult for American banks to hold on to clients, yet 22 they manage to do so because the information costs are still very substantial.
Whereas banks can be just following their clients into other countries, they can as well be represented in foreign markets for their corporate customers, following the so – called «Leading the customer» strategy. Constantly a bank can operate as an agent of its existing customers from the home country by developing new contacts abroad. Particularly Small and Medium size enterprises which are the customers of great international banks, establish a high rate on extension of the banks abroad because they have communication and consulting needs about the foreign markets. This argument gives a probability to internationally working banks not only to develop and increase their scale of products and services and to intensify their client ties, but also to obtain new customers (including the other banks) and to fixate their market position.
Big sizable clients are especially concerned in installing trade relationship and in collecting information about the existing political and economic position as well as in cultural and institutional aspects of the respective country. These companies are often not able to obtain the sufficient detailed data themselves. Above-mentioned enterprises make conclusions about the adopting of trade relations with banks of respective country through the information gained from the bank. A bank can support the desirable business relationship through the focused on the market specific knowledge, data, experience and communications. Because of these services the banks contribute the entry of Medium size clients into new unknown markets and admit Small size clients and enterprises with no foreign experience to extend abroad. These data and consulting services are recognized as a «consulting banking» or «informational banking». Due to these services banks can influence the loyalty of their customers.
«Market-seeking» strategy literally means that by some causes a credit organization need to enter to new unfamiliar international markets. By and large, the decision on the extension to new markets lay in each occasion of internationalization. Credit organizations can enter to foreign markets with specific purpose to serve foreign customers due to existing «know-how» and other methods. It is assumed that real «Market-seeking» strategy is connected with huge risks and unpredictability compare with the «Follow the customer» strategy. Consequently, I can conclude that only experienced and powerful international credit organization is able to follow «Market-seeking» strategy. At the same time, only strong banks can play with large risks. Such banks, sighting to gain a geographically extensive service network, must be multicultural, interactive and integral.
The explanation of «Follow the leader» strategy leads to recognition the problem that describes why companies’ head office in one country establishes foreign subsidiaries. As well might also show why banks’ head office in this same country establish branches abroad which are quite independent of whether domestic firms invest abroad or not.
«Follow the leader» pattern is doubtless the most often referred scheme to in the literature: it occurs when a certain bank demonstrates an interest in a foreign country and all its rivals go into the country worried as well that the all of the advantages will be obtained by the first mover. Based on researches I can note that the rivalry in the banking segment is generally very tense and exceptionally because of the constant development it’s probable to stay competitive.
«Follow the leader» strategy is connected with less risks compare with the «Market seeking» strategy. If our competitor is already penetrated in the certain desired market it becomes necessary to analyze it deeply, but the threat remains with an acceptable risk level. At the same time it is worth to take into account existing opportunities and international experience, otherwise the market penetration may fail.
1.4 Previous studies on Banking InternationalizationOver the two past decades or so, advanced studies of the determinants of direct investment by foreign banks to abroad operations have concentered on the deviation relations between foreign direct investment by filial branches and the increase of entry by foreign banks. The principal theme appeared from previous study is that banks have “followed’ customers from their domestic countries into abroad markets as those firms concerned in a raising volume of multinational trade and direct investment.
Fieleke concluded from his study of US banks’ overseas expansion that the major determinant was to respond to the financial needs of US firms abroad, a result corroborated by Nigh, Cho, and Krishnan and, for US bank expansion into the UK, by Goldberg and Sounders . Goldberg and Sounders modeled the growth of foreign banks in the US market for the period 1972-1979. Using a multiple regression, they reported that the direct investment made by foreign firms into the US market was a significant positive determinant of the growth of the foreign banks’ market share in the United States. Hultman and McGee, Grosse and Goldberg also provide evidence that foreign banks entered the US market to service the international trade and direct investment needs of their home-country clients. A host of other studies focusing on issues related to the growth of international banking emphasize the ‘follow the customer’ strategy as one of the principal motives for multinational expansion by banks. Grosse and Goldberg also find that the greater the country risk of the source country, the more foreign banking appears to be allocated to the (relatively low-risk) US market, and geographic distance is somewhat positively correlated with bank presence.
In contrast to these findings, Terrel notes that, once in the US, many foreign banks have expanded their customer base by actively soliciting business from US companies. Studies by Seth and Quijano add credence to Terrell’s claim. They point out that the ‘follow the customer’ claim has been made in reference to Japanese-owned banks in the United States. Juxta-posing data on liabilities of US affiliates of Japan firms and data on the lending patterns of US branches and agencies of Japanese banks, they infer the share of Japanese bank lending to Japanese-owned affiliates over the 1984-1989 period. Making the extreme assumption that all bank borrowing by US-based Japanese companies was provided by the US branches and agencies of Japanese banks, they conclude that about three-fifth of the lending by the branches and agencies was to debtors other than US affiliates of Japanese multinationals, as a result at odds with the follow-the-customer explanation. However, no study has investigated whether banks from other countries show similar behavior.
Mohatny et al. show that the amount of loans granted by foreign banks in the US exceeded the amount of loans received by foreign affiliates. This implies that foreign banks have granted loans to US firms as well, and that the motivation to ‘follow their customer’ has not been the sole reason to enter the foreign market. Interestingly, while there was relatively strong evidence that banks from Japan and the UK did not follow their customers, the reverse was true for German banks.
The majority of empirical studies have aimed to shed light on the determinants and performance of foreign bank activity in the United States. In the non-US study, Fisher and Molyneux find that foreign bank presence in the UK is closely related to foreign direct investment and trade flows.
Buch uses data on FDI of German banks in about 20 host countries. The results show a strong and positive correlation between foreign activities of banks and demand conditions as captured by (per capita) GDP and foreign activities of German firms, i.e. FDI in the non-banking sector or foreign trade activities. Exchange rate volatility seems to have a negative impact on FDI of banks. There is evidence that EU membership and the abolition of capital controls have promoted foreign lending but not FDI of banks, thus weakly supporting the hypothesis that the two are substitutes. Conditions on local banking markets such as returns and interest rate spreads, in contrast, have been much more difficult to single out as statistically significant determinants of foreign activities of German banks.
Seth examines the contribution of foreign bank entry towards excess capacity and models foreign credit expansion in the US market, respectively. These studies find that foreign banks’ strong presence and increased acceptance by US customers probably resulted in significant excess capacity in the market for corporate loans. Demand factors were also seen to be significant but in unexpected way – in recessionary circumstances foreign banks actually increased their lending to US corporations.
Typically, market size and foreign trade links exert a positive impact on the foreign direct investments of banks. Entry regulations have the expected negative sign. Moshirian and Van der Laan analyze the determinants of foreign assets of banks from Germany, the UK, and the US in a portfolio framework on the basis of quarterly data for the years 1985-95. In contrast to earlier studies on the determinants of international asset choices of banks, they find that FDI of non-banks has a significantly negative influence for all three countries. This would support the hypothesis that FDI abroad is a substitute for bank credits to foreigners. Moreover, they find a positive coefficient on the foreign liabilities of the country under study, suggesting that capital in- and outflows are positively related.
Buch uses data on the stocks of foreign assets of German banks (which are provided by the Deutsche Bundesbank in its Balance of Payments Statistics) which allows a distinction between short- and long-term assets as well as claims on banks and claims on non-banks. Estimates for a cross-section of up to 73 countries for the years 1990 and 1997 reveal that both short- and long-term assets are highly correlated with foreign trade links. Bilateral trade activities are more important in explaining claims on banks rather than those on non-banks which could be taken as evidence against the follow-their-customer hypothesis.
Focarelli and Pozzolo have presented one of the comprehensive studies of banks’ foreign investment decisions. They are using bank-level data for 2499 banks with more than one billion US-Dollar in total assets from 29 OECD countries to estimate a binary choice model which distinguishes between the choice whether to expand and where to expand abroad. Data are averages for the years 1994 through 1997. Their results show that the most important factor driving FDI in banking are the growth of the host market and the potential for diversification since the size of the banking sector relative to the total financial system of the host economy has the largest marginal effect. Furthermore, the more efficient banks the more likely they go abroad. The degree of openness of the host economy, measured as the volume of bilateral trade is statistically significant but does not have a very big marginal effect on banks’ investment decisions. Hence, the purpose to “follow” clients abroad apparently is not the main motive force of banking extension.
Engwall and Wallenstal concluded from their empirical study that the main reason for internationalization of Swedish banks was the ‘follow the leader’ behavior. Banks have tended to follow one another in their foreign commitments. They have decided to go to the same places, often also choosing the same mode of entry.
Claessens have analyzed the impact of foreign bank entry on the domestic banking sector in terms of efficiency, the range of operations, or tax payments. Apart from earlier case study evidence, their analysis is one of the firsts, which allows for comparison of 80 countries (developing and industrialized) for a period of several years. One of the findings is that foreign banks tend to have lower interest margins and profitability in developed countries as compared to domestic banks while the reverse holds for developing countries.
Empirical evidence was presented by the Bank for International Settlements (BIS) in its Quarterly Review. Although, in recent publications, the BIS has provided information not only on assets and liabilities of its reporting banks vis-à-vis countries outside the BIS reporting area but also on assets and liabilities among the reporting countries, such information has not been published regularly before. Buch uses the assets and liabilities of the BIS reporting country in a number of host countries as a dependent variable. This allows interpreting some of the coefficients as elasticity.
1.5 Effects of regulations and costs of Entry to Foreign marketIt was necessary to isolate the effects of regulations and information costs through grouping the possible explanatory variables into three categories (expected signs in brackets):
Distance (km) (-): Countries that are relatively close geographically can be expected also to share similarities in terms of culture, which tends to lower information costs. Portes and Rey have in fact argued that the significance of distance in empirical gravity models is due to the fact that distance captures information costs.
Language (+): Sharing a common language can be expected to reduce barriers to entering a new market for two reasons. First, even if native speakers can be hired abroad, a substantial amount of communications between foreign affiliates and the headquarters will be conducted in the language spoken in the headquarters. These directly 28 reduced costs of communication. Second, and more indirectly, sharing a common language can be seen as a proxy for common cultural links
Legal framework (+): Sharing a similar legal framework can likewise be expected to reduce the costs of assessing loan applications.
Capital controls (+): Capital account liberalization has not been confined to Europe. Hence, by controlling for the presence of capital controls elsewhere, we are able to test whether the creation of a Single Market has had an impact over and above the worldwide trend towards capital account liberalization.
Government ownership (-): Entry into the financial services sector often occurs through the acquisition of banks being present in local market. Government ownership of banks can thus constitute a quite significant barrier to the entry of financial organizations from abroad. In addition to restricting the outright purchase of a domestic bank, governments with a high share of ownership in banking might also indirectly restrict entry in order to preserve bank profitability.
Foreign trade links (+): Providing trade-related finance has traditionally been one of the main motives of commercial banks to expand into foreign markets, and we would thus expect a strong correlation between bilateral trade and bilateral financial linkages.
Index of industrial production/GNP (+): An increase in economic activity of the host country can be expected to raise the demand for loans and the supply of deposits.
Lending rates (+/-): Domestic lending rates are included to capture the expected rate of return on the foreign market. Hence, they should enter with a positive sign for foreign assets and with a negative sign for foreign liabilities.
Table 1: Effects of regulations and information cost:
Source- Caner S., Kontorovich V.K., 2004
Due to the empirical analysis it is evident that coefficient on distance is significant for all countries except for Italy and the UK. The coefficients on language and the legal system are correctly signed but are significant only for France and Spain. For Germany, the Netherlands, the UK, and the US, language and the legal system all become insignificant. Partly, this result is certainly due the fact that knowledge of English does not constitute a significant comparative advantage. For France, the information variables survive while regulations become insignificant. For Italy, distance and the presence of capital controls remain significant. For Japan, distance seems only variable which is relevant after controlling for market size. For the Netherlands, to the contrary, it’s found a relative large influence of regulatory restrictions. Interestingly, government ownership in banking is a factor, which deters British and US banks only.
When comparing the values of the F-test and log-likelihood ratios, it seems that regulations are less important than information costs for France, Italy, Japan, and Spain. Regulations, to the contrary, seem to be relatively more important for Germany, the Netherlands, the UK, and the United States. These findings could be interpreted in terms of different strategies towards internationalization that banks from these countries are pursuing. Whereas banks from the first set of countries seem to focus on countries to which they have closer geographical or cultural ties, banks in the latter group of countries focus on markets to which they have relatively easy access.
Konopielko’s study was the first empirical approach applied to Central and Eastern Europe. The results of the estimation confirm the pattern of entry as described by the survey results
General ranking of main motivations for entry in CEE
RankFactorAverage score (1 – not important at all, 4-very important)
1 Supporting client case3,46
2 Looking for new busuiness opportunities 3,32
3 Supporting trade finance2,85
4 Meeting the competition of other banks 2,33
Table 2: Ranking of main motivation for entry in CEE;
Source- Konopienko L., 1999
Estimation results can show that mail motivation for international banks entry to Poland and Czech Republic was supporting client base, for Hungary – looking for new business opportunities. It was confirmed that the volume of bank assists In the case of Czech Republic and export and import between host and banks’ home countries in the case of Poland were significant variables. Speaking about Konopielko’s study I can agree that his theory takes place in our reality and the major reasons for entering in the global banking system also might be both supporting its interests and eliminating rivals.
2. Institutional mode of EntryA management in the Russian banking sector attributed by the Constitution of the Russian Federation to the jurisdiction of the Russian Federation due to the special significance for the national economy. By law governing relations in this sphere should be subjected to special requirements: clarity; balance; enforceability; strict observance of the rule of law and the mandatory application of measures of legal responsibility in their disregard or violation. The fundamental, underlying source of banking legislation is the Constitution of Russia. Item “g” of art. 71 of the Constitution of Russia is directly related to the conduct of Russia to establish the legal framework of the market: financial, currency, credit, customs regulation, and money issue, the principles of pricing policy; federal economic services, including federal banks. According to part 1, art. 76 of the Constitution of Russia all of the issues that are comes under the jurisdiction of the Russian Federation must be illustrated in federal constitutional laws and federal laws.
2.1 The legal status of foreign banks in RussiaIn accordance with Part 1, art. 8 of the Constitution of Russia the integrity of economic space, free movement of goods, services and financial resources, support for competition and freedom of economic activity is guaranteed by the state.
Constitutional norms derive their development, detailing the provisions of the relevant federal laws. With regard to banking legislation a central place is occupied by federal law “About Banks and Banking Activity” (rev. And ext., Joined. In force from 01.09.2016) (after – the Law of banks and banking) and the Federal Law of 10.07.2002 N 86-FZ (as amended on 03.07.2016) “About the Central bank of Russian Federation” (from amendment and joined in force from 07.15.2016) (Bank of Russia).
In accordance with art ?2 of the Law of Banks elements of the Russian banking system include credit organizations and foreign banks. In the dictionary of the Russian language, the term “system” is defined, inter alia, as “something which represents the unity of naturally arranged and held in mutual connection parts.” Given this interconnection an underdevelopment of its individual elements prevents the achievement of a harmonious state of the whole system.
As is known, in recent years, Russian officials have made repeated statements about the inadmissibility of the opening branches of foreign banks in Russia, as evidenced by the practice of the Bank of Russia. That is why; the article 2 was deformed at way that excluded the “branches of foreign banks” of the Russian banking system in 2013.
According to Article 17 of the Law of Banks state registration of credit organizations with foreign investments and obtaining its license for making bank operations is needed additional documents specified in Article 14 that can be:
Decision on its participation in creation of a credit organization in Russia;
Document confirming the registration of the legal body, and the balance sheets for the previous three years, confirmed by the auditor’s report;
Written consent of the supervisory organization of the country of its residence for participating in creation of a credit organization in Russia in those cases when such permission is required under the law of the country of its residence.
Article 14 of the Law of Banks stipulates that state registration of the credit organizations and to obtaining a license for conducting bank operations in the Central Bank of Russia established by giving it the following documents:
Application for state registration of the credit organization and obtaining a license for conducting bank operations; The application shall contain information about the address (location) of the permanent executive body of the credit organization through which it is possible to communicate with the credit organization;
Memorandum of association (original or notarized copy), if its provided by federal law;
Charter (original or notarized copy);
Business plan that approved by the founders (participants) of the credit organization, a founders meeting minutes, containing a decision about approving the charter of a credit organization. The procedure for preparation the business plan of the credit organization and its criteria regulated by the Bank of Russia
Documents confirming a payment of a state duty for registration of credit organizations and for obtaining a license to conduct bank operations with the creation of the credit organization;
Audit reports about accounting (financial) statements of founders – legal entities;
Documents confirming the sources of funds introduced by the founders (physical bodies to the authorized capital of credit organizations);
Profiles of candidates for the post of the head of a credit organization, a chief accountant and deputy chief accountants of a credit organization, as well as on the post of the head, deputy heads, chief accountant and deputy chief accountant of a branch of a credit organization.
These profiles are filled by these candidates personally and must contain the information set by the Bank of Russia: presence of higher legal or economic education (submission copies of a diploma or an equivalent document) and the experience of management of department or other division of the credit organization relating to the implementation of banking operations, at least one year, and in the absence of special education – experience in unit leadership is not less than two years; the presence or absence a convictions.
Thus in the case of branch a foreign credit organization it would have the right to exercise on the territory of the Russian Federation, some or all of the following banking operations and transactions referred in Art. 5 of the law of banks : raising funds from individuals and legal bodies to deposits (demand and time deposits) and placement the attracted funds on its own; opening and maintaining bank accounts of individuals and legal bodies; settlements on behalf of individuals and legal bodies; collection of cash, bills, payment and settlement documents and cash services for natural and legal bodies; buying and selling foreign currency in cash and cashless forms; attract deposits and placement of precious metals; issuance bank guarantees; money transfer on behalf of individuals without opening bank accounts (except for postal money orders); issuance of guarantees for third parties providing fulfillment of obligations in monetary form; acquisition the right to claim from a third party for performance obligations in monetary form; trust funds and other assets under the contract with physical bodies and legal bodies; operations with precious metals and precious stones in accordance with the legislation of Russia; lease for natural and legal bodies a special facilities or saving documents and valuables; leasing operations; providing consulting services.
However, Russian President Vladimir Putin signed a law that banned the opening of branches of foreign banks in Russia on 22 February 2013. The words “Branches of foreign banks” were excluded from the articles about the state registration of credit organizations with foreign investments and additional requirements for their creation and operation. At present days, branches of foreign banks are not logged in Russia. Foreign capital presents in the Russian banking sector as a subsidiary banks, registered under the Russian law.
To some of these banking operations and transactions it is required a special license. In addition, attracting funds of individuals and legal bodies to deposits is possible only if the requirements stipulated by the Federal Law of 23 December 2003 “About insurance of individual bodies in Russian banks”.
Such requirements include the presence of a license of foreign credit organization given by Bank of Russia and setting a foreign credit organization in the deposit of insurance system in accordance with art. 28 of the Law on Insurance of Deposits.
In addition to the general requirements for the establishment of credit organizations by the Law of Banks there are additional requirements for the establishment of foreign banks. Therefore, domestic legal scholars rightly pointed out that in their implementation “the state authorities as a general rule do not have the right to refuse a foreign bank in a creation of Russian branch, citing its refusal by unreasonableness”.
Thus, today’s legislation prohibits the creation on the territory of Russia branches of foreign banks. This leads to uncertainty in the legal regulation of the activities of credit organizations, whereby it is a shortcoming of the existing system of banking law.
2.2 Forms of presence foreign banks and their peculiarities in Russia. Depending on the development of the market and the regime of the host country of foreign banks in the country may take the following forms:
Bank consortium / joint venture
Representation offices are usually opened with a point of supporting the head office in servicing its clients, particularly, for communicating with a variety of commercial and financial companies in the domestic market. As a rule, such offices provide a minimum set of services. They, for example, may not grant loans or accept deposits. In some countries, their activity is reduced to non-profit operations, while they have only representative function as an agents engaged in supporting some transactions. Sometimes the purpose of opening a representative office is the desire of the head company to explore the country’s market for the expansion of their business.
The Subsidiary bank – the most common form of foreign credit organizations presented in the local market. These banks are independent organizations with their own capital. Despite the fact that the owner of the subsidiary bank is a non-resident subsidiary bank operates in accordance with the legislation of the country where it is incorporated, and registered as an independent legal entity. In many cases, foreign financial organizations do not create new structures, and buy existing ones. The state often causes investors to acquire local banks, which are in crisis. This allows the authorities to reduce costs for its further reorganization and restructuration. Sometimes the acquisition of an existing bank begins with the purchase of a minority share capital of the bank with gradual redemption of the rest of package.
Syndicated bank or Bank consortium is a bank whose capital is formed at the expense of foreign and local investors. This form is preferred, when the infrastructure of the country in which the bank intends to enter, is unknown. Through participation in the capital of the bank (as a rule, less than 50%) the foreign bank has an opportunity to have a representative person on the board of directors and several members of the committees, who resolve operational issues. Opening a bank consortium is the first step towards the creation of a subsidiary structure that would be completely independent from the head company. Minority participation allows familiarizing the “inside” bank, to influence on its work and to form its long-term strategy. It is impossible to open branches of foreign credit organizations, avoiding the creation of a subsidiary bank. This particular point has caused with Russia’s accession to the WTO.
The peculiarity of the situation lies in the fact that there are no restrictions on opening branches of foreign banks in Russia in legal point of view. The Law of Banks found that the banking system of Russia included the Central Bank of Russia, credit organizations, as well as branches and representative offices of foreign banks. However, none of the foreign bank has not branches in Russia. Removal of restrictions de facto opening branches would have made access to foreign credit organizations in the Russian market more comfortably and fast, but at the same time could also mean the increase of competition, during which the Russian banks could be at a disadvantage with foreign affiliates. In addition, branches of foreign banks are accountable to supervisory and tax authorities of the country-based head company, which allows the possibility of creating certain preferences for them during separate operations because of differences in the rules and conditions of banking regulation in Russia and abroad.
This was stated by Alexander Genshaft in his interview for the newspaper “Pravda”, CFO Verysell Group, “in the process of admission foreign bank branches the process of negotiations about Russia’s accession to the WTO and Russia will be in principle.” The same opinion is shared by the executive director of the Center of Development Dmitry Lepetikov, who in his interview with “Business” newspaper noted that “the subsidiaries are subject of Russian law, our rules of exchange controls and restrictions on the export of capital. The branches are outside of Russian jurisdiction and, therefore, may become a convenient channel for landslide inflow or outflow of capital.”
“Resolution for opening branches of foreign banks would not reduce operating costs and bypass part of the administrative barriers” – says in an interview with the magazine “Expert” the head of BFI Group Alexander Khandruev. For example, the requirements for the formation of mandatory reserves cannot be established for branches of foreign banks which given the significant difference in the amount of required reserves in Russia and other countries, puts them in a preferred conditions. Also, branches of foreign banks would have more opportunities to optimize the tax, since they do not provide the full tax reporting and supervisory authorities of the host country.”
To sum it up, the issue about the advisability and prospects of banning the opening in Russia foreign bank branches is not so straightforward. The legal form of absence in the Russian market through a branch of a foreign bank does not create absolute competitive advantage in comparison with the option of presence through the establishment of a subsidiary by itself. The comparability of the competitive advantages and disadvantages of branches and subsidiary organizations is defined as risk management and resource inside the international banking groups as well as requirements of the authorities of the state regulation and supervision in the country where these subsidiaries are situated, by the analogy with the regulation and supervision of subsidiary offices of foreign banks. State regulation of branches in the countries of their location may be even stricter and less convenient for business as compared to the regulation of affiliated agencies of foreign banks.
2.3 Areas of Business activities of foreign BanksThe most reliable and dynamically developing banks includes: Raiffeisenbank, Citibank, UniCredit Bank, OTP Bank, Nordea, Rossbank and the others.
Raiffeisenbank is one of the largest banks with foreign capital according to the rating agencies he ranks the 13th place in Russia in terms of assets. According to official figures from the beginning of 2015 Raiffeisenbank increased its actives by 31%. Capital of the credit organizations was amounted to 129 billion rubles at the 1st march 2016. The Bank was able to increase funds of individuals by 20% but the net profit of the bank in 2015was a third less than in 2014.
Another largest Russian credit organization with participation of foreign capital – is a subsidiary bank of the same name of a banking group – “UniCredit Bank”. At present, credit organizations took the tenth place in the ranking of Russia in terms of assets. At the end of 2015, the bank showed a profit in two times lower than in 2014, i.e. 8.9 billion rubles and 19 billion rubles, respectively. During 2015 the bank’s assets increased almost in a half, due to the increase of corporate and private clients. So, corporate customers increased by 73%, while the private sector grew by 70%. Thus, after the deterioration of the international relations with Russia client’s strengthened the confidence to banks.
According to official statistics 62% of the bank’s assets accounted for the loan portfolio, of which 82% are corporate loans. It is noteworthy that since the beginning of 2014 the bank increased its loan portfolio of natural persons only by 4.6%. At the same time the portfolio of legal entities increased by 79%.
Another bank that demonstrated in 2015 the increase in assets was Citibank. Citibank is a wholly-second “subsidiary” of the American Citigroup and according to international rating agencies the bank takes on reliability the first place. During 2015 the credit organization and its assets increased by 7% to 397 billion rubles. The increase in assets of 35% occurred at the expense of private clients at this time the assets enterprises and organizations practically rooted. Bank reduced attracted interbank loans by 45%. However, the net profit fell by 12% in 2015.
Thus, analyzing the current situation we can see that foreign banks since the beginning of 2015 increased their assets by attracting funds from corporate clients and individuals by 27.5%. But most experts are of the opinion that “these figures are very tentative and the main reason for growth – revaluation of assists.”
Another trend in the activities of credit organizations with foreign participation in the Russian market is changing the structure of provided services. Today the corporate portfolio growth clearly traces with the majority of banks with foreign capital participation. As an example, consider the activity of Rossbank included in the French financial group Societe Generale. Rossbank occupies the 12th place in Russia in terms of assets. According to reports, at the end of 2015 the profit of the bank amounted about 9.7 billion rubles against 6.4 billion rubles in 2014. According to the credit organization in 2015 the bank’s assets increased by 35% to 996 billion rubles, and the capital of the company totaled 116 billion rubles at the 1st of March 2015. At the same time the main source of asset growth was the increase in corporate funds by 46%, or 92 billion rubles. Funds of private clients grew at a slower pace, namely an increase of 9%, or 14.4 billion rubles.
Today practically the half of the assets falls on the loan portfolio of finance organization. About half of the loans granted to legal bodies. The loan portfolio of physical bodies has decreased by 1% since the beginning of 2015. When at the same time the loan portfolio of legal bodies increased by 17%. The volume of corporate loans issued in foreign currency, is comparable to the volume of loans in rubles. The loan portfolio of physical bodies almost all represented in rubles.
Thus, almost all the major players of banking system increase the corporate portfolio and reduce of maintenance operations with physical bodies. According to forecasts for 2016-2017 it is expecting the growth of the corporate loan portfolio by 18%. However, it is going to decline in the quality of the loan portfolio and the growth of corporate sector because of the decrease of the level of profitability and the increase cost of funding. It all together creates an additional risk for banks with foreign capital which are more focused on corporate clients.
3. The position of foreign banks in Russian sector and its marketing strategyIn the 2nd chapter it was mentioned the legal aspects of foreign banking regulation. That it is obviously to take into account the other spheres where foreign banks might be included such as political, social, cultural and etc. To assess the prospects for the development of the Russian banking market we conducted a research that will identify its strengths and weaknesses as well as opportunities and threats. That is the reason for making a SWOT analysis, PESTEL analysis and the Analysis of the Dynamic of Banks that was coming to Russian market.
3.1 Dynamics of Banks coming to Russian marketThe active expansion of foreign banks in the Russian financial market has started since the middle of 2000 which was accompanied by the influx of foreign capital in the national banking sector against the backdrop of increasing the overall investment attractiveness of the country. Including the major trends of development of banking sector there are three major periods that can be identified as expansion of the banking sector of foreign capital to domestic banking system:
The First phase from 1993 to early 2000’s;
The Second phase from 2003 to 2009;
The Third stage from 2010 until current time
Each stage has its own peculiarities in terms of the penetration strategy and development in the market.
The first period begins after the collapse of the Soviet Union and the beginning of market reforms. This stage can be described as the liberalization of the country’s economic system. At the beginning of 1990’s foreign banks received an approval to the national banking system and sought as soon as possible to enter there.
But it should be noted that representative offices of large foreign banks were operated in Russia even in the years of Soviet power. By the beginning of 1990’s in Moscow, there were about 100 representative offices of foreign banks from around the world. The main task for many of them at that time was analytical work aimed at collecting information and studying the industry and regional singularities of the country’s economic. Later the Moscow representative offices became the basis for the creation of the majority of Russian big transnational banks’ subsidiaries. Today’s foreign credit organizations were mainly represented by banks of developed countries, but there were banks from Asia and Africa to.
At the beginning of 1990’s the primary purpose of foreign banks was supporting western clients during the development of the Russian market. Thus, the banks used the “follow the customer” strategy. As a result of this strategy at the end of 1999, 145 commercial banks were operated with foreign capital in Russia, 10 of them – were the banks with 100% of existence.
The second stage is dated from 2003 to 2009 years and described as the period of stabilization of Russian economic. In those years it was significantly bated demands for credit organizations with a foreign participation within the authorized capital stock, as well as it was observed the increase of investment attractiveness of Russia against the background of political stability. This contributed an extension of foreign banks: the number of credit organizations with foreign capital and the share of foreign capital in the banking sector were increased. For reference, it should be noted that the share of foreign capital was about 5% in 2003. The share of foreign capital doubled – up to 25% in 2006.
Illustration 2: The share of foreign capital (2001-2016);
Source – the Central Bank of Russia 2016 report
The peak of expansion of foreign banks in Russia came in 2008, when the share of the total equity capital of foreign banks accounted approximately 28.5%. The main strategy of penetration in the banking market in that period was the acquisition of Russian commercial banks.
However, the international financial crisis at 2009 led to the fact that the share of foreign capital in the Russian banking system declined to 28% in 2010 and in the middle of 2011 upped to 27%.
According to the majority of experts the decrease in activity of foreign banks in Russia happened because of:
Firstly, problems that arose from the head credit organizations in connection with the international financial crisis;
Secondly, hard competition, which began on the Russian market, and especially with stated banks.
As a result of the international financial crisis some of bank organizations, such as the Dutch Rabobank Group NV, Morgan Stanley decided completely to withdraw from the Russian market. Some of the banks with foreign participation declined from retail business and gave a preference to deal with corporate clients. However, a large number of credit organizations with foreign participation are successfully developing its business in Russia now. Large banks with a share of foreign participation in the capital proved themselves as the most reliable and stable credit organizations in the country. According to the Forb’s magazine rating the leader positions on the top are owned to banks with foreign participation in the capital, and only the 5th place is owned to Sberbank of Russia.
The most reliable and dynamically developing banks includes: Raiffeisenbank, Citibank, UniCredit Bank, OTP Bank, Nordea, Rossbank and the others.
The third stage began in 2011 and characterized as a period of fundamental changes in business strategy with foreign banks organizations in Russia.
In the period from 2011 to 2012 temps of investment growth of non-resident in the authorized capital of Russian banks exceeded the rate of growth of the banks with their participation. Furthermore an additional stimulation of increasing the number of banks with foreign participation was Russia’s accession to the World Trade Organization. But since 2012 there has been a decline in the growth rate of non-resident investment in the authorized capital of credit organizations. Besides declining in the growth of non-residents’ investments can be regarded as the effects of the global financial crisis, as it was an alienation of shares of non-residents in favor of residents, which led to a reduction in the share of non-residents in aggregate registered authorized capital of all credit organizations.
In addition, a further reduction of banks with foreign participation was due to changes in foreign political situation of the country and the introduction of sanctions. Thus, in 2013 there has been a sharp decline in whole Russia banking system. The main negative trends should be noted as decrease a profit of credit organizations, as well as reducing branch offices of the majority of banks. But banks with foreign participation, in addition with reducing income and reducing the number of existing branches, are characterized by activation of the export of capital from Russia.
Illustration 3: The dynamic of amount of banks in Russia incl. foreign bank;
Source – the Central Bank of Russia 2016 report
The first trend from 2013 to 2015 is associated with a decline in profits of credit organizations. According to a report on the development of the banking sector and banking supervision in 2014 the profit of credit organizations was approximately about 589 billion rubles against 994 billion rubles in 2013. The share of profitable credit organizations in 2014 decreased from 90.5 to 84.9%, while the share of unprofitable credit organizations increased accordingly from 9.5 5% to 15.1%. In addition, according to the forecasts of Sberbank’s analysts and RA Expert aggregate profit of banks in 2015 was not more than 100 billion rubles.
Profitability of banking sector assets was 0.9% at the end of 2014, the return of a capital – 7.9% in 2013, 1.9 and 15.2%, respectively. During the year, the indicators return on assets rose from 391 banks or 46.9% of the total amount of credit organizations and the return on capital – 379 banks, or 45.4%, respectively.
In 2014, profitability decreased in all groups of bank, but the most significant is in large banks. Return on assets of banks with the participation of foreign capital decreased from 2.2% to 1.6%, i.e. to 27.27% and return on equity from 15.1% to 11.1%. It means that the decrease in profitability of banks with foreign participation is significantly less than decrease in profitability of large private or state-controlled banks.
In addition, the largest banks with the participation of non-residents in the capital did not record the decrease in income and profitability but on the contrary, showed great financial results. As a confirmation, I can cite an instance the activities of such banks like Raiffeisenbank, Citibank, Rossbank, Nordea Bank, Home Credit Bank, UniCredit Bank, and a number of other large credit organizations.
3.2 PEST analysisNowadays the global banking sector has an influence not only on the economical spheres. Today’s reality is also connected with others aspects of life. Taking root into the Russian territory also means taking a root into Russian mentality and society. That is why starting a business on a new territory implies understanding not only some economic indicators but also how it works at the particular place with the particular system of legislation, the system of relations between citizens and the authority and etc. That is why banking expansion effects on the whole Russian reality.
In my PEST analysis I would like to discover not only Political, Economic, Social and Technological factors of expansion to Russian market but also its Opportunities and Threats.
FactorsOpportunitiesThreatsPolitical factors1. Strict politic in the financial sector will reduce the total number of banks. 1. Instability of the political situation in Russia causes the destabilization of the economy.
2. Narrow product line:- customer credit;- Mortgage;- crediting of legal entities. 2. The growth of the number of banks, with the same financial services, as well as the merger of banks.
Economic factors1. Reduction of the tax burden for individual entrepreneurs, as a part of the sale of goods on credit. 1. Reduction of interest rates as a result of increased competition.
2. The discount rate of the Bank of Russia. 2. The risk for all operations is increasing
3. A growth of inflation 4. A wide range of organizations, with a “black” payment of labor.
Social factors1. Improvement of the living standards of citizens. 1. The effect of seasonality of the services provided.
2. Possibility of lending for the purchase of any goods and services 2. The lack of education of the population in financial services.
Technological factors1. Technical re-equipment of the Bank for increasing market share 1. Reduction of market share as a result of the fact that other banks already use software, which allows customers to serve in a less time.
Table 3: PEST ANALYSIS; Source – author
Thus, I can conclude that nowadays the political situation in the country is stabilized; therefore it does not represent a big threat for the development of the banking sector. Major changes have already occurred and did not have a negative impact on banks. The banking sector in Russia remains closed. The lifestyle has become more expensive and luxurious. For many people luxury is an integral part of life. The orientation has become more western. There was a so-called business way of life, when people practically do not have free time and all life is built for successful work.
The ecological condition of modern cities is in a dangerous state, so many people are willing to spend money on their “environmental security. People try to work harder to ensure their future. They prefer to relax in comfortable conditions. Prestigious education is the key of success in life. That is why the highest economic and informational education is valued. Apart from that the demographic is declined.
The current economic situation does not pose a serious threat to the development of the banking system in Russia, but, at the same time, requires constant analysis by the bank.
3.3 SWOT analysisThe SWOT analyses is the best way to assess the prospects for the development of the Russian banking market that will identify its strengths and weaknesses, as well as opportunities and threats. If we want to see the influence of foreign banks on the Russian banking sector in a whole we have to perceive the situation more globally. That is the reason why SWOT analysis is needed.
• Well-developed system of banks refinancing; • High concentration of credit risks (including on related parties);
• Experience of the crisis of 2008-2009 (improving the quality of risk management); • High concentration of assets and liabilities on banks with state participation;
• High stock of instant and current liquidity; • Low capital stock of the largest banks;
• Availability of development institutions with well-developed market support instruments (SME Bank, AHML); • Insufficiently high efficiency of banking supervision in the sphere of control of systemic risks;
• Low dependence on external funding • Inconsistency of the used risk management systems with international standards;
• Low share of long-term liabilities and commission income
OpportunitiesThreats• Low level of penetration of banking services in the regions; • Instability in global financial markets;
• Problems of European banks, reducing the cost of buying a business abroad; • Increased funding costs, lower interest margins;
• Introduction of multilevel banking supervision and regulation; • Toughening of the Bank of Russia’s requirements for credit risk management
• High potential for the development of remote banking
Table 4: SWOT ANALYSI; Source – author
Based on conducted Matrix of SWOT analysis of the Russian banking sector I came to the following main Key Findings:
How to take advantage of Strengths and Oopportunities?
Purchase of foreign assets will allow diversifying business; improve the quality of risk management and the level of banking technology in large banks;
The development of Internet banking will lead to optimization of costs, an increase in the share of commission income and the modernization of IT support;
Adoption of the law on syndicated lending will allow small banks to compete with state banks when financing large projects;
How can you reduce Weaknesses?
Introduction of differentiated supervision and tightening of requirements for systemically important banks will increase the availability of financial services in the regions;
Restriction of the share of state-owned banks in the domestic market in favor of the development of international banking business will reduce pressure on the competitive environment and stimulate the growth of private banks;
Involvement of private banks in the implementation of large (including infrastructure) projects will allow them to diversify their business and increase the sustainability of the financial result
What can prevent you from taking advantage of threats?
A low margin of capital adequacy can impede the further expansion of the business of large banks, including through the purchase of assets abroad;
A low share of long-term assets and a high exposure of large banks to “panic savers” will hamper the implementation of syndicated projects;
Deficiencies in risk management systems can lead to sharp fluctuations in the share of bad debts during periods of instability
The greatest threats for Russian banking market:
In the case of the second wave of the crisis, the combination of high concentration of risks and minimum reserves can lead to loss of solvency even for large banks and the need for their urgent additional capitalization;
Tightening the requirements of banking regulation can lead to the withdrawal of foreign banks from the market and reduce the availability of banking services in the regions.
4. Methodological analysis of banking expansion into the Russian MarketAccording to the official statistics from the central bank of Russia in October 1st 2016 there were 183 licensed credit organizations with the non-residential participation. 144 credit organizations, or 78.7% of the total, are in the form of joint-stock company, 39 credit organizations (21.3%) – in the form of a limited liability company. 97 credit organizations (53% of the total) is carried out banking operations under a general license, 84 credit organizations (46%) have a license to conduct banking operations in rubles and foreign currency, two credit institutions (1.1%) – a license to conduct banking operations only in rubles. Such credit organizations with non-residential participation are located in 34 regions of Russia, including
128 credit organizations (or 70% of the total) that located in Moscow,
7 – in St. Petersburg,
4 – in the Republic of Tatarstan in the Primorye Territory’s,
2 – in the Krasnodar and Krasnoyarsk territories, in the Amur, Kirov, Rostov, Nizhny Novgorod, Novosibirsk , Sverdlovsk, Tyumen and Chelyabinsk regions.
According to that statistic we can see that not all banks with foreign participation increased their dividend payments in 2016, with the withdrawal of capital from the Russian banks can be viewed as a natural reaction to the increased risks of banking business. At the same time the total capital outflow from Russia in 2016 amounted to 151.5 billion US dollars which essentially goes to the country’s economy. The changes in the banking sector suggest that foreign banks in the short term may reduce its presence in the Russian regions. However, the experience of previous financial crises, leads to the conclusion that banks with foreign capital did not decide to leave the Russian market. It is obvious that today the banks with foreign participation does not intend to expand the scope of activities and wait for more favorable market conditions. The impetus for the further expansion of the activities might be the reduced the political tension and the lifting of sanctions as well as the acceleration of economic growth in Russia. But the current foreign policy situation does not allow hoping for a quick change of foreign banks’ strategies. In the current situation it is difficult to make predictions, and the majority of banks with foreign participation in the capital do not count on substantial growth of the portfolio. Therefore, the main object of the banking sector is increasing business efficiency, due to the work on portfolio quality. The majority of banks with foreign participation are going to focus on the products and services to large corporate business and international companies that operates in Russia.
Illustration 4: The share of foreign capital of residents and non-residents (2005-2017);
Source –Eurostat, 03.2017
(Red line)-The share of non-residents in the aggregate authorized capital of the banking system
(Black line) – The share of residents in the aggregate authorized capital excluding the participation of non-residents that goes under significant influence of the Russian Federation residents
4. The summary of central hypotheses
Based on the theoretical arguments and empirical evidence considered in the last chapters of the work and using survey results, it is possible to summaries here central hypotheses.
Hypothesis ? 1: “Foreign banks have entered the Russian market to support bilateral trade relations between Russia and their home countries”.
Hypothesis ? 2: “Foreign banks have entered the Russian market by following existing clients from home market.”
These hypotheses summaries the contra dictionary predictions from the models that were described above. Hypothesis ?1 consistent with the work of Focarelli and Pozzolo , Buch and etc. Hypothesis ? 2 summarizes the predictions from Fieleke, Goldberg and Sounders and etc. But Mohatny noted that “Follow the customer” theory has not been the only reason for entering the foreign market. In order to test these two hypotheses I use my previous studies and the analysis of financial and economic activities of Raiffeisenbank and other bank organizations.
4.1 Data for the analysis
In order to test the above-mentioned hypotheses, I use the same information that were already used by the previous empirical study and the analysis of the activity of different international banks such as Raiffeisenbank , Deutsche Bank and UniCredit bank by using their official annual reports. The information that was taken into account is connected with the bank’s structure and dynamics of assets, bank’s liabilities, structure and dynamics of incomes, the foregoing strategies and the main priorities or aims of the activity of these bank organizations.
4.2 Analysis of Raiffeisen bank”Raiffeisenbank” is a part of an international banking group and a subsidiary bank of Raiffeisen CIS Region Holding GmbH which is owned by Raiffeisen Bank International AG – a leading universal bank in the financial markets in Austria and Central and Eastern Europe. “Raiffeisen Bank” has been working in Russia since 1996 and offers a full range of services to private and corporate clients, residents and non-residents, in rubles and foreign currency.
The bank has 5 branches in the territory of the Russian Federation as well as 179 separate units.
According to the agency “Interfax – CEA”, the results of 12 months 2016 «Raiffeisen Bank” occupies the 13th place in terms of assets, 11th in terms of equity, the 4th largest in terms of retained earnings, 9th place the volume of loans to individuals, 6th place in terms of individuals’ funds among Russian banks.
“Raiffeisen Bank” is one of the most reliable banks in Russia with one of the best songs of ratings from leading rating agencies: long-term rating by S & P / Moody’s / Fitch – BBB- / Ba1 / BBB (as of 31.12.2016).
The main factors that affected in 2016 on the state of the banking industry, in general, can be specify the deceleration of economic growth in Russia, volatility in stock and currency markets, limited access to international capital markets, rising interest rates. As a result, observed reduction in profits in the banking system and the pressure on capital due to the revaluation of foreign currency balances.
In the context of the difficult economic and political situation in 2016 Raiffeisen Bank demonstrated strong financial performance and improved operational efficiency. The bank currently has a substantial margin of liquidity and capital, high profitability and good asset quality by keeping a conservative approach to lending and liquidity management in the period of economic growth. These characteristics allow the bank to adapt changes in the operating environment.
According to the official “Raiffeisen Bank’s 2016 report” the bank plans to continue expanding its product range, improving service quality and providing customers with all the business segments of the high-quality services. The key is to improve the bank’s quality of service, improve business processes and maintain long-term relationships with customers.
More than 14.6 million customers are serviced by 56,000 employees in its offices. Raiffeisen Bank International is a fully consolidated subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB) which owns about 60.7% of the common stock. The remaining shares are in a free float on the Vienna Stock Exchange.
AssetsThe amount as of the date of the report Change in the periodBase period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,%
Cash154 506 091 21,72 185 376 922 20,75 16,65 30 870 831 3,46
Total assets711 372 141 100 893 279 765 100 20,36 214 851 863 24,05
Table 5: Analysis of the structure and dynamics of assets “Raiffeisenbank”;
Source- RAIFFEISENBANK ANNUAL REPORT 2016;
The full table is presented in the Appendix of the Diploma thesis
Strong position of Raiffeisenbank in Russia is maintained by well-designed and well-implemented business model that takes into account all the features and trends of the Russian banking market and allows to quickly and timely respond to any fluctuations in the economy.
In this connection, the dynamics of the financial condition during the crisis is very interesting.
So I analyze the structure and dynamics of assets of “Raiffeisenbank” in order to determine changes in their directions.
A systematic approach to the selection of customers and their lending, as well as well-established system of risk management at the bank showed that, despite the difficulties of the crisis moment, the majority of tasks were solved in a timely manner and with high quality performance.
The impact of the global financial crisis and a sharp slowdown in the economy affected the results of the bank’s activities. In 2015, there was a decline in the corporate loan portfolio. However, observed in 2016, the dynamics of change suggests progressive slowing decline in corporate assets, starting from the second half of the year.
LiabilitiesThe amount as of the date of the report Change in the periodBase period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,% Total liabilities595 587 878 100 792 621 374 100 24,86 194 321 898 24,52
Table 6: Analysis of the bank’s liabilities “Raiffeisenbank”;
Source- RAIFFEISENBANK ANNUAL REPORT 2016;
The full table is presented in the Appendix of the Diploma thesis
Based on the table 6 we can see that the bank’s liabilities during the period from 31.12.2015 to 31.12.2016 increased by 24.52%. The main source of borrowed funds was bank clients’ funds (67.11% of total liabilities). The attracted funds from individuals increased by 36.19% during that year. Customers were offered a wide range of urgent and special deposits at competitive rates. The attracted bank loans, deposits and other funds of the Central Bank of the Russian Federation increased on 14.86%. Debts and also raised funds of credit organizations were increased on 36.19%. It is essential that the 89.83% increase was due to derivatives and other financial liabilities.
It must be noted that the assets and liabilities of Raiffeisenbank in relation to derivative financial instruments increased by more than 80%.
Derivative financial instrument – it is a financial instrument based on the obligations which are laid down in respect of other investment assets or commodities. There are several main types of derivatives: futures, forwards, swaps, options, contracts.
Derivatives are conventionally divided into categories in accordance with the assets that underlie them.
1. Financial derivatives – contracts based on interest rates on short-term and long-term bonds of the United States, Britain and other countries.
2. Foreign exchange derivatives – contracts for the euro / dollar, dollar / yen and other world currencies.
3. The index derivatives – contracts for stock indices, such as the S & P 500, Nasdaq 100.
4. Derivative securities into shares. On the MICEX, including futures traded on a number of Russian market leaders: “LUKOIL”, “Rostelecom”, etc.
5. Commodity derivatives – contracts for energy resources, such as oil. In precious metals – gold, platinum, palladium and silver. In non-ferrous metals – aluminum, nickel. In agricultural – wheat, soy, meat, coffee, cocoa and even orange juice concentrate.
Only a minority of transactions (3%) is a real delivery of assets that is under derivative securities. Mainly they are settled by mutual settlements in cash through the process of clearing.
Derivatives have two purposes. The first one is for the insurance of financial risks (hedging). For example, agricultural producers can protect themselves from falling prices for its products in the future. Or automobile concern that requires a known quantity for the production of non-ferrous metal in the future can insure against his appreciation for a certain period.
The second one is the derivative securities – one of the most profitable instruments for speculative trading. Indeed, it costs 100 thousands for the purchase of a futures contract.
Now I would like to analyze the structure and dynamics of incomes “Raiffeisenbank” using the next table.
The main source of income of the bank continued to be interest income (51.51%). However, despite the reduction in their share relative to other sources of income, their share in the total income of the bank has remained at 3.05%. This is due to the absolute and relative decline in non-interest income. Fee and commission income of the bank increased by 2,228.951 thousand rubles and amounted to 17,075.699 thousand rubles, their share in total revenues of 3.2%. Overall, total income of the bank rose by 22.74%.
Items of income Base period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,% Fee and commission income14 846 748 27,63 17 075 699 24,55 2 228 951 13,05 3,2
Gains less losses from dealing in foreign currencies 3 189 091 5,93 6 358 959 9,14 3 169 868 49,85 4,56
Total income53 743 137 100 69 560 976 100 15 817 839 22,74 22,74
Table 7: Analysis of the structure and dynamics of income “Raiffeisenbank”;
Source- RAIFFEISENBANK ANNUAL REPORT 2016;
The full table is presented in the Appendix of the Diploma thesis
As we could see that most share of income belongs to the Net interest income after provision for loan impairment there could be mentioned few words about this article.
At the end of 2015, Raiffeisenbank has demonstrated significant growth in all areas of retail banking. The profit before tax of the retail business in 2016 increased by 17.6% compared to the same period in 2015 and amounted to 10 947.3 million rubles.
The volume of retail loan portfolio increased by 15.6% to 210 110 100 000 rubles compared to 2015 year (before provisions for impairment). The mortgage portfolio grew by 24.9% or 10 329 600 000 rubles to 51 846.1 million rubles. The portfolio of credit cards and overdrafts rose by 43.6% to 17 266.8 million rubles. And the consumer loan portfolio increased by 11.2% or 10 013 900 000 rubles compared to 2015 and totaled 99 812 700 000 rubles. Auto loan portfolio increased by 7.4% or 2 833 900 000 rubles to 41 184.4 million rubles.
“Similar to the results we have achieved both by expanding the branch network – in 2016, it opened 32 points of sale in Moscow and by the launch of products and customers sought to improve the quality of service”, – said Andrey Stepanenko, the deputy chairman of “Raiffeisenbank”, Head of retail banking and small business. “In 2017, we will continue to develop new technological channels of communication with customers to develop innovative services. But the main thing in our work will remain high standards of service quality.”
The volume of individuals’ funds placed in Raiffeisenbank increased by 19% due to growth in current accounts in 2016.
According to the official report 2015 of Raiffeisenbank has offered its customers a range of new products: started issuing Visa debit cards with contactless technology purchases «Visa pay Wave» has launched a new online service «Accumulate with us!» which helps to accumulate the required amount for a particular implementation. In addition, custom ers are now on the same day to apply for instant cards for 15 minutes. Also there is a new program for premium customers “Easy Europe”, which includes not only banking services but also services aimed to simplify the formalities for traveling in Europe.
Raiffeisen Bank and MDM Bank united ATM network in 2016. Thus, taking into account the previously signed similar partnerships with UniCredit Bank, the bank “Uralsib” Tatfondbank and Rosbank, the number of devices in which Raiffeisenbank clients can withdraw cash without commission and check the account balance has exceeded 11 thousand.
Much attention is traditionally paid to banking services. The functionality for online banking R-Connect was greatly expanded in 2016. Now the standard options, like as access to information about accounts were add new features, for example opening an accounts in rubles and foreign currency, money card transfer from Raiffeisenbank to other Russian banks and some special bonuses. To the list of payees, whose services can be paid through R-Connect without commission was added more than 100 companies, including suppliers of utility services, mobile operators and Internet service providers.
The number of R-Connect users has grown by 46% over the previous year, while the number of advanced remote transfers and payments increased by 67% compared to 2015 year.
But also looking at the official report we can see that the priority of its activity is focused on servicing a corporate clients. For example Raiffeisenbank acted as lender of five-star luxury hotel Grand Hotel Europe, located in St. Petersburg. The object belongs to the Orient Express Hotels Ltd group in 2013. The deal amounted 50 million, the loan term – 5 years. The proceeds will be used for refinance the company’s debt, for costs for the renovation of the object as well as other intra-purpose. It’s means that international banks have a connection with trade relations on the Russian market. Thus, it also means that the Hypothesis ? 2 takes place in Russian banking system.
Despite Raiffeisenbank has an aggressive strategy for entering to the Russian market other credit organizations have another strategies and aims. That is why I decided to take into account the activity of Deutsche Bank and UniCredit bank.
4.3 Analysis of Deutsche BankDeutsche Bank is a successful international investment bank which has got a huge and gainful private customers’ franchise. Bank started its activity in 1870 in Berlin. It is offering unmatched financial services across over the world with the staff of more than 100,000 employees in 70 countries. The bank is considered to be the international provider of financial offers for different clients creating exceptional value for its people and shareholders. Bank is included in the number of world leaders in corporate banking and securities, asset management, transaction banking and private wealth management, and has an important private & business franchise in Berlin (Germany) and other selected cities and countries in Europe.
Deutsche Bank started its activity in territory of Russia Federation in 1881s through, guaranteeing a capital growth the Russian Foreign Trade Bank which based in Saint -Petersburg and placing the new shares in Germany. In the mid of 1880s Deutsche Bank became the 1st which had arranged railway loans in Russia. In 1926 the Bank became the organizer of the 1st German- USSR export finance consortium. In the 70s Deutsche Bank organized a fund – growing to finance pipe supplies for the reconstruction of a pipeline from Russian Federation to Europe.
Deutsche Bank receives the license ? 2 to start up a bank’s representative office in Moscow in 1972. For a long time partnership between Russia and Deutsche Bank AG extended a consulting and financial support to its trade partners and the Government. Since that time, Deutsche Bank was very important in the adjustment of the USSR’s foreign debt to Western banks and members of “London Club”.
For optimizing and expanding Deutsche Bank’s operations, it was decided to establish Deutsche Bank Ltd in April 1998. Since then, Moscow Deutsche Bank becomes one of the biggest international credit organizations in Russia.
Few months later Deutsche Bank Moscow was hit by a financial crisis. Despite all the problems the new office met at that period, Deutsche Bank Moscow didn’t reduce its activities in Russia. Contrariwise, after the following financial crisis in 1998, Deutsche Bank AG took participation in the solution of arguments between Russia and its international creditors and the reduction of constructive relationships between Russian Federation and international capital market members.
Russian Deutsche Bank declared the opening a representative office in St. Petersburg in 2008. Deutsche Bank fully acquired Deutsche UFG Capital Management in 2011 – the organization that was founded in 2008 when Deutsche Bank acquired a 40 % stake in UFG Invest, the Russian investment management company of UFG AM.
Products and services
Moscow Deutsche Bank characterized as a universal bank which provides both international and local, both private and corporate clients with a broad range of different products, including corporate consulting and financing. It also offers to its clients trading transaction banking, management of private wealth and asset management services. Deutsche Bank is included into the list of the biggest Russian and international credit organizations in its client base.
Deutsche Bank concentrates on offering services to the clients who is able of doing the most productive use of the Deutsche Bank Group’s experience and potential.
The Deutsche’s division took part in the implementation of a range of activities including IPO of VTB and changing the group of companies Norilsk Nickel.
The Bank’s Debt Capital Markets Division facilitated to arrange Eurobond issuance by Magnitogorsk Integrated Iron and Steel Works, Gazprom bank and AFK System. Russian Deutsche Bank gives a service of the ADR and GDR programs for a group of Russian organizations, including Aeroflot, Wimm-Bill-Dann, AFK Sistema, Mechel, SeverStal, PIK Group.
Russian Deutsche Bank is a dealer on the St. Petersburg’s stock exchange, one of the most famous regional foreign exchange trader and also one of the biggest custodians on the Russian market. Russian Deutsche Bank started offering Private Wealth Management Services. Nowadays, Deutsche Bank is one of the leaders in the Russian private banking market.
In 2005 the Bank came in Russian Asset Management market. In 2008 Deutsche Bank acquired a 40% stake in UFG Invest one of the leading Russian investment management companies. In 2006 Deutsche Bank accomplished 100% acquirement of United Financial Group (UFG), one of the guiding investment organizations in the Russian market. The deal has finished in further strengthening Deutsche Bank’s positions in local equity sales and trading, equity research and corporate finance. This investment into the Russian economy has once again shown the Bank’s strong commitment to making business in Russia.
Until current time Deutsche Bank possesses the strongest platform in Russia among all foreign credit organizations. Deutsche is the biggest player with more than thousands of professionals working in Russian Federation. Whereas other investment organizations are just starting to work in Russia Deutsche Bank is a reliable bank with the biggest scope of services proposed locally.
Dedication to culture
Deutsche Bank’s took part in the historical events in Russia that covers cultural initiatives. The mission of the credit organization is supporting the most attractive and significant cases that were focused on the development of Russian – German historical and cultural relations. Bank took part in 20 global projects that covered art exhibitions and concerts featuring world – class masters in 1983 – 2005. Deutsche bank has a deal with st. Petersburg’s Russian gallery. Deutsche bank develops Russian cultural projects with The Kremlin, The Pushkin Museum of Fine Arts, The State Tretyakov Gallery and The State Hermitage.
The Moscow Kremlin settled an exhibition that was called a “Free Imperial City of Augsburg: Centuries of Majesty” by the support of Deutsche Bank in 2009. Deutsche Bank obtained the Kandinsky Prize – the first Russian prize for contemporary art in 2008 and 2007. Deutsche Bank supported to the exhibition of Antonello da Messina’s painting “St. Sebastian” (Museum of Dresden), which took place at The Pushkin Museum of Fine Arts in 2006. Within the framework of the 60th International Photography Month in Moscow: Photo biennale 2006 Deutsche Bank financed two German projects: Loretta Lux’s photo exhibition that became a global event in cultural Russian life and the photography exhibition “Images of Germany”. Later on, it was declared the Year of German Culture in Russia in 2004. Then in November Deutsche Bank opened an exhibition in the State Museum of Fine Art “Starting a German perspective: Masterpieces from the Deutsche Bank collection”. Vladimir Putin visited the exhibition.
Moscow Deutsche Bank is the most active organizer and participant of wide range of memorable cultural events, connected to the Russian-German history.
Deutsche Bank has been turned to a corporate patron of Garage Center for Contemporary Culture – a major non-profit international arts space located in Moscow, dedicated to exploring and developing contemporary culture. Garage represents a program of exhibitions by international and Russian artists and serves as a catalyst and meeting point for Moscow’s emerging arts scene. The exhibition «Russians and German: 1000 Years of History, Art and Culture» within Year of Russia and Germany that was opened in 2012.
I can note that it occurs with the support of Deutsche Bank. Thus, the activity in the culture life of Russia shows that Deutsche Bank has an interest not only in the banking sphere but also in the social life of Russia. So that Deutsche Bank indirectly has beneficial effects on bilateral business by participating in internal state events.
4.4 Analysis of UniCredit bank.
UniCredit bank was established in 1989 as the International Moscow Bank (IMB) on the basis of the decision of the USSR Council of Ministers. Bank obtained a general license of Bank of Russia in 1991. IMB was the first Russian bank with foreign capital. It included three national bank (Vnesheconombank – 20%, Savings – 10%, ICB – 10%) and five Western (Bayerische Hypo- und Vereinsbank (HVB), Creditanstalt-Bankverein, BancaCommercialeItaliana, CreditLyonnais and Kansallis-Osaki-Pankki), each were owned by 12%. VEB resigned from the IMB shareholders in June 1994. Its shares were distributed between the two new shareholders – Vneshtorgbank and BCEN-Eurobank (at that time, the French subsidiary of the Central Bank of the Russian Federation). The IMB has attached itself to the Russian subsidiary of Bank of Austria which in 2005 became a member of UniCredit Group. Through its subsidiary UniCredit Bank Austria Creditanstalt AG has consolidated 90.03% of IMB shares still 9.97% (nearly 5% of the voting) shares owned by the European Bank for Reconstruction and Development by the end of 2006.
UniCredit Group finalized the acquisition of the share of the Bank and became the owner of 100% of the shares of IMB in July 2007. In accordance with the rebranding of banks it included in the UniCredit Group in Eastern Europe, later the bank was renamed as “UniCredit” (from the end of 2014 – “UniCredit Bank” JSC).
Until October 2016 the sole shareholder of the bank was UniCredit Bank Austria AG whose ultimate beneficiary is UniCredit S.p.A. Currently UniCredit S.p.A. directly owns 100% of shares of JSC “UniCredit Bank”. All shares are publicly traded.
Currently, UniCredit Bank is actively developing retail business and branch network, their priorities and aims are the service of small and medium-sized businesses. The bank’s network comprises 13 branches and 12 representative offices in the Russian Federation and one representative office in the Republic of Belarus, 64 additional and 14 operational offices. The Bank serves about 28 thousands corporate and 1.7 million private clients. “UniCredit” signed an agreement to combine ATM networks with Raiffeisenbank and the bank “Uralsib” in May 2013. Now Raiffeisen’s, “Uralsib’s” and UniCredit’s cardholders have an opportunity to withdraw cash and to learn the balance on the cards without additional fees. The united network includes more than 6 thousand devices. According to the website of UniCredit Bank, holders of its cards also have the option to standard conditions for withdrawing cash from ATMs Moscow Credit Bank. In addition, customers of Russian “UniCredit” can withdraw cash with the devices of UniCredit Group banks in 17 countries of its presence on the same conditions as in Russia.
Since the beginning of 2016 the amount of the net assets of the credit organization has shown a decrease of 202.3 billion rubles and amounted to 1.2 trillion rubles at the beginning of November 2016. Reduction of the bank’s assets for the period under review was due to the outflow of corporate clients (-109.8 billion rubles), the decrease in attraction volume on the interbank market (-75.6 billion rubles), as well as decrease of the amount of funds of natural bodies (-5.1 billion rubles). In parallel, there is the increase of own funds (3.3 billion rubles).
Changing the volume and structure of liabilities for the period that was accompanied by an active part of a significant reduction in the balance of the loan portfolio (-117.2 billion rubles), a significant reduction in the volume of issued interbank loans (-93.3 billion rubles), a decrease in other assets (-7.9 billion rubles). The bank increased its volume of investments in highly liquid assets (9.7 billion rubles) and securities portfolio (4.7 billion rubles).
The bank is characterized as a high dependent of the funds of legal bodies: the passive part of the balance of their share is about 49.1% or 601.9 billion rubles. During this period had happened reduction of corporate customers accounts of 15.4%. The bulk of funds of legal entities held for more than three years. The capital structure includes subordinated debt in the amount of 480.9 million US dollars, drawn from UniCredit Bank Austria AG, with the maturity to March 2025. Urgent means of individuals are formed a 13.9% of net liabilities, attracted by the bank MBK – about 8% (about 55% drawn from Russian banks, 45% comes from the involvement of the parent group), issued bonds – 1.4%. The client base of the bank is a large and very active; the turnover of customers’ accounts a 2.8-5.3 trillion rubles a month. It is worth noting that the bank demonstrates an extremely high concentration of client’s portfolio: ten of them are accounted for about 59% of the total customer accounts.
A part of the net assets are 60.3% from the loan portfolio, which issued by IBC – 17.9%, other assets – by 8.7%, investments in securities form 7.7% of net assets, highly liquid assets – only 4.2 %, fixed assets and intangible assets – 1.1%.
The credit portfolio is about 83.7% by generated loans of legal bodies, 16.3% – retail lending. The total loan portfolio at the balance sheet was 739.6 billion rubles, down from the beginning of 2016 by 13.7% that mainly was due to the corporate portfolio, showing a decline of 110, 97 billion rubles. A retail portfolio demonstrated a negative dynamics – minus 6.2 billion rubles. Loans are mainly issued for the long term. Arrears show a moderate level – 6.3%. Redundancy level is about 9.3% at the balance sheet date, assets with secured are 79.5% of the portfolio. The volume of the borrowed loans to the ten largest borrowers amounted 208.9 billion rubles, or 27% of the total loan portfolio in 30 September 2016.
The security’s portfolio is fully represented by investments in bonds since the beginning of this year and increased by 5.2% and at the reporting date and was 94.8 billion rubles. Most of the bonds (47.6%) are the federal loan bonds, 39.5% pledged under repurchase agreements, 6.5% are credit institutions bonds, 6.4% – corporate bonds, including those for foreign issuers. The indicators of turnover within the portfolio are very high (in some months more than 1 trillion rubles), indicating the liquidity of its constituent securities.
According to the official report of UniCredit bank the results for 2015 showed that bank received 6 billion rubles of net profit, according to financial accounting standards (in 2014 – 8.9 billion rubles). The bank’s profit amounted to 12.8 billion rubles on the 1st of November 2016.
4.5 Estimation of Models and overview of results
Estimation results can show that the main idea of the activity of Raiffeisenbank cannot be connected with the following the customer strategy because the analysis of the activity of these banks shows that the main purpose is connected with attracting new clients in the new territory. For example, nowadays the Raiffeisen’s politics focuses on servicing a wide range of different customers and the “Easy Europe” for Russian customers program that simplifies the formalities for traveling in Europe is the evidence of increase the bank’s competitiveness only in Russia. As we can see Raiffeisenbank is interested both in a risk reduction and improving a quality of services for the customers. According to the official Raiffeisenbank Russia report “Implementation the strategy of dynamic development to the current banking system must be prepared to offer for corporate clients and individuals a wide range of high quality services, giving particular attention to risk reduction. Successful Russian companies, as well as the most wealthy Russian individuals and subsidiary structures of foreign companies in Russia are the primary target category of customers for the successful developing of banking business in Russia”. But also the strategy “follow the customer” cannot be realized on the Russian market because of the forms of their presence. It was mentioned in the theoretical part that international credit organizations may take the forms of representation office, subsidiary bank and bank consortium. It means that the form of representative office is more suitable for servicing the international trade than for servicing the home clients because these banks can offer their home clients only limited range of services through their head office.
The Hypothesis ? 2 “Foreign banks have entered the Russian market by following existing clients from home market” cannot be proved because of the Russian legal restrictions that have come into force since the Russia’s accession to the WTO.
The Hypothesis ? 1: ‘Supporting bilateral trade’ was proved by my estimation results. As the posting survey resulted above and it was confirmed by numerous previous empirical studies in the example of Russian Federation, the main motivation for entering the Russian market by foreign banks was to service flows of exports and imports between Russia and their home countries. One of the main reasons why all biggest European banks entered the Russian banking market is that EU still is the most important trade partner of Russia. In spite of the enforced sanctions, the export and import merchants need a reliable banking partners and high standards of trading operations. Moreover it was evidenced that Raiffeisenbank, UniCredit and Deutsche Bank are interested in bank lending to Russian legal bodies and they also take part into different spheres of Russian reality such as cultural, social, economic and etc.
ConclusionA major development in banking throughout the world was the dramatic growth in international banking from about 1960 to 1985. In the 1990’s, foreign banking expansion has spread to the formerly planned economies of CEE including Russia. There are a number of reasons for the spread of foreign banking activity. A few main theories attempt to explain the international extension of banks.
The theory of the comparative advantage assumed that the banks which will apparently become international, are those placed in countries with a competitive advantage in issuing bank products and services.
The theory of the industrial organization identified the concrete advantages in different segments of international banking; particularly, mass of a bank’s steps towards moving abroad are of the “follow the customer’ model.
The theory of the international investment proves that a major aim for existence of international banks lays in the subsistence of environmental imperfections in the international fiscal market.
Lastly, the internalization theory argues that the international policy of a bank may be described as a “network effect” that presented in a bank in order to allow its clients to refrain from the imperfections of the international financial market.
Two forms of entry by foreign banks should be distinguished:
1) Greenfield entry, which includes the foundation of an organization from the scratch;
2) Control acquisition, when some shares or other form of firm’s capital are purchased. At the same time by the institutional point of view external input is related with foundation or acquisition of one of the next organizational structure:
Bank’s branch office
Because of the theoretical conceptions on banking internationalization, it’s possible to differentiate the following strategies used by banking expansion abroad:
Follow the customer strategy;
Leading the customer strategy;
Follow the leader strategy.
Over the two past decades or so, advanced studies of the determinants of direct investment by foreign banks to abroad operations have concentered on the deviation relations between foreign direct investment by filial branches and the increase of entry by foreign banks. The principal theme appeared from previous study is that banks have “followed’ customers from their domestic countries into abroad markets as those firms concerned in a raising volume of multinational trade and direct investments. In any case, it was proved that the purpose to “follow” clients abroad apparently is not the main motive force of banking extension.
Russia with the population of nearly 150 million people has attracted numerous foreign banks relatively early, despite the fact of a range of political and economic problems. Expenditures for the development of the Russian market nevertheless represent still “investments into the future”.
Up to the present moment only Representative offices, Subsidiary banks and Bank consortium are allowed to work in Russia. However, members of the banking community note that there are normative restrictions that have enforced since the accession to the WTO.
Most foreign banks in Russia have only representative offices. The best strategy to expand to the large Russian market was worked out by those banks that have started with a very cautious policy there through their representative offices in order at first to learn and prepare the market.
Corporate finance is one of the most important activities for foreign banks, especially servicing of their international clients. But many foreign banks at present begin to work with Russian clients as well. Foreign banks deal actively in project of financing, particularly against the guarantee of the Russian government. It is worth mentioning that Raiffeisenbank and Citibank continue very aggressive marketing strategy and have appreciably increased their customer base after the crisis of 2008. These two banks are most successful and the largest in terms of assets among wholly foreign-owned banks in Russia. Both banks work actively with domestic clients as well. Raiffeisenbank is therefore often called “the most Russian among foreign banks”.
Having come to Russia later than many other foreign banks, Deutsche Bank has quickly overtaken competitors. The basic income is provided by operations connected to trading securities and operations on the currency market.
There is an interesting picture of the retail market in Russia. Half of the volume of Russian retail market, serviced by foreign banks, was the share of two Austrians – UniCredit bank and Raiffeisenbank. It is evident the high importance of the factor of a foreign (first of all of a western) mark in the retail market of Russia. Most foreign banks have limited their retail services to accounts for expatriates working for the banks’ foreign clients.
Their presence is appreciable only in the market of separate products and services, especially associated with financing of foreign trade, wholesale currency exchange operations, servicing of export-import contracts.
Using results of the survey addressed to representatives of foreign banks operating in Russia it was identified how these banks estimate characteristics of the Russian market and what characteristics are the most important in these operations. According to the results of the survey, the most important location-specific factor for foreign banks is the potential/prospect of the Russian market. Numerous foreign banks have entered the Russian market but most of them have taken an expecting position and at present they don’t perform active operations on the market because of legal restrictions. A slightly lower level of importance is attributed to the market growth of Russia. The aspect of entry into a growth market is quite obvious – it creates possibilities of an additional increase in profits that are often hard to achieve in highly competitive domestic markets.
The looking for new business opportunities and the «leading the customer» behavior take relatively significant place in foreign banks’ expansion to Russia. Meeting the competition of other foreign banks, the desires to meet the competition of Russian banks and follow the home market competitors are less significant factors for entry into Russia.
Based on the theoretical arguments, empirical evidence of earlier empirical works and postal survey results, summarized hypotheses concerning the foreign banks’ presence in Russia were tested in the example of different banks in the world. According to estimation results, it was made the conclusion that first of all largest bank and banks from nearest countries penetrate the Russian market in order to support foreign trade relations between Russia and their home countries. As I supposed in Hypothesis ? 1
The Hypothesis ? 2 «Follow the customer» has failed in my case. In order to explain the failure of the hypothesis it is necessary to observe the case more in detail. The reason why the Hypothesis ? 2 «Follow the customer» was turned to be wrong is the fact that here by estimations I have taken into consideration representative offices of foreign banks as well. As it is known representative offices are more suitable for servicing of the international trade than for servicing clients abroad. However, the estimation of model without representative offices of foreign banks has given quite similar results.
If hypothetically I can assume that Hypothesis ? 2 has been proved in the research and the restrictions has been rejected the situation on the banking sector would be absolutely different.
– First of all, it means that the activity of foreign bank organizations would be more profitable and beneficial. And as a consequence the sanctions that were applied few years earlier might disappear.
– Secondly, it is necessary to note that there are some difficulties to analyze more detailed all the main aspects of strategies conducted by foreign banks in the Russian market within the framework of one such research. The reason for this is the width of the given topic and instability of the market. But also I can note that there are some global trends that connected with my research theme.
According to the analyzed information I can conclude that nowadays it is still profitable to develop the foreign banking relations and opening banking organizations in the context of globalization. But if the situation appear to be more unpredictable and unstable then it is impossible certainly to take this research as a basis for the following studies. For example, some a new banking crisis can strongly shuffle cards on the banking market.
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??? ?????? ????, online. Cit. 2017-03-20. Available from -https://www.UniCreditbank.ru/ru/about.html#?_?????AppendixAssetsThe amount as of the date of the report Change in the periodBase period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,%
Cash154 506 091 21,72 185 376 922 20,75 16,65 30 870 831 3,46
Funds in other banks9 787 579 1,38 15 394 711 1,72 36,42 5 607 132 0,63
Trading securities20 363 257 2,86 9 639 559 1,08 -111,3 -10 723 698 -1,2
Net loans432 208 116 60,76 574 089 442 64,27 24,71 141 881 326 15,88
Net investments securities held to maturity 508 655 0,07 509 782 0,06 0,22 1 127 0,00013
Net investments in securities available for sale 1 508 805 0,21 1 517 323 0,17 0,56 8 518 0,001
Derivatives and other financial assets 9570065 1,35 56 776 692 6,36 83,14 47206627 5,28
Total assets711 372 141 100 893 279 765 100 20,36 214 851 863 24,05
Table 4: Analysis of the structure and dynamics of assets “Raiffeisenbank”
Source – RAIFFEISENBANK ANNUAL REPORT 2016
LiabilitiesThe amount as of the date of the report Change in the periodBase period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,% Funds of other banks65 999 725 11,08 77 521 587 9,78 14,86 11 521 862 1,45
Term borrowings from parent capital 33 172 282 5,57 61 993 150 7,82 46,49 28 820 868 3,64
Term borrowings received from other financial institutions 6 266 921 1,05 9 821 410 1,24 36,19 3 554 489 0,45
Amounts due to customers (non-credit institution) 452 472 765 75,97 531 900 500 67,11 14,93 79 427 735 10,02
Debt securities issued10 354 558 1,74 22 228 342 2,8 53,42 11 873 784 1,5
Other commitments6 245 010 1,05 7 675 796 0,97 18,64 1 430 786 0,18
Derivatives and other financial liabilities 6 529 237 1,1 64 221 611 8,1 89,83 57 692 374 7,28
Total liabilities595 587 878 100 792 621 374 100 24,86 194 321 898 24,52
Table 5: Analysis of the bank’s liabilities “Raiffeisenbank”;
Source – RAIFFEISENBANK ANNUAL REPORT 2016
Items of income Base period 31.12.15 Current period 31.12.16 Growth rate,% Absolute growth, ths. Rub. Effect on change in total assets
Total thousand. Rub. Share,% Total thousand. Rub. Share,% Fee and commission income14 846 748 27,63 17 075 699 24,55 2 228 951 13,05 3,2
Gains less losses from dealing in foreign currencies 3 189 091 5,93 6 358 959 9,14 3 169 868 49,85 4,56
Net gains / (losses net of gains) from foreign currency revaluation 967 503 1,8 9 057 334 13,02 8 089 831 89,32 11,63
Recovery of provision for credit related commitments 231 271 0,43 312 921 0,45 81 650 26,09 0,12
Reversal of provision for impairment of investment securities held to maturity 14 250 0,03 974 0,0014 -13 276 -1363,04 -0,02
Gain on sale of loans 32 499 0,06 158 734 0,23 126 235 79,53 0,18
Other operating income336 526 0,63 303 168 0,44 -33 358 -11 -0,05
Share of results of associates 418 355 0,78 463 756 0,67 45 401 9,79 0,07
Total income53 743 137 100 69 560 976 100 15 817 839 22,74 22,74
Table 6: Analysis of the structure and dynamics of income «Raiffeisenbank;
Source – RAIFFEISENBANK ANNUAL REPORT 2016
List of tables and graphs
Illustration 1: Process of banking internationalization in 1970-2017; Source-author………………………………………………………………………………………….………….……..…….18
Illustration 2: The share of foreign capital (2001-2016); Source- the Central Bank of Russia 2016 report……………………………………………………………………………………..….….….43
Illustration 3: The dynamic of amount of banks in Russia incl. foreign bank;
Source – the Central Bank of Russia 2016 report……………………………………………………45
Illustration 4: The share of foreign capital of residents and non-residents (2005-2017); Source -Eurostat, 03.2017……………………………………………………………….……….…54
Table 1: Effects of regulations and information costs; Source-Caner S., Kontorovich V.K., 2004…………………………………………………….……………………………….……………………….29
Table 2: Ranking of main motivation for entry in CEE; Source- Konopienko L., 1999……………………………………………………………………………………………………..……………….30
Table 3: PEST ANALYSIS; Source – author………………………………………………………..…….47
Table 4: SWOT ANALYSIS; Source – author………………………………………………………….…48
Table 5: Analysis of the structure and dynamics of assets” Raiffeisenbank”; Source- RAIFFEISENBANK Annual report 2016…………………………………………………….……………..54
Table 6: Analysis of the bank’s liabilities “Raiffeisenbank”; Source- RAIFFEISENBANK Annual report 2016…………………………………………………………………………………………..…..55
Table 7: Analysis of the structure and dynamics of income “Raiffeisenbank”; Source- RAIFFEISENBANK Annual report 2016………………………………………………………….………..57