“We do not rule out the possibility of entering into new markets in digital format”

After 2014 talks about international assets of Russian business has nearly ceased – sanctions have put an end to the activity of many domestic players abroad. Sberbank, although it has reduced its assets in recent years, still operates in 12 countries in Europe and CIS.  How does the Russian giant compete in foreign markets, what is the development strategy in the countries of presence, why was the Turkish DenizBank sold, and how does Sberbank work in Ukraine?

Timur Kozintsev, the new Head of Sberbank International, told Vugar Aliyev, partner of KPMG, about all this.

Timur, Sberbank's assets abroad have more than 3 times decreased since 2009. Tell me what is the reason? What portion of the business has gone for objective reasons, what portion because of geopolitical issues?

International business is an indicator of real economic relations between countries and reflects the logic of trends in the world. In 2012 Sberbank International was actively expanding into foreign markets - we came to Turkey and Europe, and compared to 2009, at that time the assets of subsidiaries grew significantly.

Then sanctions were imposed on Russia, which automatically resulted in, among other things, operational consequences: we were unable to raise funds for more than 30 days in currency, with restrictions on making payments in dollars and euros, and a ban on paying dividends in some countries (Turkey and Ukraine). In addition, local regulation has become more stringent.

We were forced to adapt and work in a changed geopolitical and economic environment, and to date our assets abroad have actually decreased by 2/3: from $68 billion to $23 billion. These figures were, of course, influenced by the largest DenizBank deal, which you know was closed last year.

What is your current position in the countries of presence?

In the CIS markets - Kazakhstan and Belarus - we have strong market positions of the largest banks with a market share of 8% in Kazakhstan and 6% in Belarus. Here, our task is to become leaders in modern and efficient services for clients, primarily through the growth of business in digital channels.

Sberbank Kazakhstan in general is the most efficient among the universal banks of this country with ROE = 33%, CIR = 30%. We rank second in terms of loans with a 10% share. We have one of the best applications in the local market, we have a very good growth rate of the customer base – 40% in 2 years, which means that clients show great interest in our services.

Among the second tier banks (the first tier includes the National Bank of Kazakhstan) we are the third in terms of assets, and the quality of our assets is the best on the market (NPL 90 + = 5.2%). But we still see the potential for growth in this country, for example, by building and developing an ecosystem. This may include the use of the Group's current products and the conclusion of new local partnerships.

In the European market we are represented in the format of medium universal banks, which occupy from 1% to 7% of the market. Initially, we invested in this market with large-scale development plans, but as I said, they were adjusted after the imposition of sanctions. The environment is characterized by a high level of competition and significant regulatory requirements. In addition, we were recognized as a systemically important bank, and this led to additional requirements, including in terms of reporting to the ECB. In addition, capital requirements have increased significantly. Nevertheless, our European banks remain steadily profitable and competitive, especially in the niche of consumer lending.

In terms of prospects, we highly appreciate the potential of the digital banking format and are already seeing the results of the pilot project in Germany. It is about end-to-end online maintenance of individuals. Currently, clients have access to deposits, savings accounts and consumer loans. I would like to point out that we have some of the best client travel and time to yes indicators in the market: clients spend on average about 13 minutes on filing applications and a maximum of 8 minutes on obtaining approval, and our share of NPL is less than 0.3%, all of which allows us to compete successfully in this field. Next year we have plans to expand the range of banking services. In addition, at the end of March we launched online sales of loan insurance in Germany. Today, one in four clients buy such insurance - this shows that we have correctly guessed the needs of the market.

What is the share of business today in the CIS countries, and what is the share of business in European countries? What share of revenues are currently generated by foreign subsidiaries? What is the ambition in relation to this indicator?

Sberbank International's foreign subsidiaries currently account for approximately 5% of Sberbank's assets. Sberbank Europe accounts for about 65% of this volume, and it is no secret that the European market is highly competitive, with low margin and, accordingly, the share in income is significantly lower. Here we see the prospect of increasing the share of non-interest income and commissions, especially in terms of cross-border operations. Plus, we assume that through digital transformation in Europe we will be able to compete at a high level in the region.

In Kazakhstan, we have the most profitable bank in the Group, which is one of the most promising markets in terms of capacity and growth rates for us.

Let's go back to selling the Turkish subsidiary to Emirates NBD. You worked in Turkey for many years. What did not work with DenizBank? What did you manage to do?

Turkey is one of the most promising economies in the world. It is a non-commodity market, and the economy is mainly driven by developed small-scale entrepreneurship. When we visited this country, the situation was very favorable, but then geopolitical intervention took place, and we were in fact held captive: deterioration of the economic situation in the country, depreciation of the national currency. It has become more difficult for the bank to attract funds on international markets - all this has reduced the attractiveness of the Turkish region for us. Plus nobody wanted to work with Turkish banks. As a result, a difficult decision to sell was taken. In my opinion, DenizBank was and remains a good asset, it is one of the top banks in the country in terms of efficiency.

I can say with confidence that our expectations from acquiring DenizBank in 2012 were met by 100%. We set the goal of entering the counter-cyclical market, diversifying the business, and building up the client base. We managed to do this, and we are proud of the results achieved: during the bank's ownership its assets grew almost 4 times, the number of retail clients - by 86%, the growth of the network of branches was 20%. In 2019 the bank earned 3.2 times more operating income and net profit than in 2012. DenizBank has also achieved significant success in the implementation of innovative technologies in the banking sector, has been repeatedly recognized as the world's most innovative bank, and has taken leading positions in financing the agro-industrial sector, tourism business, servicing clients of retirement age and other areas. I am confident that colleagues from Emirates NBD will retain the vector for DenizBank development.