UniCredit eyes robust Russia growth
UniCredit aims for double-digit growth in Russian loans this year, driven by an economic recovery, though margins are under pressure and battling local giants for market share is seen as futile.
"We may see a double-digit growth of our loan portfolio this year ... If the situation does not change dramatically we may see a double-digit growth next year too," Mikhail Alexeyev, the head of UniCredit's local unit said at the Reuters Russia Investment Summit on Monday.
UniCredit's Russian unit, ranked among the country's ten biggest lenders, believes the sector is coming back to pre-crisis levels of profitability this year after massive losses in the financial crisis-hit 2009.
UniCredit made a net profit of 6.7 billion roubles ($216.8 million) in 2009, outperforming state-run rivals like VTB which suffered a $2 billion net loss on provisions for bad debt.
Russian banks have since enjoyed a sharp rise in profit as bad debt loosens its grip on the sector, but their long-term performance is open to question as the central bank's policy of lower interest rates has hurt margins, Alexeyev warned.
"One of the main issues is a narrowing of the margin spread -- this would be an issue for the next year. The next year probably will not be an easy one, life will definitely become not so easy for the banks," he said.
He added that bad debts were no longer "a serious problem."
Alexeyev said UniCredit's margins of around 5 percent should still provide a platform for sustainable profitability despite uneasy market conditions, adding that Russia is largely undeveloped in comparison to trouble-hit western Europe.
"The margins (in Russia) are still dramatically higher than in western Europe and there are no chances for western Europe to dramatically increase these margins for the next decade. The potential is there (for Russia) ," Alexeyev said, adding that the economy's hot sectors included telecoms, steel makers and fertilizers.
Russia is home to around 1,000 banking firms, but with the bulk of assets concentrated among the 100 biggest lenders consolidation is just a matter of time, Alexeyev said.
He added that UniCredit was not in talks with any targets at present, but did not rule out a move in the future.
"I think we cannot completely exclude this question from agenda. My guess is that a relatively good financial performance from the banking sector during this year will postpone this issue but maybe it will remain on the agenda during the next few years," he said.
Alexeyev, a banker with two decades of experience, said that there was reduced interest in Russian banking assets even though prices had fallen.
"People are not so sure about the overall environment -- there's a reduction in the magnitude of interest," he said.
Alexeyev said the dominance of the big two state-controlled banks Sberbank and VTB make it difficult for UniCredit to significantly increase market share.
The bank's 2 percent market share by assets in Russia compared with 30 percent for Sberbank, he said.
"What about poor foreigners?" he said.
[Source: By Dmitry Sergeyev and John Bowker, Reuters, Moscow, 13Sep10]
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