Originally published in : Arguments and Facts
The new law “On Consumer Lending” has passed its first reading in the Russian State Duma. It is expected to make retail banking services more convenient for the general public and is likely to result in an increase in the number of lending requests. It is therefore of paramount importance to rise the level of “financial literacy” among the population. There are currently over 1000 credit institutions in the Russian Federation. But what preciselz makes a bank trustworthy? The answer to this question will help millions of borrowers to decide whether to keep their existing banking relationship or to switch to a new one.
Dmitry Leus, Director of the Board of ZAO Bank Zapadny:
First of all, I would like to attract your attention to the problem of the geographical availability of banking services, in particular in a country as large as Russia. For obvious reasons, most banks prefer to work in big cities. This makes it sometimes difficult for residents of smaller agglomerations to open a bank account and have access to personalized financial advice. We decided to fill this gap.
Last year, we launched a pilot project to establish mini branches in Russia’s small towns. The number of loans issued at these mini branches has already exceeded the number of loans issued at big branches in major cities for the same period of time. Overall, 2012 was a breakthrough year for the Bank, as our retail credit portfolio has more than doubled.
As of today, we operate 45 branches — 9 in the greater Moscow area, and 36 in the Russian regions. Only in the past six months we opened over 22 regional offices — which is some kind of a record. From the point of view of economic development, these branches represent a new resource capacity allowing us to scale up the Bank’s business. From a social point of view, it means new employments in the regions and job security for our staff.
We have already started to work not only in bigger regional centres, but also in small agglomerations with populations over 50 thousand inhabitants. For example, recently we inaugurated a branch in the small town of Gryazi in the Lipetsk Oblast. Its population does not exceed 46 thousand people, and another 70 thousand live in the nearby villages. It would be unfair to deprive these people of the possibility to open a bank account, make payments, and receive credit.
Let me add that the problem of access to banking services is not only restricted to Russia. The European Union has recently published a proposal to make bank accounts accessible to all European citizens and has spoken of a right to a basic bank account. In its press release, the EU Commission justified the proposal explaining that bank accounts have become essential to participating fully in the economic and social life of a modern society in which the use of cash is decreasing. In fact, studies have shown that over 58 million EU citizens over the age of 15 do not have a payment account.
In this context, a trustworthy bank is a bank which satisfies the right of everyone to a simple bank account irrespective of a person’s place of residence and financial situation. We try to build trust on our general openness and transparency, including the transparency related to the fees we charge.
Returning to Russia and the Russian regions, I would also like to highlight the strong financial discipline of small-town borrowers. Their positive credit history allows us to award them additional loans at preferential rates.
A banking product which was until now only rarely available in small towns are pensioner loans. When I started to work with elderly people I immediately noticed that they behaved very responsibly. Put differently, they practically did not delay their loan payments. We have therefore no difficulties in providing them with new lending products best tailored to their needs.
It is very important to us that our clients are not losing their time in long waiting lines. To this effect, we monitor in our branches the very possibility of the emergence of a waiting line, for example through an infrastructure of self-servicing terminals allowing our customers to make interest payments independently.
People entrust the bank with one of their most valuable material assets — their lifelong earnings. Against this emotional background, it is important that when visiting the Bank, customers experience a quality of service matching their expectations. Therefore, a trustworthy bank is a bank whose employees, in their everyday customer dealings, give concrete meaning to the notion of trust. It goes without saying that this also implies an attractive compensation plan for our staff.
By way of digression, our clients were the first to appreciate the benefits of our back office reorganization. We set up a new client service center in Voronezh, thereby successfully integrating our call center, credit research center, IT department, and operations. Streamlining these processes has been instrumental in enhancing the client’s overall service experience.
It is not necessary to have a financial education to understand that a trustworthy bank in the financial sense of the term is a bank with a solid capitalisation. Bank Zapadny has recently increased its share capital by almost RUB 1bn, thereby improve its creditworthiness before its customers.
Currently, our Board of Directors is considering the issue of another 2.5bn of ordinary shares at RUB 1 each, to be placed on the Moscow Stock Exchange. Once done, anyone can become one of the Bank’s owners. By raising RUB 2.5bn, we expect to increase the Bank’s capital by 127% and the Bank’s total capitalisation will amount to RUB 5.5bn.
With a clear business structure and a flat hierarchy, Bank Zapadny was able to attract new shareholders in the form of its own regional staff. The bank is also in the process of attracting a number of institutional investors.
With regard to our development plans,over the next two years, we are planning to reach a return on equity ranging from 35-40%. To achieve this objective, top management has a worked out a clear road map for business development. In addition, a revised long-term strategy of the Bank is in the approval process.
Let me conclude with some questions which are being asked on a regular basis by our customers themselves: Why should we become your clients? What makes you trustworthy? Why should we not switch to another bank?
My answer is transparency. The growth of our business is obvious. Each month we attract more than ten thousand new customers. These are private individuals, entrepreneurs, representatives of small and medium-sized businesses. By increasing our network of regional branches, we are in the process of doubling our customer base. On a qualitative level, we are observing that the average customer stays with the bank not only longer, but also has recourse to a wider product offering. All this goes hand in hand with increased productivity. Each quarter we see an increase in profit items not related to our lending activities, but rather to our universal banking offering.
All these factors give us self-assurance and confidence. Our shareholders and employees believe in the Bank’s future, and this may be another distinctive feature of a trustworthy bank.