Russia’s second-largest lender, VTB, is betting on digital transformation and aggressive retail growth as the keys to success for the bank, its chairman Andrei Kostin told Euromoney in an interview on Friday.
As recently as 2014, the high-profile executive – known in the West for his alleged proximity to the Kremlin – was pitching Russia’s second-largest lender as a global champion in corporate and investment banking.
“Russia is our number one target,” Kostin says.
“It’s very unfortunate that the US and Europeans have been using economic sanctions as a political tool,” he says. “Unlike trade wars, which are aimed at achieving economic results, sanctions means using financial and economic instruments to get a political result. We have an international financial and economic system that we are breaking because of our political differences. That’s very dangerous for the global open economy.”
It also presents specific challenges for VTB. Not only have sanctions curtailed the bank’s international ambitions but, by cutting off access to global markets, they have also severely limited its ability to raise capital. In an era of ever-increasing capital requirements, that is a problem for a bank that has often struggled to turn a profit, Euromoney writes.
In 2014 and 2015, VTB barely broke even, while return on equity has averaged less than 5% over the last five years. That compares with 18.6% for Sberbank, Russia’s state-owned retail bank. VTB’s management has taken note. In recent years, it has been stepping up its focus on the retail and small and medium-sized enterprise segments. Last year, VTB grew its retail lending portfolio by 29% on the back of strong demand for mortgages and unsecured loans, boosting return on equity to 12.3%. As Kostin notes, however, that was still well short of the bank’s target of 15%.
“Our number-one task is to improve profitability,” he says. “It’s our only source of capital for expansion.”