Mikhail Ioffe: “This is a market, nothing can be ordered here”

The banking sector shows high dynamics and continues to actively implement digital services. How this will affect the number and quality of bank branches, how the investment behavior of wealthy clients is changing, and why the ecosystem is not a panacea - Mikhail Ioffe, Senior Vice President and Managing Director of the North-Western Branch of Otkritie Bank, told RBC + in an interview.

BANKING TRENDS

— How does the banking sector feel in 2021? What are the key factors?

— The banking services market continues to develop dynamically, demonstrating last year the ability to quickly respond to changes in the epidemiological situation and proving its stability and reliability. The key factor influencing the situation in the banking sector is still the change in monetary policy: there is a gradual increase in the key rate of the Central Bank of the Russian Federation. In addition, the transition to project finance in the construction industry plays an important role both last year and this year.

— What is the dynamics of transactions in the framework of project financing in the region?

— Banks have significantly increased the number and volume of transactions in this area. Since May 2020, Otkritie Bank has already launched financing for 8 large projects in  St. Petersburg and the Leningrad Region, the total budget of which exceeded 30 billion rubles. We expect that the project finance market will continue to develop rapidly in 2021, with deals in excess of RUB 5 billion becoming commonplace. As a result, the revival will continue in the market of land plots for construction.

We expect that the project finance market will continue to develop rapidly in 2021, with deals in excess of RUB 5 billion becoming commonplace.

— What other changes do you see in the banking sector?

— it is obvious that the role of commission income is increasing in the banking sector. However, this does not mean at all that banks must necessarily turn into ecosystems. No less, and perhaps even more effective, will be the work of the bank as the core of a classical financial group and the sale of various brokerage, investment and insurance solutions.

— How much, in your opinion, will the need for physical bank branches in St. Petersburg decrease against the backdrop of the global digitalization of banking products and services?

— Last year was for all major banks, including Otkritie Bank, the year of digitalization of financial products and services. Banks will continue to modernize their network of offices, increasingly shifting the focus towards offline financial advice, and various routine operations will finally go to digital channels. The need for such offices for clients is confirmed by special studies. Thus, according to a survey conducted by Otkritie Bank in mid-April, more than 90% of Russian residents are confident that bank offices will continue to operate in 10 years. At the same time, according to 48% of respondents, bank branches will remain in a slightly smaller number than now. Another 46% of respondents believe that the number of bank branches will remain at the same level, because it is important for people to go there if necessary. And only 6% believe

ACCELERATE LENDING

- What is the dynamics of the demand of St. Petersburg residents for loans?

— Since March, the retail lending market in St. Petersburg has begun to recover. This is manifested both in the sphere of mortgage and in the sphere of unsecured lending. On the one hand, against the backdrop of the start of vaccination against covid-19, consumers have become more confident in the future and they began to make large purchases, which they postponed until better times last year. On the other hand, the transition of the Bank of RUSSIA to a gradual increase in the key rate forced many residents of St. Petersburg and the Leningrad region to speed up the processing of loans in order to fix favorable interest rates.

— Do you expect another record in terms of mortgage lending in St. Petersburg and the Leningrad Region this year as well? Or will there be a decline in the market after the end of the program with state support, since effective demand has been exhausted?

- We are not yet waiting for new super-records for the issuance of mortgage loans in St. This is indirectly confirmed by the figures of our branch. According to the results of last year, Otkritie Bank issued mortgage loans in St. Petersburg in the amount of more than 25.5 billion rubles. According to the results of the first quarter of 2021 - over 6 billion rubles. Considering that the program with state support will end on July 1, the traditional downturn will be observed in the mortgage lending market in the summer. In autumn it will be replaced by progressive growth in demand and issuance of loans, however, in general, it is unlikely to allow the regional mortgage market to seriously grow compared to last year.

In the summer, the mortgage lending market will experience a traditional downturn. In autumn it will be replaced by progressive growth in demand and issuance of loans, however, in general, it is unlikely to allow the regional mortgage market to seriously grow compared to last year.

NEW INVESTING HABITS

How do wealthy clients feel? How actively do they redistribute funds from bank deposits to brokerage accounts?

— Wealthy clients, especially clients from the Private Banking segment, of course, are more financially literate than most bank clients. Therefore, they started redistributing funds from deposits into securities, primarily bonds of first-tier corporations, several years ago. After all, such investments now, for example, allow you to get a yield of around 3% per annum in US dollars and 7-8% per annum in rubles.

— Experts note the interest of experienced investors in more risky investments. Do you see such a trend?

— Yes, last year many wealthy clients began to adhere to more risky strategies, actively redistributing funds into shares of large Russian and foreign corporations. They were especially active in buying shares in the spring of last year, against the backdrop of a fall in both the Russian and global securities markets.

Another trend of the past year was the redistribution of funds in trust management and mutual funds. If in 2019 the share of funds that clients entrusted to professional financial managers did not exceed 10%, now it is more than 20%. Accumulative and investment life insurance instruments are still in extremely high demand as a profitable and convenient instrument for transferring assets by inheritance.

Last year, many wealthy clients began to adopt more risky strategies, actively redistributing funds into shares of large Russian and foreign corporations.

OUTPUT OF THE MARKET

— How did the business of Otkritie Bank in St. Petersburg grow as a result of the implementation of the three-year strategy for 2018-2020? With what indicators did the bank end 2020 in St. Petersburg and the Leningrad region?

— As a result of the implementation of the three-year Otkritie strategy in St. Petersburg and the Leningrad region, it was possible to increase the volume of business by 7 times. As a result, at the end of 2020, the total loan portfolio of our branch reached 109.4 billion rubles. At the same time, it is important that this growth was balanced: the portfolio of retail loans amounted to 55 billion rubles, an increase of five times, and loans to legal entities — 54.5 billion rubles, an increase of more than 10 times. We also increased the amount of funds raised, increasing this figure from RUB 116 billion in April 2018 to RUB 143 billion at the end of December 2020.

This is a market, nothing can be ordered here. Since we succeeded, since clients came to us, it means that we offered them what they are interested in. And most importantly, we have become a recognizable player in the St. Petersburg banking services market, securing the image of a reliable and at the same time fast-growing universal bank.

This is a market, nothing can be ordered here. Since we succeeded, since clients came to us, it means that we offered them what they are interested in.

— Otkritie Bank last year actively restructured the loans of its St. Petersburg clients from small and medium-sized businesses. How justified was this help?

— Both clients and banks have shown responsibility and great maturity in this matter. We avoided panic, all government support measures were introduced in a very timely manner. In total, in the first half of 2020, we carried out more than a hundred restructuring of loans to small and medium-sized businesses in St. Petersburg and the Leningrad Region for a total of 5.6 billion rubles. In the second half of the year, several more medium-sized companies restructured their liabilities to us in the amount of 1.7 billion rubles. All these decisions are justified. They helped us to retain both clients and the quality of loans issued.

— Did you face the problem of non-payment at the beginning of this year?

— The companies that received support have entered the previously established payment schedules, their business is gradually recovering. There are no past due payments on restructured loans.

— How does the segment of large corporate clients feel? How has the portfolio of the bank in St. Petersburg changed?

— The segment of large clients passed last year without any serious losses. Companies from export-oriented industries, agriculture, industries focused on the domestic consumption market - from the same sphere of housing construction - recorded record operating performance and high profits. This, of course, has a positive effect on their economic and investment activity in the region and on the risk indicators of the regional portfolio of loans to corporate clients of Otkritie Bank.

Otkritie Bank's portfolio of loans to large businesses in the region last year exceeded 40 billion rubles and continues to grow at a rate that outpaces market dynamics.

Otkritie Bank's portfolio of loans to large businesses in the region last year exceeded 40 billion rubles and continues to grow at a rate that outpaces market dynamics.

— Have you already noted that Otkritie is actively working in the field of project financing, what indicators have been achieved and what major transactions have already been concluded this year?

— We entered the project financing market exactly a year ago and during this time we have increased the project financing portfolio from zero to 20% of the total portfolio of loans to large businesses - up to 8.5 billion rubles, with total project financing limits of 33 billion rubles. In 2021, we have already increased by 25% the indicators of the end of 2020, and we are actively expanding the number of market players with whom we already finance or will conduct projects in partnership. The key partners this year can already be safely called PSK Group, RTI Group, Leader Group Group, but the listed list is not exhaustive for us for this year.

— What changes do you note in the land market?

- If a few years ago it was a buyer's market, i.e. developer, now the opposite is true, we have moved to the stage of the seller's market. Landowners often place their plots on the market on their own economically sound terms. This motivates the developer to create a mutually beneficial partnership, which, of course, has a positive effect on investment activity in this segment. And here our main task as a bank is to provide our financial services and resources to the entire chain of this partnership, from “land to a finished project”. And in this direction we actively participate and increase our presence in the market. I think that the project finance industry will be the main driver for the development of the corporate segment in the coming years. That is why we plan to enter the top five banks both in terms of the number of opened escrow accounts,

I think that the project finance industry will be the main driver for the development of the corporate segment in the coming years.

— What are the key tasks set for the branch this year?

— The main thing is customers, operating indicators and profit. After all, a bank is a commercial organization that must bring profit to shareholders.