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Austria's RBI expects future growth in Russia despite local market challenges

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Austria's RBI expects future growth in Russia despite local market challenges

Raiffeisen Bank International AG expects to continue to grow in the Russian market over the next few years despite lower interest rates and increasing competition from local banks, according to CEO Johann Strobl.

The Austrian banking group's final 2017 results showed that its annual consolidated profit had more than doubled to €1.12 billion from €520 million on a pro forma basis a year earlier, with RBI Russia's net profit of €443 million marking it out as the biggest contributor to profitability, Strobl told analysts during a March 14 earnings call.

"The news [from] Raiffeisen Russia are very good," he said, after the unit's net interest margin rose year over year to 5.88% from 5.64%, despite four interest rate cuts by the Russian central bank in 2017. The increase was partly down to deposit repricing and a rise in the share of local-currency business, and was supported by foreign-exchange appreciation, RBI said in a statement.

Interest rate development is an important factor for RBI's return on equity going forward, especially in Russia and Central and Eastern Europe. The rate environment plays a bigger role for RBI's businesses in those regions now because the units are performing very well, and even a slight reduction in rates would be felt, according to Strobl.

Potential expansion

An additional challenge for RBI in Russia is competition from local banks, which has gradually increased over the course of the central bank's cleanup of the local banking sector. The regulator has closed a number of smaller nonperforming lenders and recently nationalized three major private banks due to liquidity concerns, resulting in customer flight toward larger and primarily state-owned institutions. This has left smaller and mostly privately held banks, including many foreign ones, competing for a smaller share of the local market.

While acknowledging the strength of Russian state-owned banks in the wake of the nationalizations, Strobl said: "On the other hand, in the regions where we are active, especially in Moscow and St. Petersburg, [there are] more inhabitants than the population of many of our smaller markets ... We still have high expectations in all market segments. We think that we will further increase our customer base in the coming years — individual customers as well as [small and medium-sized enterprise] customers."

He added that RBI believes recent investments mean it could expand its geographic reach in Russia "in both segments." The Russian unit plans to attract more customers by improving its distribution channels, both through expansion of the branch network and by enhancing its digital capabilities.

"I think people in Russia are more and more fine with these channels, and that opens up new possibilities for us," the CEO said, adding: "We remain committed to the Russian market."

At the group level, RBI — which announced its first dividend payment in four years, at 62 cents per share — wants to diversify its customer base in the large-corporate segment and expand its coverage of mid-capital corporates, with focus on low-risk, fee-generating and capital-light products, it said in a statement.