- This is open for debate. The
crisis has also shown that repayment shortfalls have only slowly increased in
the segment of consumer lending. At the same time, corporate creditors have had
recourse to several tricks such as automatic roll-overs in order to hide away
their repayment difficulties.
-
Dmitry Leus:
I agree with your observation. Every credit decision happens against the
background of a bank’s financial risk management.
Bank disposes of a strict system for financial
risk modelling. Every day, we receive approximately 2500 new credit requests
from private individuals. Among all these requests, only about 18% receive
final credit approval. In addition, repayment shortfalls of up to 60 days are
addressed by our debt collection services. The latter’s collection strategy is
continuously being adapted to prevailing market conditions. For example, there
existed a period when we completely stopped lending to individuals under the
age of 25, as we observed a specific age-related difficulty when it came to
repayment discipline.
Furthermore,
our analysts are monitoring Bank ’s credit portfolio on an ongoing basis. We
provide RUB 1bn of finance to the Russian population every month, which
constitutes a relatively small amount. On the other hand, it is just enough to
subject our credit portfolio to a thorough analysis and take ad-hoc decisions
when needed. In light of Bank ’s 70 branches across Russia, I may add that
working in the Russian regions has proven easier than in the capital, as loan
repayment rates have historically been higher in the periphery. In total, our
current private-loan default rate amounts to only 6 percent.
In contrast, in the realm of small and mid-size businesses we have so far practically not seen any
arrears at all, which may be due to the fact that we have just entered this
market. Thanks to our cautious approach to risk, I am convinced that our
default rate in this segment will be even lower than during our private lending
activities.
Let
us not forget that consumer lending in general is a mass market that is
dominated by standardized processes. SMB lending, on the other hand, allows for
an individual approach which takes into consideration the multitude of layers
of a credit request. Thus, prior to being forwarded to our centralized Credit
Committee in Moscow, every corporate credit submission is carefully prepared in
one of Bank ’s regional branches. For example, our regional credit specialists
conduct site visits during which they value the respective company’s market
standing, monitor contractual partners, and go through a potential client’s
consolidated financial statements. Such an in-depth approach enables us to
select the top tier out of 10 applications.
- Your bank has been in existence on
the Russian market since 1993. This is an important period in the relatively
young Russian banking sector. Bank has
lived through more than one crisis. Based on your experience, which should be
the strategy of today’s commercial banks in Russia?
- Dmitry Leus: The survival strategy for niche
commercial banks in contemporary Russia with its economic uncertainties
consists in sound risk management.
From
a business perspective, the secret of success for weathering any crisis
consists in the strong will of the bank’s owners and stakeholders to preserve
and develop their business. The first thing which is being taught in business
administration courses is the theory of economic choice – that is, the choice
one must make when faced with two or more alternative uses of a resource.
Crisis economics simply dramatizes this basic economic choice.
The
banking industry today presents higher risks than other economic sectors. To
take these risks is the choice of every shareholder and manager. I arrive at
work before 8 am and leave the bank after 8 pm. This is the only way to work in
order to achieve good results. The banking industry consists of a multitude of
little things hardly recognizable to outsiders. However, taken together they critically
impact the bank’s financial results. Every aspect of the business must receive
its due attention, starting with administrative tasks and ending with the
closure of big transactions. There are a million of details which may escape
the attention of the bank’s managing director. A permanently heightened state
of alert should therefore become the responsible banker’s second nature. In my
opinion, a bank controlled and managed by its owners is the best guarantee of
success.
In
addition, the right risk management does not consist in doing the maths and
then ticking the box. Rather, it consists in picking up the faint signal of
today that will become tomorrow’s big challenge – a practice the Austrian
economist and management consultant Peter Drucker has called the anticipation of a future that has
already happened. Risks are present in every form of business. However,
some risks are balanced by reasonable rewards, others are not. The essence of
entrepreneurship consists in getting this balance right.
