From its 25-story glass headquarters in southern Moscow, Russian financial behemoth Sberbank offers a clear view of unsightly relics of the Communist past: the sterile promenade known as Leninsky Prospect; the garish monument to first cosmonaut Yuri Gagarin, stretching skyward like a comic-book superhero; and the belching smokestacks of aging power plants.
But Andrei Kazmin, chairman and CEO of Sberbank, the still largely state-owned near-monopoly that is itself a holdover from the Soviet era, sees his institution as anything but an artifact. “What possible reason is there to break up a successful, well-run enterprise like Sberbank?” he asks, dismissing once-clamorous calls for it to be dismantled as part of sweeping financial reforms.
Kazmin’s triumphal mood is understandable. Never mind that Sberbank is struggling to bring costs under control, or that it still gets lambasted by some critics for lacking enough transparency, or that Kazmin and his close associate, first deputy chairman Alla Aleshkina, are often accused of having an autocratic management style.
One of the biggest complaints from investors as well as critics is that Sberbank delays reporting annual results until its general shareholder meeting in June of the following year. Thus the last available full-year figures are for 2004. These show $670 million in net income -- an impressive 47.5 percent rise in profits over 2003 -- and $4.54 billion in revenues, a 25 percent jump from 2003. Driving these results are stronger-than-expected performances in retail credit, small-business lending and fee income -- sectors in which lumbering Sberbank, the official state savings bank, was deemed to be vulnerable to nimbler rivals. Sberbank’s share price was up 150 percent in mid-March from a year earlier.
Although reform trudges on, expectations that it will lead to a competitive banking system have ebbed. And in this era of growing state assertiveness in the economy, any hope that Sberbank will be cut down to mortal proportions has vanished. “It is science fiction to believe the government will split up Sberbank and privatize it,” says Sergei Donskoi, a financial services analyst at Troika Dialog, a Moscow-based investment bank.
The key banking reform has been the creation of a federal deposit insurance system -- to be fully funded by 2007 -- that would provide private sector banks with government insurance of up to $3,500 per depositor. In a financial crisis this would supposedly offer panicked depositors viable private sector alternatives to fleeing into the arms of Sberbank. But more than 900 banks out of the 1,137 that applied have been accepted into the insurance scheme, compromising the reform’s goal of promoting prudent lending by restricting the guarantees to only the most responsible banks. “The picture is dismal, with even marginal banks admitted,” wrote Standard & Poor’s in a June 2005 report.
Banking reform certainly does little to create a counterweight to Sberbank’s financial hegemony. Little wonder that Sberbank’s No. 2, Aleshkina, sounds smug: Asked about predictions of rising competition in corporate lending from state-owned Vneshtorgbank and in consumer finance from private sector Russky Standart Bank, she says: “Easier said than done.”
Not only has Sberbank maintained overwhelming dominance in whatever markets it chooses to compete in, but it has also managed to persuade even the toughest critics that it is irreplaceable. “You really cannot break up Sberbank because it is the only bank that can provide services to both the largest companies and the smallest villages,” concedes Richard Hainsworth, a financial analyst at Moscow-based investment bank Renaissance Capital who has spent a decade decrying Sberbank’s inefficiencies but seems to accept its inevitable dominance. Adds John Litwack, Moscow-based chief Russia economist for the World Bank, which used to label Sberbank an impediment to a healthy financial sector, “The government understandably feels that selling off Sberbank at this point in time would just turn it into a private monopoly.”
What has made Sberbank seem less overbearing in the eyes of longtime critics is Russia’s rapid economic growth, which has created space at the trough for any moderately competent bank. Most competitors have discovered they can prosper in Sberbank’s huge shadow. With Russian GDP growing by more than 7 percent in each of the past two years, consumer borrowing rose by 75 percent in 2005, to $39.3 billion, after having doubled in 2004. Although Sberbank claims almost half of all retail loans, profits are up at almost every bank.
“Sberbank is an elephant, but not the sort that tramples you,” says Neil Withers, a Canadian-born adviser to the chairman of Vozrozhdeniye Bank, a Moscow-based universal bank that has expanded from servicing agro-industrial enterprises to offering consumer loans. “We believe that we can be better than Sberbank in markets it isn’t paying enough attention to.”
By any measure, Sberbank is a pachyderm among mice. Its more than 20,000 branches -- 40 times the number owned by Rosbank, the private sector bank with the second-largest network -- stretch across Russia’s 11 time zones. “Other banks focus only on the big cities,” says Kazmin. “In two thirds of the country, we have no competitors.” This allows Sberbank to pay low interest rates on retail deposits in towns and villages where it has an absolute monopoly and then charge lower rates on loans than its rivals in big cities.
Although Sberbank’s retail deposits dropped from a 68 percent market share in 2002, they were still a gaudy 60 percent, or $43.3 billion, in 2004. On the retail lending side, Sberbank’s market share rose from 46 percent in 2002 to 49 percent, or $10.4 billion, in 2004. In corporate banking, Sberbank took in $16.3 billion in deposits in 2004, but it was able to lend companies $38.8 billion, for a 34 percent share of the commercial loan market, by augmenting its pool of corporate deposits with a surfeit of retail savings. The bank’s total deposits as of year-end 2004 equaled $59.6 billion, and its total assets added up to $69.2 billion.
Vneshtorgbank lagged a distant second to Sberbank in market share in 2004, with 4.2 percent of total deposits and 7.5 percent of total loans. No private sector bank exceeded 3.5 percent market share in either deposits or loans in 2004. And the rest of the market is fragmented among more than 1,200 banks.
Sberbank saw its net interest margin fall from 9 percent in 2002 to just under 6 percent in 2004, but because of easing credit risk, it is above the median for Central and Eastern European banks. Only Hungary’s OTP Bank, with net interest margin of 8.5 percent in 2004, was higher.
Sberbank estimates that it had net income of at least $1 billion in 2005 on revenues of $5.8 billion. That would represent a nearly 50 percent gain in profits on a roughly 28 percent increase in revenues from 2004’s totals.
The surge in earnings has been great news for shareholders. The bank’s stock price reached $1,440 in mid-March, rocketing up from $580 a year before. One reason: Sberbank is the only major Russian bank traded on the RTS Stock Exchange in Moscow, so it features prominently in almost all Russian investment portfolios. Sberbank reached $27.3 billion in market capitalization,with 61 percent of its shares owned by the Central Bank -- the very institution that was supposed to reform it. The remaining Sberbank stock is divided almost equally between domestic and foreign private investors.
Still, for all the good news, opinion about Sberbank can vary widely among foreign fund managers. For Peter Håkansson, chairman of Stockholm-based East Capital, which manages E900 million ($1.09 billion) of Russian equities, including E54 million in Sberbank shares, there is no downside to owning the bank. “Sberbank is the best way for us to get exposure to the dramatic growth in the retail banking sector and consumer spending in Russia,” he says. “We still think its stock is undervalued.”
A harsher view of Sberbank comes from William Browder, CEO of Hermitage Capital Management, a Moscow-based fund with $1.7 billion in Russian equities. Last year, Hermitage gave up its seat on Sberbank’s board and sold its 3 percent stake in the bank, which it had purchased in 1996, for an undisclosed profit. “The biggest problem at Sberbank is that they aren’t doing enough about rising costs, while their interest margins are being progressively squeezed,” says Browder. “This is a business that requires good management, and Kazmin seems a bit of a dinosaur.” (The money manager has been working out of London since November 2005, when he was barred from Russia for allegedly being a security threat, putatively because of his blunt criticism of certain Russian companies’ corporate governance practices.)
If Kazmin is a dinosaur, he is one with an instinct to survive and evolve. Though only 47, Kazmin has spent nine years at the helm of Sberbank. Appointed when Boris Yeltsin was Russia’s president, he has strengthened his grip on the bank under President Vladimir Putin. He enjoys as much clout in Russian banking circles as Sergei Ignatiev, the governor of the Central Bank, which holds a majority stake in Sberbank. And Kazmin doesn’t hesitate to complain about his nominal bosses at the Central Bank: “They supervise us more thoroughly than any other bank -- an average of ten inspections daily!”
The cherub-faced Kazmin has a politically tinged sense of humor. In his office hangs a collage of Che Guevara made from shredded Cuban pesos -- a wry reminder that Che was a bust as revolutionary Cuba’s first central bank president. “Like our Finance ministers in the early Soviet period, he wanted to destroy money as the root of all evil,” chuckles Kazmin.
STARTING IN HIS STUDENT DAYS, KAZMIN evinced an interest in banking and finance that was unfashionable in late Soviet times. Earning his Ph.D. in economics at the Moscow Institute of Finance, he focused on inflation and monetary reform in czarist Russia and Weimar Germany. “It was the mid-1980s, when the possibility of high inflation was becoming a big issue in the Soviet economy,” he says. With the collapse of the Soviet Union in 1991, inflation exploded, and young Kazmin’s economic expertise was in demand. Beginning in 1993 he served as deputy Finance minister in the new Russian Federation. He achieved enough distinction to get himself appointed in 1996 as chairman and CEO of Sberbank.
In the Soviet era, Sberbank’s simple mission was to collect citizens’ savings and turn them over to the government to help fund its budget. But in 1991, Sberbank became a joint-stock company, with almost 40 percent of its shares sold to employees and private investors. Suddenly a commercial bank, Sberbank was required to make loans to individuals and also to the new businesses sprouting everywhere. “The lack of any adequate risk management led to many bad loans,” says Kazmin, who took over after the bank had run up losses for five years.
He has made hiring enough credit officers to beef up risk management his obsession. Kazmin sounds proudest of Sberbank’s low nonperforming-loan rates: Just 1.34 percent of corporate loans and a puny 0.26 percent of retail loans were in arrears in the first three quarters of 2005. Potential losses are amply covered by provisions equal to 3.2 percent of total loans.
Kazmin largely entrusted risk management tasks -- and many others -- to Aleshkina, whom aides describe as a workaholic. “She is responsible for 70 percent of the income generated by the bank,” says Kazmin. It’s an assertion unchallenged by analysts and investors, who profess to be underwhelmed by most other Sberbank managers. “She is the most dynamic person there,” says Hainsworth.
Aleshkina met Kazmin at the Moscow Institute of Finance, from which she graduated in 1981, a year after he did. During a career spent mostly as an executive at two state banks, Gosbank and Promstroibank, Aleshkina crossed paths often with Kazmin when he was an academic researcher and later deputy Finance minister. In 1992 she became deputy chairman of Bank Menatep, an early joint-stock (private and government) commercial bank. Then in 1996 she came over to Sberbank with Kazmin and was appointed a year later to her current post.
Now 46, Aleshkina cuts her blonde hair in a short, spiky punk style and sports eye-popping jewelry. She has two adult daughters and another born only six years ago. “I didn’t even take my maternity leave,” she says during a Friday night interview in the cavernous penthouse boardroom at Sberbank headquarters. Her workday would end at 4 a.m.
Under Aleshkina, Sberbank takes an approach to risk management that is reminiscent of the old Red Army’s reliance on masses of troops rather than technology. Limits on loans are delegated down the Sberbank hierarchy to each regional office and then further to each branch in every village. Along the way credit officers, support staff and credit committees monitor and assess risks for each borrower, enforcing exposure caps for each type of loan and determining provisions for every loan.
“It is a system of triple and quadruple checks,” says Aleshkina. “The model is proprietary because we couldn’t find anything appropriate in the market that took into consideration the vertical structure and huge branch network of our bank.”
In its determination to avert bad loans, the model works brilliantly, as those negligible loan-loss numbers attest. But the system has helped to swell Sberbank’s already bloated payroll from 205,477 employees in 2002 to 228,531 last year. That is close to the 253,000 staffers at Citigroup, which in 2004 had 19 times the revenue and 25 times the net income of Sberbank.
Kazmin contends that a salary freeze over the past three years has helped to contain costs. Still, Sberbank’s cost-income ratio of 69 percent in 2004 was one of the highest among CEE banks -- well above those of OTP (50 percent) and the Czech Republic’s Komer(breve)cní banka (55 percent).
An obvious way for Sberbank to cut expenses would be to adopt the most advanced information technology. Instead of shopping abroad for some, the bank’s senior managers have opted to use a “proprietary model.” “We are deploying IT systems developed in Russia,” explains Alexander Brinza, Sberbank’s 34-year-old deputy chairman, No. 3 in the hierarchy, who spends much of his time on technology and retail banking. “We have installed Sberbank’s own software packages at headquarters and the larger regional offices, and we use IT products from leading Russian service providers in other offices.” But according to Andrew Keeley, a Renaissance Capital analyst who wrote an October 2005 report on the subject, “Sberbank still does not have a nationwide unified IT infrastructure that links its Moscow headquarters operations with those of its 17 regional head offices.”
Sberbank’s rising expenses are linked in large part to its efforts to keep pace with Russia’s dynamic retail banking sector. Consumer lending is equal to only 4 percent of Russia’s GDP, compared with more than 15 percent of Hungary’s and of the Czech Republic’s. But Russia’s retail loan market doubled in 2004; the gain was an even gaudier 119 percent at Sberbank. Consumer lending’s share of the bank’s net income doubled, from 7.2 percent in 2003 to 14.3 percent in 2004. As of October 1, 2005, it was 18.3 percent. From mid-2003 to mid-2005, the retail share of Sberbank’s loan portfolio doubled, to almost 23 percent. Sberbank hired 7,200 credit officers -- a 40 percent increase -- in 2004 and was on pace to add another 40 percent in 2005. The hiring spree will end, says deputy chairman Brinza, when a nationwide credit bureau is in place “that generates a real database and allows us to check the creditworthiness of potential borrowers.”
Yet determining a borrower’s reliability remains guesswork because of “gray income.” Russian employers and employees have been known to collude to declare only a portion of salaries to the tax authorities. Thus to calculate a loan candidate’s real income, Sberbank must look at personal assets, including housing, car model and household appliances; sift through bank account activity and credit card spending; and consider education, job stability and employer recommendations.
Sberbank’s massive manpower is an advantage in doing such exhaustive credit checks, but it is also a source of irritation to clients. “We are often accused of being slow to make loan decisions,” admits Brinza. “And we lose some customers by turning them down.” This is especially true with loans for electronic goods. Consumer finance specialists, such as Russky Standart and Delta Bank, have pioneered point-of-sale lending at appliance and electronics stores (Institutional Investor, September 2005). But after experimenting with similar credit booths at a few Moscow shopping centers, Sberbank decided that this was a market segment it could leave to smaller rivals.
Sberbank is determined, though, to dominate mortgage and home-improvement loans. This is a fledgling market: Mortgages account for a fraction of 1 percent of Russia’s GDP, compared with 4 to 8 percent of Central and Eastern European countries’. Mortgages and other housing loans hit $2.8 billion in Russia in mid-2005 -- with Sberbank taking 40 percent.
But the market will surpass $50 billion by 2010, the bank forecasts, and it intends to claim at least one third of it by relying on unique products. For instance, Sberbank’s “young family loan” is a 15-year mortgage offered to couples when both are under 31; the loan’s 18 percent ruble interest rate (11 percent in dollars or euros) covers up to 90 percent of a home’s price. “We look not only at the young couple’s income but also at their parents’ income in deciding how much they can borrow,” says Brinza. To enhance the product’s appeal, Sberbank allows a family to claim a grace period of two to five years on mortgage payments each time a child is born.
The bank reasons that as the incomes of young families grow, the families are likely to try other Sberbank products. Especially in Moscow the bank is sprucing up its once-dingy outlets with carpets, soft lighting and swaths of the bank’s signature green to attract not only blue-collar and middle-class clients but also the affluent. Unabashedly labeled VIPs, these well-to-do customers can phone their local branch to arrange an appointment in a private room to make deposits or withdrawals, pay credit card bills or conduct private banking transactions, bypassing the pensioners and other mere mortals who queue in long lines in front of bullet-proof teller windows.
Money isn’t the only criterion for being a big shot. “If, for example, a client is a senior manager of a company that uses Sberbank, he will get VIP status,” says Vladimir Yashin, 36, manager of Sberbank’s upscale Tverskoye branch, three miles north of the Kremlin. He lists Samsung Corp., Reebok and Moscow’s Sheremetyevo Airport among his branch’s most prominent corporate clients. Much of Sberbank’s cross-selling involves links between corporate and retail services. When a company signs up for payroll services, the bank presses its employees to open savings accounts, take out loans guaranteed by their employer and sign up for debit cards.
Sberbank’s trademark preoccupation with avoiding defaults colors its credit card business. On the one hand, it takes pride in having issued 10 million cards -- one of every four held by Russians. On the other hand, Sberbank has focused entirely on debit cards, leaving the credit card market to such competitors as Citibank; Delta, a consumer bank purchased for E123 million by GE Consumer Finance in 2004; and Russky Standart.
By way of explanation, Sberbank officials note that only a minority of stores accept debt or credit cards. The bank’s own branches hardly encourage freewheeling debit card use. Only one of three Sberbank outlets has an ATM, the most popular way to use debit cards. “Russians still prefer to deal face-to-face with bank employees,” insists Yelena Agafonova, deputy manager at the Tverskoye branch, while outside, in a blizzard, a queue of shivering dissenters wait to use her branch’s single ATM.
Other banks have attempted to fill the ATM void left by Sberbank. In 2002, Alfa-Bank, Russia’s largest private sector bank, inaugurated with much fanfare something called Alfa Express -- a highly automated minibranch system aimed mainly at upscale clients in Moscow and other big cities. But growth failed to meet expectations, and in March 2004, Alfa Express’s top executive was dismissed. More recently, Vneshtorgbank unveiled plans to open 80 highly automated branches in Moscow and an additional 40 in other cities to cater to affluent retail clients and small to medium-size businesses.
Sberbank first deputy chairman Aleshkina says a major stumbling block to the retail ambitions of rivals is the sky-high price of Moscow real estate, which has risen 50-fold in the past decade. “We own 90 percent of the properties on which our Moscow branches are built, so we avoid the rising rents,” she says. “It’s not going to be easy for others to build a big branch network.”
Corporate lending accounts for a far larger proportion -- 74.7 percent in 2005’s first nine months -- of Sberbank’s portfolio than does retail, with its 22.7 percent. (The remaining 2.5 percent is loans to the self-employed.) Sberbank’s immense capital base means that it is allowed by the Central Bank to lend up to $2.1 billion to a single borrower -- not an unusually big loan for a major oil-and-gas venture in Siberia, say. No. 2 Vneshtorgbank, by contrast, has a $650 million limit.
Nevertheless, Sberbank finds it increasingly hard to compete with big foreign banks’ cheap corporate loans, reflecting their ready access to global capital markets. In the most glaring recent example, Citigroup lent Lukoil, Russia’s largest oil company, $2 billion in October 2005 for its all-cash purchase of Bermuda-based Nelson Resources, a hydrocarbon exploration and development firm operating in Kazakhstan. Lukoil agreed to repay Citi within six months at LIBOR plus 0.5 percent. Although foreign banks hold less than 10 percent of Russian banking assets, they are gaining ground in underwriting Russian securities and financing trade.
Sberbank’s loans to large blue-chip companies -- most of them in oil and gas, mining, metal production or chemicals -- declined from 42.8 percent of its corporate portfolio in 2003 to 40.1 percent as of October 2005. The bank’s officials insist that this reflects a deliberate realignment of the bank’s corporate lending strategy toward nonblue chips and small and medium-size enterprises. Sberbank’s lending to such companies has risen from 47 percent of its corporate portfolio in 2003 to 50 percent in October 2005. “We are following the course of the nation’s economy,” explains Aleshkina. “The economy is starting to shift away from reliance on natural-resource extraction and processing dominated by big corporates toward service industries led by nonblue chips and SMEs.”
This change in lending practices elicits the loudest complaints from the bank’s rivals. “When we offer loans to business clients, they often ask us to lower our interest rates because Sberbank is cheaper,” complains Natalia Orlova, chief economist at Alfa. Sberbank’s access to the inexpensive deposits generated by its vast branch network enables it to charge a midsize company 10 or 11 percent on a one-year dollar or euro loan -- or about 2 percentage points less than other domestic banks.
In theory, Sberbank’s stifling grip on retail deposits is under threat. The Central Bank’s federal deposit insurance system was designed to make Russians feel more secure about turning their savings over to private sector banks. As of mid-March, 940 banks had qualified for the insurance scheme. But will depositors show confidence in these institutions in a sudden downturn, such as Russia’s 1998 default crisis? “Maybe our interest rates aren’t the most attractive,” says Kazmin. “But in times of turbulence, clients from other banks rush to Sberbank because they trust us.”
Sberbank holds another advantage over its rivals in corporate banking: It can deploy an army of credit officers and support staff to storm a market. “Dealing with SMEs is very labor-intensive,” points out Troika Dialog financial analyst Donskoi. “But Sberbank seems prepared to increase its head count.”
One upshot of this size advantage is that Sberbank can do the R&D to customize business loans. A recent product is a credit geared to retail chains that have outlets in at least five shopping centers. Another innovation: financing for a company that is building a factory in an outlying location -- along with mortgages guaranteed by the company so that its workers can buy homes. “It’s a product we are particularly proud of because it links corporate and retail banking,” says Aleshkina.
Sberbank’s fees and commissions, though still peripheral to its lending business, are growing unexpectedly fast in response to its concerted push into this neglected terrain. They amounted to $860 million in 2004, a 48 percent leap over 2003’s total, and accounted for nearly 20 percent of total revenues. Three quarters of the fee income came from uncomplicated cash transactions, such as money transfers, utilities payments, bank card charges and ATM charges to non-Sberbank customers; most of the remainder derived from corporate-settlement transactions.
Amid these shifts one of the more notable trends at Sberbank is the declining relative importance of securities activities. With a $4.5 billion portfolio, the bank remains by far the largest holder of Russian-government-issued Eurobonds, but as a share of the bank’s assets, securities have fallen from 31 percent in 2001 to 18.9 percent at the end of 2004. Trading income has plunged from $1.6 billion in 2003 to $655 million last year. Kazmin contends that the relative decline is a result of declining yields on securities.
“We are not targeting a reduction in trading income,” says the Sberbank chairman. “In fact, we would gladly increase it.” The reason: Sberbank must maintain at least 15 percent of its assets in securities to help meet its capital-adequacy requirements.
That effort is an ongoing concern. Sberbank’s capital-adequacy ratio has slid from 13.7 percent in 2003 to 10.3 percent in 2004. “This is a trait common to all Russian banks,” says Troika Dialog’s Donskoi. “The problem is that credit demands are growing much faster than profits.”
Sberbank has bolstered its capital mainly by retaining earnings. That is why its dividends -- at 8 percent of net income in 2004 and, according to Kazmin, 8.5 percent last year -- are paltry by comparison with those of Russian natural-resources companies. But in February 2005 the bank tried a new tack: It did a $1 billion, ten-year subordinated loan financed through the issuance of loan participation notes by UBS Luxembourg, with a coupon of 6.23 percent.
Russia’s Central Bank recognizes the loan as additional tier-2 capital, although international credit agencies like Standard & Poor’s regard it simply as long-term debt. No matter, says Kazmin: “We have achieved such good results on the international market that we will probably continue to use this approach.”
In November 2005, Sberbank signed a $1 billion, three-year syndicated loan at 0.55 percent above LIBOR with 42 banks, led by ABN Amro Bank and HSBC. According to a Sberbank press release, the loan will be used “for general corporate lending purposes, including the provision of trade-related finance.”
The most obvious way for Sberbank to improve its capital position would be to offer more of its shares on the market. But it has so far rejected that option, quite possibly because this would dilute the Central Bank’s majority stake in Sberbank -- and Kazmin’s power as well. At the last shareholder meeting, in June 2005, Sberbank obtained permission to issue more shares, but nothing was done because “we didn’t think it was the proper time,” says Kazmin.
His and first deputy chairman Aleshkina’s concentrated power has long been a source of irritation for some minority shareholders at Sberbank. “The bank’s management is authoritarian: They have trouble dealing with people who ask critical questions,” says Vadim Kleiner, who represented Hermitage Capital on Sberbank’s board of directors from 2001 to 2004. “I didn’t come across any of those sorts of people when I was on the board.” Renaissance Capital, in its October 2005 report on Sberbank, observed that nearly all of the bank’s directors are current or former officials of the Central Bank, the Finance Ministry or the Kremlin: “There does not appear to be any significant independent voice on [the board] with experience in commercial banking or the weight to ensure changes.”
Among the reforms urged on Sberbank by critics is prompter reporting under international financial reporting standards. The bank does not issue its previous year’s results in IFRS format until its board meeting in mid-June of the following year. Sberbank does publish half-year results more quickly under Russian accounting standards, but there can be dramatic disparities between RAS and IFRS figures, especially in the profit-and-loss accounts. Kazmin blames the lag in IFRS reporting on bureaucratic Central Bank auditors, who must approve the statements first. “At the earliest we could get the annual report out by May,” he says.
Critics of Sberbank’s lack of transparency also fault the bank for failing to disclose the identity of Russian minority shareholders, some of which might be clients. “We don’t disclose their names,” says Kazmin. “But no Russian shareholder has more than 2 percent.”
To be sure, few Russian banks get high marks for transparency. Private sector banks are dominated by oligarchs who often hide the full extent of their ownership and use the banks to finance their other companies. Indeed, in a report last fall, Standard & Poor’s ranked Sberbank No. 5 among the 30 largest Russian banks in transparency. “Within the Russian context, Sberbank is relatively transparent, but certainly not by international standards,” says S&P’s Ekaterina Trofimova.
There is not much political pressure to privatize Sberbank, and its top managers see little reason for a radical shift in direction. Asked if she would do anything differently if Sberbank were in private hands, Aleshkina responds, “In brief, no.” When Kazmin is asked whether he can envision a day when Sberbank might be split into smaller entities and put up for sale to foment a more competitive financial sector, he retorts, “Not unless a political decision is made to sell out our banking system.”
Besides, he says slyly, Sberbank’s private sector shareholders would object to any dilution of their holdings. “Don’t forget that half of our private shareholders are foreign funds,” says Kazmin, deftly turning the privatization issue on its head. And he doesn’t crack a smile.
