turnaround strategy for ryazan capital bank · acierto team specially for oliver wyman impact...
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Specially for Oliver Wyman Impact
Alexey Semakov [email protected]
Ilya Larchenko [email protected]
Stanislav Fedyakov [email protected]
Vasiliy Patyk [email protected]
Turnaround Strategy
for Ryazan Capital Bank
Acierto team
Final round presentation
Moscow, March 14, 2014
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Agenda
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
8,3%
12,8%
7,9%
0,8%0,8% 1,4% 0,8%
0,1%
2009 2010 2011 2012
ROE ROA
55,4%
71,4% 68,9%82,6%
98,0%
23,3% 18,4% 17,9%29,1%
81,5%
2008 2009 2010 2011 2012
C/I
Cost of risk*
1 000 540
110 123 262
52 159
Interestincome
Interestexpense
Provisionexpenses
Otherincome /expense
OPEX Tax Net income
4 550 1 860
1 170
84 1 407
6 23
Interestincome
Interestexpense
Provisionexpenses
Otherincome /expense
OPEX Tax Net income
RCB has stable net interest income but profitability has sharply declined during last 3
years because of the rise in OPEX and decline in loans quality
Expansion to the retail market helped RCB to reach impressive return
on equity, but then it declined. The main reason of decline lies …
Average peers
ROE = 11,7%
Average peers
ROA = 1,5%
… not in the interest policy sphere …
… but in the area of cost control and risk management
2008
2012
Return decline factors
• Increase in provision expenses was predictable due to the shift of
the loan portfolio toward more risky retail and auto loans
• Other income/expense changes are highly random. It depends on
the economical situation and security price movements thus
cannot be totally controlled
• High OPEX is a result of non optimal operational strategy and its
implementation. Main drivers of OPEX are employees (CAGR
54%) and rents & repairmen (CAGR 53%)
* Cost of risk does not include write-offs (this information is not available)
Sources: case data, Acierto analysis, banki.ru
10,1%12,2%
15,4%16,8%
9,8% 10,4% 11,0% 11,1%
4,4% 4,7% 5,3% 5,9%
2009 2010 2011 2012
Income rate
NIM
Cost of funds
OPEX growth is the main challenge for bank’s management
2
3
41
4
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
71%
17%
8%
2% 1% 1%Loans to customers
Cash
P&L securities
Property, equipment, intangibleassets
Required reserves
Other
70%
18%
7%4%
1%
Accounts and deposits fromcustomers
Debt securities issued
Money from CB
Subordinated loans
Deposits and balances frombanks
RCB has strong funding problems despite its relatively large size (106 by assets).
Current funding structure is poor and not enough to cover bank’s needs especially in
case of aggressive expansion
Average peers accounts and
deposits share – 80%
Share of deposits is large but not enough to meet bank’s objectives.
Cost of funds rises because of increase in “expensive” funds share
35,4
RUB bn
38,0% 50,3%75,1%
88,1%110,2%
2008 2009 2010 2011 2012
Loans to deposits ratio
9,0%11,7% 10,7%
9,0%7,0%
2008 2009 2010 2011 2012
Capital / Assets
Deposits (one of the cheapest funding source)
are not attracted enough for growing loans portfolio,..
… this leads to slow growth of capital
and can lead to failing capital adequacy requirements
38,1
RUB bn
Large amount of unprofitable assets (cash)
is very disadvantageous in current situation of lack of cheap funding
Average
peers cash
share – 8,7%
Sources: case data, Acierto analysis, banki.ru
4
1 3
2
5
RCB current situation summary
• RCB is a relatively large Russian bank (106 by assets) specializing on car
loans
• Uncontrolled growth during 2008-2012 resulted in significant drop of profitability
(ROE drop from 8,3% to 0,8%, stagnation of capital)
• The core problems are fast OPEX growth and decreasing loans quality
• RCB has funding problems – funded by expensive bonds, unable to attract
enough deposits in time, lack of resources for expansion
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis, case materials, www.rosrealt.ru
In recent years branches are not effective enough and this may be due to unqualified
employees and irrational use of working space
1230
449
311
119 114
-2-44
48 44 51
-40
22 738 50
-70
22 738 50
-63
20 7 38 51
209
12686 57 67
-200
0
200
400
600
800
1000
1200
1400
2008 2009 2010 2011 2012
(Revenue - costs) per customer RUR th /customer
Branches
Cross-sell
Call-center
Internet
DSA
average
Last years all channels of interactions with customers except branches have shown increasing efficiency…
…and if this decreasing
can be explained by the crisis…x4
…this is a clear signal to start work
on branch restructuring and optimization
x2,6
1213
2 35
4
17
4 4
12
02468
1012141618
# of sales/ branch
Some regions have a lot more sales
people per each branch than other..
126
50
15 1710 7
16 16
5
0
10
20
30
40
50
60Income, rub MM/ # of sales
…but they obviously
lose in efficiency compared to them
• The average square of the branch is close
to 500 square meters, that looks like too
large for a typical office
• Each employee has an average about 15
square meters of branches’ space (min
law norm – 4,5 meters of personal space),
that looks excessive even considering
halls for customers
Also there is excess working space
(in terms of sq m per branch) 1 2 3
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: open sources, team analysis
Competition is growing, margins are falling, technology and cheap funding is the key,
RCB should focus only on highly marginal niches where it has competitive advantages
Traditional banking niches are highly competitive today,
margins are falling and capital requirements are rising…
…technology platforms and access to retail clients becomes crucial,
consumer lending is the key priority for Russian 2nd tier banks
Key banking niches
Competitiveness
Net pro
fita
bili
ty
Potentially interesting
niches for RCB
Niches without any
interest for RCB
Car
loans
SME
loans
Consumer
loans
HighMediumLow
Hig
hM
ediu
mLow
Circle area = capital
requirements
Private
banking
Processi
ng etc.
Access
services
• Decline in margins within all classes of products, including consumer loans
• Overall trend of risk increase on active bank operations
• Ruble funding rates increase and overall deficit of ruble funding in the
banking sector
• Consumer lending niche – the only niche where 2nd tier banks can
successfully evolve without significant competitive advantages
• Rapid and costly development of technology platforms (from online
banking to credit factories)
• Large banks become more universal: gradual inclusion of non-banking
services (VIP services, real estate etc.) and investment banking services
(asset management, M&A advisory and execution, brokerage etc.),
developing of leasing and factoring businesses
• Growing importance of network and direct access to retail clients,
increase of regional expansion
• Accelerated growth of the market leaders in terms of capital and
assets, accompanied by the spread increase between the cost of borrowing
for the leaders and for other banks
• Banking business becomes more dependent on the state and funds
provided by the CB
Key banking trends
Significant increase in competitiveness: to survive RCB should focus
only on highly marginal niches where it has competitive advantages
Technology is the key: one should focus on technology platform
improvement and access to retail clients
Cheap money is the key: RCB should focus on finding and
leveraging cheap funding sources
Best practice: focus on package sales and cross-sales
Consumer lending is the key priority for 2nd tier banks
8
Mortgages
Corporate
lending
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
9
Situation in RCB can be improved by implementation of strategic (selection of niches,
funding sources, sales channels and expansion options) and operational (branch and
ATM optimization) initiatives
Base strategy
Niches options
Retail
Car loans
SME loans
Large
corporate loans
Expansion
options Aggressive
expansion
Moderate / point
expansion
No expansion
Branch optionsShut down of
ineffective branch
Branch
optimization
Sales channels
options
DSA
Branch
Internet
Funding options
Central bank
Deposits
Bonds
Securitized loans
ATM options
Own ATMs
Third party ATMs
New capital
issuanceExpensive. Current
stockholders dilution
Cheap but not controlled
by RCB
Main funding source.
Relatively cheap
Expensive. May be used
only in single option case
Subordinated debtExpensive. May be used
only in single option case
Cheap. Large amount of
similar loans is needed
Additional capital needed.
Risk of fall in marginality
Loosing of opportunities
Expansion to the most
attractive regions –
optimal strategy
High liquidity needs.
Sustention expenses
Less cash needed. No
additional costs
The most profitable fast
growing sector
MortgageLow profitable but growing
sector.
Moderate profitability and
growth. RCB’s main market
SME leasing
High profitable market with
current RCB’s presence
Stagnating low profitable
market
Non-banking market.
Complimentary to car loans
Essential channel for car
loans
Currently most profitable
sales channel
Fast growing cheap sales
channel (primary retail)
Shrinking of most profitable
sales channel
Effective cost cutting without
dramatic changes
Source: open sources, team analysis
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Car
loans
Source: team analysis, case materials
(1) RCB potentially should focus on consumer loans as the most desirable loan niche
(2) stay in car loans for individuals segment and
(3) dive into SME loans and collateralized SME leasing backed by vehicles
Consumer loans
will be the most desirable segment for Russian 2nd tier banks…
• Market saturation and strict regulation
• Margins will fall
• Banks with developed infrastructure
and IT, which will be able to select the
best part of borrowers, will be the
winners
• The niche will grow, margins will fall
• Business will go into commission area
• There will be total asset securitization
• Overall economic situation for SME in
Russia is getting worse
• Banks with cheap money and strict
risk management will be the winners
• SME financial leasing and SME credit
factories – are the main growth points
…however, car loans for individuals and SME loans niche
should also be considered as core segments for RCB to operate in
Long-term dynamic forecast of key loan niches for Russian 2nd tier banks
Net cost
Net pro
fita
bili
ty
Focus on consumer loans
Continue developing car loans for individuals business
Exit big corporate lending niche
RCB should consider diving into collateralized SME leasing
backed by vehicles
RCB should consider expansion in SME loans niche
RCB should continue
operating in this niche
Niche with new
opportunities for RCB
RCB should exit this
niche
Corporate
lending
SME
loans
Consumer
loans
HighMediumLow
Hig
hM
ediu
mLow
Circle area = niche
volume in Rub
Niche’s futureNiche RCB position in the niche
• Borrowers will show increase of
sensitivity to the rate
• Large banks with cheap money will
be the winners
• Average quality of borrowers in
medium banks will fall
• No new customers since 2011
• Need more capital to back up
corporate loan book and even
more capital to grow into a
healthier portfolio with new and
stable customers
• Currently car loans = 2/3 of
overall loan portfolio
• Well-known brand and
successful product
• Successful product “Luxury today”
• Developed distribution channel
through network of branches
• Increased NPL pool
• No cross-sales, etc.
• SME portfolio is growing at
CAGR 20% over 3 years
• SME portfolio is really diverse
• Deep expertise in car loans to
dive into SME leasing
• Large cross-sales opportunities
Strategy for existing RCB businesses: Potential new businesses for RCB to enter in:
11
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
*Financial results of cross-selling are in attached financial model
Source: Bain “Loyalty in retail banking” 2013 work, team analysis
Cross-selling is the one of the key worldwide best practices in banking,
It should be one of the main aspects of RCB’s long-term strategy
96 9285 85 80 77 77 76 75 71 71
63 61 59 55 51 49 46 43 43 41 40 39 38 36 36
0
20
40
60
80
100
Belg
ium
US
Fin
land
Denm
ark
Sw
eden
Austr
alia
Chile
Pola
nd
South
Kore
a
Arg
entin
a
Mexic
o
Sin
gapore
UK
Spain
Fra
nce
Italy
Norw
ay
Germ
any
Canada
Japan
Th
aila
nd
Hong K
ong
India
Indonesia
Chin
a
Russia
Percentage of respondents who purchased at least one new product in the last year
%
81 78 76 75 75 71 71 70 70 70 69 68 68 66 65 62 61 60 58 58 57 57 53 52 50 4640
0
20
40
60
80
100
Italy
Fin
land
Denm
ark
Sw
eden
Mexic
o
US
Norw
ay
Germ
any
Hong K
ong
Fra
nce
Austr
alia
Th
aila
nd
Canada
Russia
Sin
gapore
Chile
Pola
nd
Neth
erla
nds
Chin
a
UK
India
Indonesia
Arg
entin
a
Belg
ium
Japan
South
Kore
a
Spain
Percentage of new products purchased at primary banks
%
A huge share of customers
in most countries are buying new banking products
Roughly 65% of new product sales, are won by customers’ primary
banks, but the share is lower in some of the more competitive countries
It broadens your profit base.
Only 1-2 percent of a bank’s customers
usually account for almost all its
profitability. Clearly, a lot of customers
add very little to your bottom line. Cross-
selling can bring diversity and strength to
the group you rely on the most
It increases wallet share.
Community banks typically hold 35-50
percent of a customer’s wallet share.
That’s how much of the customer’s
assets – including checking, savings,
money-market accounts, and such – are
held at the same institution. Cross-selling
helps in increasing this share
It improves retention.
On average, a customer with just one
product at a bank will stay with the
institution for about 18 months. By adding
just one more product, you extend that
relationship (and income) to four years.
At three products, that relationship will
last an average of 6.8 years.
It’s cheaper than acquisition.
It’s 8-10 times more costly to acquire new
customers than to sell additional products
to ones you already have. Plus, cross-
selling is also a safe and stable way to
generate core deposits, compared to
more expensive liquidity options.
Cross-selling examples
• Cooperation with insurance
companies for auto options
• Plastic cards in cooperation
with retail food shops, etc.
• Package products for SMEs
(salary projects, depository
service, etc.)
• Complex proposal for one
client, release a credit card
and remote maintenance
when opening deposit, for
example*
12
1 2
Key points of cross-selling initiatives
Ryazan Capital Bank: As-Is
Potential Options
Strategy
3.1 Consumer Finance
3.2 Car Loans
3.3 SME lending
3.4 SME leasing
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Russian retail banking demonstrates impressive growth and essential quantitative
and qualitative potential
Sources: Central Bank, Acierto analysis, Expert RA
0%
50%
100%
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Payments Cash withdrawal
… and this is not only quantitative but also qualitative growth:
people become confident in banking
Banking cards operations structure
Number of
payments made
by credit/debit
card surpassed
number of cash
withdrawal in the
end of 2012 year
7,7
15,3
4,5
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0% 10% 20% 30% 40% 50%
Square of bubble represents loans volume 2012, RUB tr Growth rate, 2012
Pro
jecte
d g
row
th r
ate
, 2013
7,7
15,3
4,5
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0% 10% 20% 30% 40% 50%
Retail Large corporates SME Growth rate, 2012
Gro
wth
rate
, 2011
In the near future retail banking
will be the main driver of Russian banking industry growth
3,2
7,7
0
1
2
3
4
5
6
7
8
9
10
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Retail banking grows extremely fast…
Retail loans volume, RUB tr
1 2
3
25% CAGR
14
Loan portfolios growth rate, %
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
*For more information about CRM systems look Appendix 1
Source: bank marketing strategy magazine, Bain “Loyality in retail banking”
2013 work, group analysis
RCB should focus on retail banking segment as the most attractive for 2nd tier banks,
Strategic initiatives should be realized based on key retail banking trends and predictions
Drive to digital
Impacting delivery, marketing
and service usage
• Mobile app as the necessary
channel of interaction with
customers
• Popularity of online payments
shows explosive growth and
it’s key driver of developing
mobile banking
Improving CX
Advanced customer
experience with activity based
marketing
• Russian retail banking is in the
top on the variability of
customer preferences
• Using analytics to assess
customer interactions across
channels
Branch optimization
Maybe not branchless, but
certainly less branches
• Decreasing the value of
branches to retail
• Transforming the branch into
more collaborative and
relevant sales and information
centers using potential of
digital advantages
Differentiating brands
Avoiding commoditization in a
digital world
• Focusing on key customer
segments with innovative
products and exceptional
customer experience
• Using new technologies for
better product targeting and
segmentation
55
45
3733 31
22
49
40
19
26
13
21
6
0
10
20
30
40
50
60
Japan
Arg
entin
a
UK
Russia
US
India
Chin
a
Payments in the last quarter
Using in the last quarter
Banking on the smartphones/tablets,
respondents using in percentage
%
Top 4 retail banking trends and predictions
88 8271 69 66 64
39
7 7
6
5
4 4
2
0
1
2
3
4
5
6
7
8
0
20
40
60
80
100
Japan
UK
Russia
US
Arg
entin
a
India
Chin
a
using branch at least once,%
# of branch interactions per resp.
Decreasing branches value in retail
%Sale of package products
(credit and debit cards,
cross-selling)
Using best IT practices to
attract clients with their
products preferences
(CRM systems*)
Customer-oriented
marketing campaign
(focus on the target
segments, reasonable
tool selection)
0
1
2
3
4
5
6
7
8
1,0
Neth
erla
nds
2,42,6
3,43,6
India
US
Spain
Fin
land
Mexic
o
7,36,7
Russia
6,4
Fra
nce
4,6
UK
Switchers
First-time joins
%60
Percentage of respondents
forming new primary relationships
with banks in the last year
15
1 2 3 4
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Not considered
Region /
Indicator1
RCB
Branc
hes
now
Market
size 2011
RUR mln
Market
growth
2009-11
RUR mln
Consumer
loan per
capita
divided by
average
income
Attraction
rating
1 Moscow 4 478 725 129 454 85% 3
2 Moscow Region 270 359 101 817 126% 3
3 Krasnodar 1 128 899 22 676 116% 3
4 Tatarstan 107 129 9 970 117% 3
5 Bashkortostan 104 860 12 279 121% 3
6 St.-Petersburg 2 207 900 51 489 151% 2
7 Sverdlovsk 158 520 17 334 133% 2
8 Chelyabinsk 120 978 11 124 176% 2
9 Dagestan 16 631 10 138 27% 2
10 Samara 111 936 6 799 141% 1
11 Nizhny Novgorod 1 94 093 8 829 133% 1
12 Stavropol 62 497 13 450 133% 1
13 Voronezh 49 600 8 746 113% 1
14 Leningrad 46 239 17 010 149% 1
15 Tula 40 340 8 234 135% 1
16 Belgorod 37 138 7 643 112% 1
17 Bryansk 23 530 4 020 107% 1
18 Ivanovo 18 817 2 609 112% 1
19 Tambov 18 085 4 959 96% 1
20 Oryol 15 044 2 453 115% 1
21 Ryazan 7 28 290 4 190 139% 0
22 Volgograd 58 161 5 191 140% 0
23 Orenburg 56 640 8 808 169% 0
24 Saratov 55 268 7 281 155% 0
25 Vologda 2 38 428 5 326 177% 0
26 Ulianovsk 33 109 9 311 158% 0
Russia 4 395 182 867 117 133%
Source: Rosstat, CB of Russia
1 If economically reasonable in that time16
RCB should focus on 20 favorable regions and be ready to enter 16 of them while
positioning branches as minor-role entities responsible for local support
Top-sized Regions of Central Part of Russia in terms of
Consumer Loans market
1
2
3
4
5
7
9
10
6
8
11
12
13
14
15
16
17 18
19
2021
22
23
24
25
26
Low rating
Medium rating
High rating
Highest rating – entering
Not in top-sized list
• Decreasing of branch space
• Automated Teller Machines access via
other banks - no own ATMs
• Paying clients’ ATM commission
• Branches as local centers responsible for
traditional procedures and local
marketing, support and loan approval for
SME’s and special clauses
• DSA, POS and internet services focus
• Cross-selling and co-branding actions
• Massive marketing to attract customers
Branches #drop indicates decline in its
value… (while market growth)
# all branches in
Russia, thousand
…So braches play minor role
(major - internet) in global growth strategy
3,12,9
2,82,3
3,23,7
4,4
0,0
1,0
2,0
3,0
4,0
5,0
0
0,5
1
1,5
2
2,5
3
3,5
2010 2011 2012 2013
Consumer loan
market, RUR tr.
Entering
2013
Entering
2014-15
Entering1
2016+
Ryazan Capital Bank: As-Is
Potential Options
Strategy
3.1 Consumer Finance
3.2 Car Loans
3.3 SME lending
3.4 SME leasing
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: analytics agency “AutoStat”, RBK, Ernst&Young open research,
PWC open research, team analysis
Car loan market has a huge upside for RCB, one should continue actively evolve in
that field with focus on commission revenue and cross-selling
63,1
29,542,0
65,074,9
0
20
40
60
80
x3,3
+49,6% CAGR
20122011201020092008
Car loans and new cars market volume in Russia, bn USD
Car loans market volumeNew cars market volume
83,4 74 6434,8
0
50
100
GERGBUSA
+84,1%
RUS
Share of car sales with usage of
car loans in 2012, %
bn USD
641 532 499260
0
1.000
500
+85,8%
GER GB RUSUSA
Ø 64
Number of cars per 1000 citizens
in 2012
Ø 483
In the Long-term, Russia is one of the most attractive car loan markets… …RCB should continue actively develop its car loan business
with focus on commission revenue, product quality and cross-selling
• Car loans are one of the most demanded retail banking products in Russia
• For retail banks, car loan business will drift more and more into commission
field
• There are premises for resumption of preferential car loan program in 2013, as
a measure to support the market. Great news for car loan market players
• Increase of market players number and rising threat from automakers’ captive
banks shows that the market becomes more and more competitive
Demand for car loans is actively growing after the crisis at 49,6% CAGR
The market is far from saturation and has a huge potential for growth
Key RCB’s car loan products and its key features
Existing New
“Easy Drive” “Family 2nd car”“Express”
• No down payment
• Application review
time – 1 day
• Up to 3 mln rub
• Key RCB’s product
• Online application
• Fast application
review time – 10 min
• Up to 1 mln rub
• Only 2 documents
• 15%< down payment
• Fast application review time, product quality and minimum number of
necessary documents are the key differentiators for clients after loan rate
• RCB should focus on making its business commission-driven
Further expansion into regions via DSAs
Implementation of online application for clients, scoring models
improvement and strong call-center
RCB should focus on cross-sales (for example, KASKO insurance)
New products: (1)express-loans through DSAs and online sales. Key
feature – super fast application review time and only 2 required
documents. (2)“Family 2nd car” – for capturing the most reliable clients
Brand recognition: active marketing via internet, social networks, DSAs
Partnerships with car dealers to implement factoring service for clients
Potential strategy for RCB in car loans field:
18
• Lower rates for
reliable borrowers
• Application review
time – 1 day
• Up to 3 mln rub
1 2
Ryazan Capital Bank: As-Is
Potential Options
Strategy
3.1 Consumer Finance
3.2 Car Loans
3.3 SME lending
3.4 SME leasing
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: case materials, CB, Expert RA, team analysis
RCB is doing well in SME lending field; one should focus on becoming “one-stop-
shop” for SMEs, increase of commission revenue and package sales
• RCB already has experience of working with SME: its SME segment
portfolio grew at 20,4% CAGR over the last 3 years, moreover the
portfolio is really diverse
• RCB already has a network of branches necessary for interaction with
SMEs, 1 branch per city in couple with strong internet service, call
center and smart marketing is enough for successful business growth
0,51,0
1,7 2,5
2,63,2
3,8
4,5
5,2
6,190,0
83,0
46,0
3,7
21,9 19,1 16,9 16,0 18,0
0
20
40
60
80
100
0
1
2
3
4
5
6
7
201220112010200820072006 2009
+14,6% CAGR
2015E2014E2013E
SME loans outstanding, bln rubGrowth rate, %
Overall industry SME loans outstanding 2006 - 2015, bln rub
RCB’s SME loans outstanding 2008 - 2012, mln rub
N/A
Russian SME lending grew at 14,6% CAGR after the crisis and is
expected to grow further at 16-18% per annum in the next 3 years
RCB’s SME loan portfolio actively grew over
2009 – 2012 at 20,4% CAGR and outperformed the market by 5,8%
0,75
1,3
1,811,61
2,273
2
1
0
2013E2012201120102009200820072006
+20,4% CAGR
x3.03
2015E2014E
SME loans outstanding, mln rub
1
2
RU
B trln
%
RU
B b
ln
RCB is doing well in SME lending business
and has an opportunity to leverage existing facilities
Potential strategy for RCB in SME lending field:
3
RCB should become “one-stop-shop” for SMEs
Focus on increase of commission revenue from operations with
SMEs
Key trend: focus on package sales for SMEs. One package for SME
may include the following services/products:
• lending
• depository services (deposit accounts)
• salary projects
• conversion operations
• documentary operations
• encashment
• internet-banking through RCB’s web-site and sms-banking
• higher interest rates on accounts with minimum balance
• financial consulting
Focus on technological, conveyor-like products (without complex
structuring, etc.)
Decrease average loan term to decrease and stabilize NPL
20
Ryazan Capital Bank: As-Is
Potential Options
Strategy
3.1 Consumer Finance
3.2 Car Loans
3.3 SME lending
3.4 SME leasing
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Expert RA, team analysis
Development of financial leasing subsidiary for SMEs with focus on collateralized
lending backed by vehicles has a huge potential upside for RCB
Most under-banked sector of the economy
SMEs tend to be well capitalized (virtually with no leverage
considering their lack of access to funding)
SMEs are willing and able to take on financing at higher IRRs
due to their high ROIIRR
Low competition in comparison with large companies and
consumer lending sectors
Huge potential for cross selling, package selling and
leveraging additional revenue streams (i.e. insurance)
RCB already has experience of working with SME: its SME
segment portfolio is growing at CAGR 20% over 3 years and the
portfolio is really diverse.
RCB already has deep expertise in car loans for individuals:
car loans represent 2/3 of loan portfolio
RCB already has developed network of DSAs and branches –
excellent selling points for SME leasing
RCB already has a quite strong and well-known brand in car
loan business
Russian SME segment has a variety of advantages to operate in…moreover, RCB already has relevant experience and
competitive advantages to dive into collateralized SME leasing
SME leasing niche
is one of the most attractive and fastest growing segments…
SME leasing – market leader in terms of growth rates within
all operations with SME: increase in new deals volume in 2012 =
+41% for small business and +3,5% for medium
Key SME leasing segments in terms of volume (Rub) are
freight transport (28,4% of the leasing deals with SME), railroad
equipment (24,5%) and vehicles (20,4%)
A huge catch up to come: Russian SME contribute to only 21%
of GDP while in USA and Europe – 60% and 58% respectively
1
2
3
Vehicles niche will be the main growth driver of SME
leasing for the near future in Central Russia
Enter SME leasing market via development of financial leasing
subsidiary
Focus on collateralized SME leasing backed by vehicles
Partnership with a set of insurance companies to gain from
commissions on insurance sales
Total securitization of assets
Potential strategy for RCB in SME leasing field:
22
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: team analysis of Europlan, VEB Leasing, Leasing Standard and
Rotor Leasing companies, interview with industry expert
New SME leasing business for RCB: 4 clearly unbundled key activities of
collateralized lending is the key of successful strategy
Collateral
Decentralized
distribution
Centralized loan
approval, risk
management and
loan recovery
RCB will be the prime source of funding, plus :
• Other bank borrowings
• Development funding
• Bond issuances
• Joint financing and channeling
agreements with banks
• Bond issuance
Decentralized, but systemized distribution
RCB already have its network of branches
and DSAs as a primary sales points
Decentralized distribution will be build
gradually through time, however, current
network of RCB’s branches and DSAs
already enough for the benefit of scale to
kick in
Loan approval only after centralized
assessment
Risk management, NPL management and
loan recovery management should be
centralized
Strong scoring models is the key
Financial lease is an ideal tool for collateralized leasing
The presence of collateral in any loan is supposed to mitigate credit risk
The funding obtained should be
collateralized as much as possible by the
existing lease pool
2
3 4
Funding
1
Ideally the collateral is structured so that the
‘residual value’ of the sale of the
repossessed asset would be equal or
superior to the outstanding loan amount
A collateral is insured ideally with the lease
company as beneficiary
Vehicles are the most “convenient” collateral:
simple insurance schemes, simple loan
recovery process, large secondary market
Key sales channels: DSAs, branches, direct sales, online application
Simple products: average loan amount - $100k, loan term – 12-24
months, downpayment – 25%, loan type – differentiated payments
(preferably since it allows higher IRRs for lessor) or annuities
Due diligence process will include site visit
to verify presence of claimed assets
At first, focus will be on large tickets. Then, after automated scoring
model implementation, retail lending will begin
There will be no in-house collector service: all NPL 90+ will be joined in
pools and sold to collector agencies
23
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: team analysis
Prioritization is the key. First of all, RCB should gain from quick wins available;
consumer finance and car loans are the main priority, moreover, SME lending and
collateralized SME leasing also have a great potential upside for RCB
25
Criticality
Attra
ctiveness
HighMediumLow
Hig
hM
ediu
mLow
Circle area = potential
value for RCB
Prioritization matrix for RCB
Consumer
finance
Car loans
SME lending
SME
leasing
Quick
wins
…firstly, there are a set of quick wins for RCB, one should focus on consumer
finance and car loans, secondly SME sector also has potential upside for RCB
Key initiativesPriority Segment
1.
2.
3.
4.
5.
• Branch optimization: close down inefficient branches, optimize stuff
allocation
• ATMs: allow clients to use any ATM without any commission (like TCS)
• NPL decrease: require 2nd document for clients without good credit
history (for product “Luxury today”), decrease average loan term
• Internet sales: make online loan applications available, implement full-
scale internet banking service platform and CRM system
• Cross sales: capture existing client base in car loans segment as much
as possible, implement package products for individuals (credit cards etc.)
• Marketing: active marketing through internet and social networks
• Partnerships: with large retail shops with the aim to acquire new clients
• Expansion into regions via DSAs and partnerships with car dealers
• Cross sales: partnerships with insurance companies, package sales, etc.
• New products: super fast “Express” and family-friendly “Family 2nd car”
• Automation increase: implement strong scoring models, call-center and
online application
• Factoring: partnerships with car dealers to make this service available
• “One-stop-shop”: focus on providing 360 service for SMEs
• Package sales and cross sales is the key (lending, salary projects,
encashment, conversion operations, depository services etc.)
• Focus on increase of commission revenue from operations with SMEs
• Focus on technological, simple, conveyor-like products
• Enter into SME leasing market via financial leasing subsidiary
• Focus on collateralized SME leasing backed by vehicles
• Cross-sales: partnerships with insurance companies (KASKO sales, etc.)
• Synergy potential: capturing clients into regular SME service business
• Strong scoring model is the key
• Key channels: existing network of DSAs and branches + direct sales
RCB should prioritize all available actions in accordance with its
capabilities, competitive advantages and potential risk/reward ratios…
• Overall business digitalization: focus on internet, technology platform improve-
ment (implementation of a new internet banking, mobile banking and CRM systems)
• Assets securitization as the new funding component
• Overall focus on cross sales and package sales
Common strategy components for all RCB’s business segments:
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis26
Core strategy initiatives will be implemented within 3 years, followed by entrance into
SME leasing - new business segment for RCB
Key initiativesI II
2013
1.1 Branch optimization
1.2 No ATM commission for clients
2.1 Full-scale internet banking and CRM
platform implementation
2.2 Implementation of new package
products for individuals
2.3 Establishing partnerships with large
retail shops/networks
2.4 Active marketing campaigns
through internet and social networks3.1 Partnerships with insurance
companies to implement cross-sales
1.3 Decrease average retail loan term
1.4 Require 2nd document for clients
without good credit history
4.2 Implementation of “one-stop-shop”
service for SMEs
3.2 Implementation of 2 new developed
products
3.3 Partnerships with car dealers to
implement factoring service
4.1 Package sales products and cross-
sales implementation
5.1 Establishing SME leasing
subsidiary
Qu
ick W
ins
1.1
1.2
1.3
1.4
2.1
5.2 Partnerships with insurance
companies to implement cross-sales
3.4 Scoring models, call center and
online application implementation
Phase complete Phase volume Phase timeframeAppendix 14-18 – detailed phase description
III IV I II III IV I II III IV I II III IV I II III IV
2014 2015 2016 2017 2017+
Co
nsu
mer
fin
an
ce
Car
loan
sS
ME
len
din
g
SM
E
leasin
g
5.3 Implementation of scoring models
and direct sales
2.2
2.3
2.4
3.1
3.2
3.3
3.4
4.2
4.1
5.1
5.2
5.3
2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
Ryazan Capital Bank: As-Is
Potential Options
Strategy
Implementation
Results
1.
2.
3.
4.
5.
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
RCB could resolve its problems, increase its efficiency higher than industry average
and more than double the capital in 5 years via following the strategy
57,4%
74,4%
0%
20%
40%
60%
80%
100%
120%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
C/I Cost of risk*
10,6%
17,3%
7,3%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013 2014 2015 2016 2017
NIM Income rate Cost of funds
Implementation of the new strategy
will be funded with the cheapest sources1
• Current funding from Central Bank is the cheapest (~4%) source and it
should be used until CB provides it
• Another cheap (~7%) source for bank will become securitized car loans
(least risky 20%) which will also become the second large source of
funding in 5 years
• Classic source of funding – deposits (~5,5-7,5%), will remain the main one
• Bonds are less attractive because of high interest rates (~8-9%) and
should be issued only in case of lack of funding. Bond rates may be
lowered if parent company act as surety. In 3 year RCB will not need
common bonds
* Cost of risk does not include write-offs (this information is not available)
** On the assumption of Russian banking growth rate of 10%
Sources: case data, Acierto analysis, banki.ru
RCB rating positions improvement by 2017**
75 (6 up) by loans portfolio (from 27 to 62 RUB bn)
96 (10 up) by net assets (from 38 to 79 RUB bn)
124 (51 up) by capital (from 2,7 to 6,5 RUB bn)
Right interest rates policy and cost control
will make RCB one of the most profitable Russian banks in its segment2
70%81%
18%7% 3%
4%
1%
15%
2012 2017F
Securitized loans
Deposits and balancesfrom banks
Subordinated loans
Money from CB
Debt securities issued
Accounts and depositsfrom customers
59,8
RUB bn
35,4
RUB bn
28
2012 2017RBC’s profitability ratios and capital forecast, bln RUB
RBC’s interest income/expense forecast, %
RBC’s cost ratios forecast, %
2,7
6,5
20,4%
1,6%
0
2
4
6
8
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Capital ROE ROA
Average peers
ROA = 1,5%
Average peers
ROE = 11,7%
That’s it!
Thank you.
Questions?
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
30
Appendix
Appendix title Page
Projected RCB’s P&L 2013-2017 31
Projected RCB’s BS 2013-2017 32
Sensitivity and conservative scenario 33
Key CRM system advantages necessary for RCB 34
Choice of the right CRM system for RCB’s needs 35
Regions to enter (as attractive SME debt markets) 36
Comparable Russian Banks 37
RCB’s leasing subsidiary: key information 38
Projected RCB’s leasing subsidiary P&L 39
Projected RCB’s leasing subsidiary P&L 40
Projected RCB’s leasing subsidiary KPI’s 41
Risk management structure 42
Risk mitigation strategy 43
Detailed project implementation plan (1/5) – Phase 1: Quick Wins 44
Detailed project implementation plan (2/5) – Phase 2: Consumer Finance 45
Detailed project implementation plan (3/5) – Phase 3: Car Loans 46
Detailed project implementation plan (4/5) – Phase 4: SME lending 47
Detailed project implementation plan (5/5) – Phase 5: SME leasing 48
“Acierto” team presentation 49
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Appendix 1. Projected RCB’s P&L 2013-2017
Sources: Acierto analysis, banki.ru31
P&L 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Interest income RUB Mm 1 000 1 540 2 050 3 230 4 550 5 978 6 916 8 097 9 507 11 132Loans to customer RUB Mm 600 1 090 1 620 2 850 4 170 5 068 6 008 7 192 8 607 10 240P&L securities RUB Mm 190 230 230 240 310 910 908 905 900 893Placement with banks RUB Mm 210 200 130 120 70 0 0 0 0 0AFS securities RUB Mm 0 20 70 20 0 0 0 0 0 0
Interest expense RUB Mm 540 820 900 1 290 1 860 2 573 2 982 3 603 4 269 4 991Current account and deposits RUB Mm 500 700 820 1 010 1 260 1 453 1 764 2 278 3 034 3 965Debt securities issued RUB Mm 40 100 40 240 400 509 550 611 468 173Subordinated loans RUB Mm 0 0 20 40 110 176 145 85 28 0Deposits from banks RUB Mm 0 20 20 0 0 0 0 0 0 0Money from CB RUB Mm 0 0 0 0 90 90 90 90 90 90Securitized loans RUB Mm 0 0 0 0 0 345 433 539 649 762
NII before provisioning RUB Mm 460 720 1 150 1 940 2 690 3 405 3 934 4 494 5 238 6 141
Provision expense RUB Mm 110 140 220 430 1 170 1 397 1 665 1 979 2 306 2 648
Net interest income RUB Mm 350 580 930 1 510 1 520 2 008 2 269 2 515 2 932 3 493
Net fee and commission income RUB Mm 84 95 117 19 34 35 35 35 35 35Net gain (loss) from operations with P&L securities RUB Mm -15 51 142 -77 -26 2 2 3 3 4Realized gain on AFS securities RUB Mm 25 3 10 4 0 0 0 0 0 0Net FX income RUB Mm 27 29 24 13 -94 23 23 23 23 23Provisioning charge for other assets devaluation RUB Mm 0 0 0 0 0 0 0 0 0 0Other operating income RUB Mm 2 4 5 7 2 4 4 4 4 4
Operating income 473 762 1 228 1 476 1 436 2 072 2 334 2 580 2 998 3 559
OPEX RUB Mm 262 544 846 1 219 1 407 1 591 1 677 1 657 1 777 2 041Employee remuneration RUB Mm 142 312 525 696 741 530 564 657 765 891Payroll related taxes RUB Mm 22 52 72 133 172 93 99 116 135 157Repairs and maintenance RUB Mm 20 52 82 121 138 115 83 99 115 130Rent RUB Mm 28 42 55 92 123 101 73 87 101 114D&A RUB Mm 3 8 19 0 0 12 9 10 12 13Taxes (excl. profit tax) RUB Mm 12 10 14 36 46 35 26 30 35 40Advertising RUB Mm 29 18 26 25 49 244 284 332 381 430Insurance RUB Mm 0 0 0 0 0 0 0 0 0 0Security RUB Mm 0 7 10 17 19 17 19 23 26 29Other RUB Mm 6 43 43 99 119 446 520 304 209 236
Profit before tax RUB Mm 211 218 382 257 29 481 657 922 1 220 1 518
Income tax expense RUB Mm 52 43 77 49 6 101 137 193 255 318Effective income tax rate % 24,6% 19,8% 20,1% 19,1% 21,1% 20,9% 20,9% 20,9% 20,9% 20,9%
Net income RUB Mm 159 175 305 208 23 381 519 729 965 1 200
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Appendix 2. Projected RCB’s Balance Sheet 2013-2017
Sources: Acierto analysis, banki.ru32
BS 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Assets RUB Mm 22 180 19 050 23 820 30 090 38 070 44 583 51 966 60 793 69 709 78 800
Cash RUB Mm 7 290 2 310 4 270 5 110 6 490 7 099 7 679 8 206 8 484 8 509
Required reserves RUB Mm 50 158 187 239 247 270 312 388 486 588
Placements with banks RUB Mm 7 380 4 710 1 340 460 0 0 0 0 0 0
Loans to customers RUB Mm 6 780 7 970 14 050 21 090 27 240 32 534 38 753 46 073 53 677 61 660Loans to legal entities RUB Mm 6 590 6 620 10 260 8 640 8 700 8 675 8 656 8 622 8 562 8 474Large corporates RUB Mm 5 840 5 320 8 450 7 030 6 430 5 881 5 379 4 920 4 500 4 116SME RUB Mm 750 1 300 1 810 1 610 2 270 2 793 3 277 3 701 4 062 4 358Loans to individuals RUB Mm 410 1 710 4 380 13 430 20 420 26 353 33 068 41 339 50 066 59 363Car loans RUB Mm 0 0 3 710 12 130 18 930 24 615 30 937 38 504 46 322 54 445
Corporate individuals RUB Mm 190 170 120 340 400 461 539 644 757 879Other retail RUB Mm 220 1 540 550 960 1 090 1 277 1 591 2 192 2 987 4 038Impairment allowance RUB Mm 220 360 590 980 1 880 2 493 2 970 3 888 4 950 6 178
P&L securities RUB Mm 550 2 970 2 680 2 420 3 070 3 667 4 368 5 193 6 049 6 949
Property, equipment, intangible assets RUB Mm 130 280 400 550 670 590 430 510 590 670
Other assets RUB Mm 0 652 893 221 353 424 424 424 424 424
Deferred tax assets RUB Mm 0 0 0 0 0 0 0 0 0 0
Liabilities RUB Mm 20 190 16 830 21 260 27 380 35 390 41 522 48 386 56 484 64 435 72 326
Money from CB RUB Mm 0 0 0 0 2 300 2 300 2 300 2 300 2 300 2 300
Deposits and balances from banks RUB Mm 330 300 370 50 330 276 265 258 236 273
Accounts and deposits from customers RUB Mm 17 820 15 830 18 700 23 940 24 720 26 987 31 227 38 836 48 555 58 816
Debt securities issued RUB Mm 1 670 310 1 770 2 900 6 400 5 438 7 358 6 841 4 032 0
Subordinated loans RUB Mm 360 380 390 390 1 550 1 550 1 000 500 0 0
Other liabilities RUB Mm 10 10 30 100 90 48 48 48 48 48
Deferred tax liabilities RUB Mm 0 0 0 0 0 0 0 0 0 0
Securitized loans RUB Mm 0 0 0 0 0 4 923 6 187 7 701 9 264 10 889
Capital RUB Mm 1 990 2 220 2 560 2 710 2 680 3 061 3 580 4 309 5 274 6 474
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 33
Appendix 3. In conservative scenario RCB will stay profitable but will not rich
desirable level of marginality
Base case 2017Conservative case
2017
Net income, RUR bn 1,2 0,3
ROE, % 20,4% 8,7%
ROA, % 1,6% 0,5%
Capital, RUR bn 6,5 3,6
Assets, RUR bn 79 64
C/I, % 57,4% 75,5%
Assumptions of conservative scenario
• Expansion effect 2 times lower
• No cross-selling
• No more than 15% of car loans are securitized with 8% interest rate
• Advertising expenses 2 times higher
Scenario analysis shows that strategy is rather robust 1
Total financial results largely depend on interest policy2
Loans interest rates change
-0,4% -0,2% 0,0% 0,2% 0,4%
Ave
rage
inte
rest
ex
pen
se c
han
ge
-0,4% 6,5 7,8 9,1 10,4 11,7
-0,2% 5,3 6,6 7,8 9,1 10,4
0,0% 4,0 5,2 6,5 7,7 9,0
0,2% 2,7 3,9 5,2 6,5 7,8
0,4% 1,4 2,7 3,9 5,2 6,5
Sensitivity of capital in 2015, bn RUB
Loans interest rates change
-0,4% -0,2% 0,0% 0,2% 0,4%
Ave
rage
inte
rest
ex
pen
se c
han
ge
-0,4% 1 276 1 823 2 371 2 918 3 465
-0,2% 730 1 281 1 831 2 381 2 931
0,0% 163 681 1 200 1 718 2 237
0,2% -363 163 687 1 212 1 736
0,4% -895 -367 162 693 1 223
Sensitivity of Net Income in 2015, mln RUB
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Terrasoft company, work group analysis
Appendix 4. Interaction of 5 key points in the bank CRM system allows to develop
existing clients and to attract the new ones
Strengths
Collaboration
Performance Management
Improving the efficiency of employees
• All bank employees work in
accordance with automated business
processes
• Automated preparation of documents
package
• Simplified post distribution
CRM bank
system
Document Flow
Organization of customer information and
document elements management
• All necessary information to attract and
develop customer is available in the
common information field
• Relationship between customers, their
financial statement, history of
transactions and negotiations.
Analysis
Planning and sales analysis
• Obtaining information about the main
events for bank customers in one click
• Analysis of the number of potential
customers, the probability of relevant
transactions, negotiation stages
Optimization of interaction between
departments of the bank
• According to the results of
communication with the call center task
will be automatically generated for the
manager.
• High speed of interactions between
departments in information field
Sales Force Management
Sales management
• Increasing of customer profitability
• Offering new product portfolio for the
particular group of customers
• Increasing the number of used
products
• Expanding the customer base and
others
34
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: crm-practice.ru, work group analysis
Appendix 5. Terrasoft CRM is the best option among domestic suppliers, and
Microsoft Dynamics CRM - among foreign ones, taking into account popularity, price
and scalability of the proposed CRM solutions
0
2
4
6
8
10
12
14
16
18
20
22
24
Oracle Siebel CRM
Salesforce.com
Sugar CRM SAP CRM
Oracle CRM on Demand
Microsoft Dynamics CRM
# of integrators companies
License price for work place, $
BPMonline CRM
1C: CRM КОРП 2.0
Terrasoft XRM
Terrasoft CRM
XThe maximum number of
users of the system
Not required 250-500 500-1000 >1000<250
250-1000
>1000
>1000
>1000
>1000
>1000
>1000
>1000
>1000
>1000
The best banking CRM systems on the Russian IT market
35
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Rosstat, CBR
Appendix 6. Regions suggested to enter are also attractive as corporate debt markets
RegionTotal debt
2012
Total
corporate
debt
Total
consumer
debt
Total debt
growth 09-11
Consumer
debt growth
Corporate
debt growth
09-12
Advised to
enter
Russia 16 324 287 11 929 105 4 395 182 30% 25% 32%
Moscow 4 513 581 4 034 856 478 725 36% 37% 36% yes
St.-Petersburg 1 041 231 833 331 207 900 44% 33% 47% yes
Moscow Region 904 106 633 747 270 359 32% 60% 22% yes
Krasnodar 544 549 415 650 128 899 64% 21% 84% yes
Tatarstan 460 947 353 818 107 129 21% 10% 25% yes
Rostov 378 090 267 831 110 259 39% 22% 47%
Nizhniy Novgorod 353 314 259 221 94 093 30% 10% 39% yes
Samara 332 341 220 405 111 936 -1% 6% -5% yes
Bashkortostan 260 816 155 956 104 860 28% 13% 41% yes
Belgorod 246 949 209 811 37 138 25% 26% 24% yes
Kemerov 230 639 141 270 89 369 -4% 3% -7%
Voronesh 198 416 148 816 49 600 54% 21% 68% yes
Leningrad 166 885 120 646 46 239 76% 58% 83% yes
Stavropol 160 590 98 093 62 497 24% 27% 21% yes
Volgograd 156 282 98 121 58 161 12% 10% 14% yes
Saratov 139 407 84 139 55 268 16% 15% 16% yes
Orenburg 135 201 78 561 56 640 14% 18% 10% yes
Yaroslavl 130 340 99 616 30 724 29% 20% 32% yes
Chuvashia 123 515 94 589 28 926 55% 6% 81% yes
Kursk 117 461 91 485 25 976 45% 16% 55%
Lipetsk 114 422 88 259 26 163 39% 27% 42% yes
in RUB mln
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Appendix 7. Comparable Russian banks*
* Some of these banks was closed during 2013 year
Sources: Acierto analysis, banki.ru
Bank Net assets 2012 Capital 2012 Loans 2012 Net income 2012 Roe ROA
Mezhtopenergobank 37 670 059 4 432 372 26 816 830 594 212 15,2% 1,8%
Dalnevostochny Bank 37 625 908 3 937 637 18 252 327 663 576 18,3% 1,8%
Primsotsbank 35 803 131 3 510 155 25 322 219 823 277 26,0% 2,7%
Chelyabinvestbank 34 975 801 5 628 067 17 211 013 717 737 13,1% 2,1%
Chelindbank 33 959 957 5 999 266 20 915 080 545 604 9,4% 1,7%
Koltso Urala Bank 33 944 479 3 592 036 22 781 437 311 795 10,3% 1,1%
Rossiyskiy Kredit Bank 33 708 405 8 552 669 15 655 270 628 172 7,4% 2,7%
Metallurgical Commercial Bank 33 650 306 3 262 854 24 007 367 100 180 3,6% 0,3%
Fora-Bank 33 533 818 3 384 928 24 643 730 223 112 7,6% 0,7%
SDM-Bank 33 150 606 3 438 617 15 933 923 614 139 19,3% 1,9%
RIB 32 835 242 4 552 204 23 861 095 147 744 3,7% 0,5%
Krayinvestbank 32 590 132 4 630 947 15 798 308 76 096 2,0% 0,3%
Кеdr 32 501 996 3 308 848 21 073 336 248 823 7,9% 0,8%
Smolensky Bank 32 140 623 3 245 280 20 391 675 69 949 2,7% 0,2%
Levoberezhny 31 718 714 3 207 820 22 008 663 865 704 32,0% 3,3%
REB (ZAO) 31 213 655 3 633 619 18 099 099 105 379 3,3% 0,4%
FRB 30 835 634 3 162 489 19 268 140 691 821 25,5% 2,4%
Severgazbank 30 741 231 3 090 583 18 486 849 239 865 7,9% 0,8%
GE Money Bank 30 654 097 8 434 645 27 229 135 884 860 10,8% 2,9%
Gasbank 29 641 660 4 233 525 23 195 373 133 795 3,2% 0,5%
Interprombank 29 253 543 5 215 110 19 010 523 418 272 8,2% 1,5%
Pushkino 28 874 841 3 022 102 21 661 208 356 280 13,3% 1,4%
AVB 28 487 685 3 170 680 22 537 040 69 779 2,3% 0,3%
The Bank «IBA-Moscow» 26 984 069 2 444 519 20 724 047 281 418 12,3% 1,1%
Lipetsskkombank 26 402 539 2 630 994 17 750 097 366 503 14,8% 1,4%
Rost 25 715 281 3 444 809 19 404 043 819 505 29,9% 4,3%
BFG-Credit 25 207 031 3 089 136 18 740 090 161 283 6,0% 0,7%
Average 11,7% 1,5%
37
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: developed financial model for the new RCB’s leasing
subsidiary 38
Appendix 8. New RCB’s leasing subsidiary: key info
• RCB has a huge upside in collateralized SME leasing backed by vehicles
(see page 11)
• We have developed comprehensive financial model of RCB’s leasing
subsidiary
• All results provided by the leasing subsidiary model are NOT INCLUDED
into the main financial model for RCB. All projected financial results
provided in the presentation are given WITHOUT results of leasing
subsidiary performance.
• Collateralized SME leasing backed by vehicles is one of potential options
for RCB, so the financial model for leasing subsidiary assumes that it will
be separate investment project for RCB.
• Any potential gains from synergy effects of cross-selling between leasing
subsidiary and RCB are not considered in the model.
• Initial investments = $15 mln USD
• Income tax = 20%
• Allowance for impairment losses = 1,5%
• Modeling horizon = 5 years
:
(1) RCB’s leasing subsidiary business was modeled as a separate
investment project
(2) Leasing subsidiary financial results are not included into the main
financial model and any financial results for RCB provided in the
presentation Key leasing subsidiary model assumptions
Big loans Medium loans Small loans Parameter
Loan type
Loan term
Interest rate
Down payment
Annuity
36 months
20%
10%
Annuity
36 months
20%
10%
Annuity
24 months
20%
10%
Avg loan size $200k USD $70k USD $50k USD
There are 3 leasing products
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: developed financial model for the new RCB’s leasing
subsidiary 39
Appendix 9. RCB’s leasing subsidiary projected P&L
PNL 2014-2018
Go to table of contents
2014 2015 2016 2017 2018
Revenues
Finance lease income 1 213 189,81$ 5 125 733,65$ 10 287 496,16$ 15 986 689,74$ 20 109 135,81$
Total revenue 1 213 189,81$ 5 125 733,65$ 10 287 496,16$ 15 986 689,74$ 20 109 135,81$
Expenses
Financing costs -$ 354 916,05$ 3 767 934,93$ 5 601 901,02$ 2 257 845,34$
Accrued interest -$ 1 051 141,67$ 1 124 177,08$ 2 109 135,42$ 7 667 916,67$
Team & administraitve expenses 461 600,00$ 747 200,00$ 1 336 000,00$ 2 104 000,00$ 2 796 000,00$
Provision for impairment losses 309 580,10$ 695 353,36$ 1 256 014,68$ 1 694 720,17$ 1 979 752,83$
Total expenses 771 180,10$ 2 848 611,07$ 7 484 126,69$ 11 509 756,60$ 14 701 514,83$
Profit before tax (expense) benefit 442 009,70$ 2 277 122,58$ 2 803 369,48$ 4 476 933,14$ 5 407 620,97$
Tax (expense) benefit 88 401,94$ 455 424,52$ 560 673,90$ 895 386,63$ 1 081 524,19$
Net profit for the year 353 607,76$ 1 821 698,06$ 2 242 695,58$ 3 581 546,51$ 4 326 096,78$
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: developed financial model for the new RCB’s leasing
subsidiary 40
Appendix 10. RCB’s leasing subsidiary projected BS
Balance sheet 2014-2018Go to table of contents
2013 2014 2015 2016 2017 2018
Assets
Cash on hand 15 000 000$ 53 554$ 906 760$ 768 633$ 472 524$ 687 607$
Lease receivables -$ 20 638 673$ 46 356 890$ 83 734 312$ 112 981 344$ 131 983 522$
Unearned lease income -$ 4 479 038$ 9 029 225$ 15 720 578$ 20 263 579$ 23 070 290$
Net investment in finance leases -$ 16 159 636$ 37 327 666$ 68 013 734$ 92 717 766$ 108 913 232$
Total assets $ - 16 213 190$ 38 234 425$ 68 782 367$ 93 190 290$ 109 600 838$
Liabilities and equity
Liabilities
Loans from fin institutions and banks -$ -$ 18 110 000$ 45 087 500$ 63 387 500$ 68 750 000$
Accrued interest payable -$ -$ 1 051 142$ 1 124 177$ 2 109 135$ 7 667 917$
Taxes -$ 88 402$ 455 425$ 560 674$ 895 387$ 1 081 524$
Allowance for impairment losses -$ 309 580$ 695 353$ 1 256 015$ 1 694 720$ 1 979 753$
Short-term employee benefits liabilities -$ 321 600$ 547 200$ 936 000$ 1 404 000$ 1 596 000$
Administrative expenses 140 000$ 200 000$ 400 000$ 700 000$ 1 200 000$
Equity
Share capital 15 000 000$ 15 353 608$ 17 175 306$ 19 418 001$ 22 999 548$ 27 325 645$
Total liabilities and equity 15 000 000$ 16 213 190$ 38 234 425$ 68 782 367$ 93 190 290$ 109 600 838$
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
41
Appendix 11. RCB’s leasing subsidiary projected KPI’s
KPIsGo to table of contents
Growth 2014 2015 2016 2017 2018
ROE 2,36% 11,86% 13,06% 18,44% 18,81%
Growth of net investment in finance leases 130,99% 82,21% 36,32% 17,47%
Growth of finance lease income 322,50% 100,70% 55,40% 25,79%
Growth of expenses 269,38% 162,73% 53,79% 27,73%
Growth of net profit 23,11% 59,70% 20,79%
Growth of cost-to-income ratio 156,37% 333,71% 321,36% 339,83%
2014-2017 2014-2018
IRR (exit estimate 1x equity) 11,28% 12,74%
IRR (exit estimate 1,5x equity) 23,15% 22,27%
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: “The ultimate guide for banking industry” by Oliver Wyman,
work group analysis
Appendix 12. Structuring of the risks, associated with the implementation of the
proposed strategy, will help to build an effective risk management system
42
Loss of revenue or profit due to operational causes (fraud, personnel
mistakes etc.)
Announcing default or requiring additional liquidity injection from the
shareholders/regulators
Critical risks
Moderate risks
Serious risks
Minor risks
2
3
5
6 The complexity of implementing and supporting information systems
7
Potential risk management structure
An essential condition for the successful implementation of the
strategy is the availability of the required top level professionals,
as well as high-performance organizational structure
1
Risk of huge losses on trading book of the bank, due to adverse market
movements
The risk of having large losses, due to interest rates on liabilities exceeding
interest rates on assets or unfavorable changes of exchange rate
8 Impossibility of re-qualification of part of the staff
4
Low Medium High
Low
Mediu
mH
igh
Probability of emergence
Ma
teri
ality
of
co
nse
qu
en
ce
s
1
32
5
76
8
4
The risk is primarily that of the lender and includes lost principal (amount
extended in a loan) and interest, disruption to cash flows, and increased
collection costs
Rejection of the new strategy the bank staff
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: “The ultimate guide for banking industry” by Oliver Wyman,
work group analysis
Appendix 13. Set of mitigation actions will reduce the probability of risks and
materiality of their impact to a minimum
43
RiskCriticality levelMitigating action
The risk of having large losses, due to interest rates on liabilities
exceeding interest rates on assets or unfavorable changes of
exchange rate
Match maturity and currency of assets and liabilities, accurate
following to the financial strategy
low
low
low
low
low
Risk of huge losses on trading book of the bank, due to adverse
market movements
Analyze market changes and fluctuations, hedging using
derivatives, diversification of trading portfolio, use of less
volatile assets (e.g. blue chips)
The risk is primarily that of the lender and includes lost principal
(amount extended in a loan) and interest, disruption to cash
flows, and increased collection costs
It shows the quality of the bank portfolio giving information
about the share of “bad” loans
Loss of revenue or profit due to operational causes (fraud,
personnel mistakes etc.)
Introduce better internal controls, upgrade IT infrastructure,
incorporate advanced processes including anti-fraud measures,
insurance
Announcing default or requiring additional liquidity injection from
the shareholders/regulators
Decreasing average maturity of assets (loans), increasing
average maturity of liabilities (deposits), holding a larger
liquidity buffer (cash and other high-liquid assets), liquidity
planning monitoring gap management
The complexity of implementing and supporting information
systems
Using the best deal on the market (modern systems, high-
qualified integrators), following the agreed business processes
in IT, personal work with staff
Rejection of the new strategy the bank staffSpecial trainings, meetings and assessments. Accent on the
motivating of top level managers
Impossibility of re-qualification of part of the staffSpecialized training courses with a high practical component.
Possible replacement of the staff.
medium
high
medium
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 44
Appendix 14. Detailed project implementation plan (1/5)
Phase 1: Quick Wins
1.1
Branch
optimization
Su
b-p
ha
ses
Branches’ area decrease from 15 sq m/person to 10 sq m/person
1.1.1
1.1.2
1.1.3
Re
sou
rce
s in
vo
lve
d
• COO
• Formed project team
• Cost optimization
• Staff allocation optimization
Re
sults
1.2
No ATM
commission for
clients 1.3
Decreasing of
average retail loan
term 1.4
1.2.1
1.2.2
1.3.1
1.3.2
Require 2nd document for
clients without good
credit history
1.4.1
1.4.2
Staff reallocation and training (partial dismissal)
• RCB’s technology group staff (to implement this service)
• CTO
• Marketing department
• Significant improvement of Customer Experience
Start paying all ATM commission for clients at the expense of RCB in case withdrawal amount is equal or more than 3000 RUB
• Formed project team
• Marketing department
• NPL decrease
Decrease average retail loan term
• Formed project team
• NPL decrease
Start requiring 2nd document for this client segment
Emphasize this information in marketing campaigns
Change this information in marketing materials and web-site
Add this point into scoring models
Med-term: redesign and renovate branches in similar style
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 45
Appendix 15. Detailed project implementation plan (2/5)
Phase 2: Consumer Finance
2.1
Full-scale internet banking
and CRM platform
implementation
Su
b-p
ha
ses
Involve consultants (i.e. Accenture) for optimal system choice and integration
2.1.1
2.1.2
2.1.3
Re
sou
rce
s in
vo
lve
d
• CTO, COO
• $1,5-3M for consultants (system integration and launch) and licenses needed
• Technology department
• All internet banking services available for clients
• Efficient CRM system enabling Customer Experience improvement
• Business processes automation and optimization
• Increased cost-efficiency
Re
sults
2.2
New package
products for
individuals 2.3
Establishing partnerships
with large retail shops/
networks 2.4
2.2.1
2.2.2
2.3.1
2.3.2
Active marketing campaigns
through internet/
social networks
2.4.1
2.4.2Closed test-launch of integrated systems
• Formed project team
• Marketing department
• Launch of the most popular and profitable products
• Increased revenue from package sales
• Increased revenue from cross-sales
Market research to find out the most desirable, popular and profitable products
• Marketing department
• Customer base expansion
Focus on acquiring new clients through credit-card offerings in partnership with popular retail shops/network
• Marketing department
• Customer base expansion
Cyclical (autumn and spring) marketing campaigns emphasizing RCB’s competitive advantagesFocus on package sales (credit
cards, etc.)
Active marketing campaign in partnership with retail shops/networks
Target marketing through internet (SEO, etc.)
System debugging, calibration and full-scale launch
Development and implementation of new business processes
2.1.4
2.2.3Focus on capturing existing client base in car loans segment as much as possible
Cross sales implementation2.2.4
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 46
Appendix 16. Detailed project implementation plan (3/5)
Phase 3: Car Loans
3.1
Establishing
partnerships with
insurance companies
Su
b-p
ha
ses
Establishing partnerships with a diverse set of insurance companies
3.1.1
3.1.2
Re
sou
rce
s in
vo
lve
d
• Business development people
• Formed project team
• Gains on commission from insurance products cross-sales
Re
sults
3.2
Implementation of
new developed
products 3.3
Partnerships with car
dealers to implement
factoring 3.4
3.2.1
3.2.2
3.3.1
3.3.2
Business automation
and expansion
3.4.1
3.4.2
• Formed project team
• Marketing department
• Launch of the most popular and profitable products
• Increased revenue from package sales
• Increased revenue from cross-sales
Test launch of new car loans: “Express” and “Family 2nd car”
• Marketing department
• Business development people
• Formed project team
• Factoring service for RCB’s clients
Establishing partnerships with popular car dealers (according to RCB’s target audience)
• CTO
• Technology department
• Formed project team
• Marketing department
• Business automation
• Cost-efficiency increase
• Customer base expansion
Strong scoring model implementation
Receiving customer feedback and estimation of market demand for these products Implement factoring service in
partnerships with car dealers and insurance companies
Implementation of online loan application for clients
3.2.3 Products’ optimization and full-scalr launch
Active marketing campaign3.2.4
Implementation of insurance products cross-sales (KASKO etc.) 3.4.3 Call-center optimization
3.4.3Further expansion into region through DSAs and partnerships with car dealers
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 47
Appendix 17. Detailed project implementation plan (4/5)
Phase 4: SME Lending
4.1
Package sales products
and cross-sales
implementation
Su
b-p
ha
ses
New package offerings for SMEs (lending, salary projects, encashment, conversion operations, depository services etc.)
4.1.1
4.1.2
Re
sou
rce
s in
vo
lve
d
• COO
• Formed project team
• Gains on commission from cross-sales
• Gains on package sales
Re
sults
4.2
Implementation of
“One-Stop-Shop”
service for SMEs
4.2.1
4.2.2
• Formed project team
• Marketing department
• COO
• Providing 360 service for SMEs
• Increased revenue from package sales and cross-sales
Product line and services extension with the aim of providing 360 service for SMEs
Increase of commission revenue from operations with SMEs
Focus on increase of
commission revenue from
operations with SMEs
4.1.2 Focus on technological,
conveyor-like products
4.2.3Active marketing of 360service and package products for SMEs
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
Source: Acierto analysis 48
Appendix 18. Detailed project implementation plan (5/5)
Phase 5: SME Leasing
5.1
Establishing SME
leasing subsidiary
Su
b-p
ha
ses
Establishing new legal entity –RCB’s SME leasing subsidiary
5.1.1
5.1.2
Re
sou
rce
s in
vo
lve
d
• Formed project team
• CEO, COO
• Launching new business: collateralized SME leasing backed by vehicles
• Using of synergy potential: capturing clients into regular SME service business
Re
sults
5.2
Partnerships with
insurance companies 5.3
Implementation of
scoring models and
direct sales
5.2.1 5.3.1
5.3.2
• Formed project team
• Marketing department
• Business development people
• Launch of the most popular and profitable products
• Increased revenue from package sales
• Increased revenue from cross-sales
Implementation of cross-sales (KASKO, etc.)
• Technology department
• Formed project team
• Business automation: centralized loan approval and risk management
• Decentralized distribution
Business automation: implementation of strong scoring models
Hiring new staff and starting direct sales
Establishing business processes of collateralized SME leasing backed by vehicles
5.1.4 Sales points: existing DSA network + starting direct sales
5.1.3 Hiring new staff
Acierto team
Specially for Oliver Wyman Impact
14.03.2014
1 Changellenge Cup Technical - All-Russian business-case championship
2 Moscow Institute of Physics and Technology
2 MS final year, major in Control and Applied Mathematics
Our team members have vast experience in business and finance which allows us to
efficiently resolve problems of Ryazan Capital Bank and improve its market position
Alexey Semakov
• Former financial analyst at
Third Rome Investment Solutions
• Internships with Accenture,
Deloitte
• Winner of CLT 2012
• Engagements in projects on
market entry, organization
structure, business optimization
• Organized International
Conference ENES’13 at Ministry
of Energy of Russian federation
• Winner of 2 case competitions
• Analyst in PFL Advisors
• Former consultant in Althaus
Consulting
• CFA Level 3 candidate
• Internship with Unilever,
Supply Chain group
• Internship with L’Oreal,
Operations, Stock Group
• Final section winner of
FutureToday Case Cup
(2012, 2013)
Ilya Larchenko Stanislav Fedyakov Vasiliy Patyk
• We successfully worked together in similar projects – 1st place in «CLT 2012»1…
• …where developed the reorganization strategy of Deutsche Bank Moscow Technology Office
• …and perfectly know each other’s strong sides and effectively communicate – all are studying together at MIPT2
49