DealBook: HSBC Drops Out of Retail Banking in Russia

Toby Melville/Reuters

MOSCOW — HSBC on Monday became the latest foreign bank to pull out of retail banking in Russia as large state-owned banks have come to dominate a business that had been expected to provide a rich growth opportunity for foreign institutions.

HSBC, Europe’s largest bank by assets, said it would close five retail branches in Moscow and St. Petersburg and focus instead on providing global lending services to industrial and corporate clients.

The manager of the bank’s Russian operations, Huseyin Ozkaya, said in a statement that a review of the market showed corporate banking offered the ‘‘strongest opportunity’’ for HSBC in Russia.

HSBC — which started its retail business just two years ago, with a grand opening on Bolshaya Nikitskaya Street in Moscow — follows Barclays of Britain and Banco Santander of Spain in either quitting or scaling back plans to open retail banks.

This is a sharp change from a few years ago, when foreign banks piled into the country and expectations for quick growth in retail banking were high.

Foreign banks attracted consumers with new services like Internet banking, linked investment accounts and online bill payments. But the business was considered particularly appealing because foreign banks were thought likely to benefit from Russians’ deep distrust of their own financial institutions, after a series of scandals and ruble devaluations wiped out savings in the 1990s.

The expected erosion of Russian state banks’ share of the retail market, however, never took place. Sberbank, a former Soviet retail bank, began offering similar services to those of foreign banks. Sberbank then bolstered its reputation after the global financial crisis by taking pains to emphasize its state-backed financial stability as Western banks teetered.

And the fact that few Russian depositors suffered in the global recession helped the banking industry over all, raising the price of entry for foreign banks, said Bob Kommers, a banking analyst at Deutsche Bank in Moscow.

Sberbank, for example, has retained its dominant position in consumer banking, now holding 47 percent of Russians’ total private savings of about 10 trillion rubles, or $350 billion, Mr. Kommers said.

‘‘The public confidence in the banking system has improved through the crisis,’’ he said. ‘‘Sberbank and VTB have simply become better banks. And that made it more difficult for foreign banks to compete.’’

Newcomers also found themselves competing with established foreign banks. Citigroup of the United States, the Italian lender UniCredit and Raiffeisen of Austria all expanded quickly over the last decade and still operate extensive branch networks in Russia.

Raiffeisen, though, has slowed expansion plans as its entire Eastern European operation was hit hard during the financial crisis. Raiffeisen had a brisk business in dollar- and euro-denominated mortgage lending in Russia that dried up quickly when the ruble was devalued in 2008.

HSBC told Russian customers they should close accounts by June 30. Credit cards will stop working on May 31, the bank said. HSBC said it would waive fees for cash withdrawals and outbound transfers to help customers move savings to other banks.

Article source: http://dealbook.nytimes.com/2011/04/25/hsbc-drops-out-of-retail-banking-in-russia/?partner=rss&emc=rss