Bank  goes public

The Bank’s annual meeting of shareholders has decided to issue new shares

18.07.2013, 12:49

Bank  actively grows its capitalization: an increase of RUB 971m already took place in March this year. On May 23, the annual meeting of the Bank’s shareholders further resolved to raise funds amounting to RUB 2.5bn by issuing new shares. We have spoken with Dmitry Leus, Chairman of Bank, about how the Bank plans to invest the new funds and what rate of return investors may expect.

A Return on investment of up to 40 percent

— Dmitry Isaakovich Leus, which are the main parameters of the share issue?

— Dmitry Leus:The annual meeting of shareholders resolved to issue 2.5 million additional shares at a nominal price of 1 rouble. The Bank may thus raise RUB 2.5m in new funds, thereby increasing its capital base by 127%. As a result, Bank ’s overall capitalization will amount to RUB 5.5bn. We plan to place these new shares on the Moscow Stock Exchange in open subscription.

— What is the objective of the current shareholders in conducting an IPO?

— Dmitry Leus:The Bank is actively expanding. Its retail loan portfolio grew 2.5 times, its total assets amount to RUB 23.1bn. To take it a step further, Bank  needs fresh investments. A public placement will provide us with more favourable refinancing conditions and may even lead to bond placements in the future...

— How did you come to this conclusion?

— Dmitry Leus:We have invested heavily in the Bank’s infrastructure. Since November 2012, we have actively expanded our branch network and have opened over 21 regional offices. Overall, the Bank currently has a network of 70 branches stretching from Kaliningrad to Novosibirsk, and from Surgut to Gelendzhik.

We have equally transformed the Bank’s governance by implementing a matrix model of management (more than one reporting line). Our regional offices function like hubs headed by local banking experts. In addition, branches have received a unified format and branding with an equally unified client service using Group standards. We have centralized HR procedures and our employees are highly incentivized.

— What rates of return may investors in Bank  expect?

— Dmitry Leus:Since the beginning of the year, the Bank earned 30% on its capital and there is significant potential for future growth. The Bank’s top management is targeting returns of 35 to 40% over the next two years. This is our current roadmap — a revised version of our long-term strategy will soon be published.

— This is the first time you raise public capital. What type of investor do you plan to attract?

— Dmitry Leus:The Bank’s business is sufficiently transparent to being accessible to a wider audience. For the moment, the shareholders of Bank  are its top management. We are also in negotiations with a number of institutional investors.

— What is Bank ’s competitive advantage? What makes it attractive for potential investors?

— Dmitry Leus:The Bank’s business is very transparent and easy to apprehend. Every month, over 10 000 Russian citizens become our new clients. These are individuals and small to medium-sized businesses. This trend is accelerated by an increased presence of points of sale all across the Russian regions, thereby doubling our customer base. Our clients are becoming more loyal and have recourse to more than one product over a longer service period. Alongside an increase in productivity, we observe that the profit share stemming from our non-interest business is rising too.

Pensioners more disciplined than young people

— Let us speak about the Bank’s core business in more detail. How does the Bank generate profits?

— Dmitry Leus:In February 2012, the Bank presented a strategic plan focusing on high-yield product lines. Traditionally, our main profit centre was in the domain of consumer lending. Our corresponding credit portfolio constitutes approximately RUB 8bn, with monthly new lending volumes ranging from RUB 700m to 1bn or, alternatively, 8500 new credits each month. In this segment earnings derive largely from the Bank’s commission and interest business. The commissions do not derive from arrangement fees (as this is against the law in Russia), but rather from the insurance component within a loan. Credit insurance is not mandatory, but we incentivize clients to buy insurance by substantially lowering their interest rate in return. The insurance component constitutes 18.8 to 18.9% of all consumer loans. Put differently, if we award RUB 700 to 1bn in credits per month we expect approximately RUB 180m in commissions income from these transactions. On the other hand, our interest rates for credits vary depending on factors such as the client’s overall assets and liabilities, his income situation, age, in addition to other indirect indicators calculated by our credit analysts.

— Does the Bank engage into other forms of lending?

— Dmitry Leus:Of course. Our portfolio of mortgage loans amounts to RUB 1bn, not including RUB 100m in car loans. We continue to lend to small and medium-sized businesses. However, as you can see, the Bank’s strategic orientation is directed at high-yield loan products.

— Consumer lending is a risky business indeed. What is your default rate?

— Dmitry Leus:Our default rate is not higher than 6%. Bearing in mind that our consumer lending portfolio is of relatively short existence (1 year), we consider this number as high. We try to create a system of internal incentives keeping default rates at a minimum. Also, we have created appropriate IT systems to monitor loans in default and constantly work on our soft-collection department which works successfully in identifying and resolving issues with late payers. We are also speaking to the 5 largest domestic collection agencies. Accordingly, the situation is under control.

Our consumer loans come at a rate ranging between 50 and 60% p.a. (broken down into a minimal credit rate of 36.9% plus the credit insurance component of approximately 19. We tailor our credit products to market requirements and the composition of our internal credit portfolio.

— Who is your typical client?

— Dmitry Leus:There are two categories of clients: we sell our normal “” loans to clients between the age of 23 and 65. Pensioners up to the age of 80 may profit from our “Pensioners” loans. I may add that we consider pensioners as our best clients. They have few liabilities and possess a very high repayment discipline. In practice, pensioners return loans by far more responsibly than our younger clients.

— What is the approval rate for consumer loans?

— Dmitry Isaakovich Leus:We approve only about 20% of all applications we receive (whereas our competitors consider approval rates of 40% as “conservative”). In the beginning, an application lands on the desk of our scoring experts who use various databases and mathematical models in their analysis. Then the credit application is passed over to our analytical team. Next, during the verification process (which we conduct for all credits regardless of amounts), we ask the potential borrower to provide us with two mobile and two land-line telephone numbers (private and work), which we call… When calling the client’s employer we also use an alternative number we usually take from the telephone directory or any other open source.

— How do you verify pensioners?

— Dmitry Isaakovich Leus:The process is almost identical. We have a method which gives us access to average pension payments per region. If we are not dealing with military pensions, average pension payments in Russia do not exceed RUB 5000 (USD 152) per month. Obviously, we don’t call their employers, even if they are still working (unofficially). However, we do call their neighbours and close relatives. We may also want to speak to their children about the usefulness of a loan.

Call centres as main sales drivers

— How does the Bank stay in touch with its clients?

— Dmitry Leus:We work very closely with our clients. In the wake of the reorganization of our back office, we have created a client service centre in Voronezh, comprising a contact centre, our credit analysis team, the IT department, and operations.

A year ago, we have created a full-fledged call centre performing client advisory, sales, and after-sales functions. In our Bank the main sales agent for new loans is the call centre. Thus, the client has the opportunity to submit his credit application by telephone. The actual signing takes place at a later stage when the client is physically in the Bank. Let me add that our centre is very efficient. Two thirds of the 1500 credit requests we receive daily come in through the call centre.

When a credit has been awarded our quality management department enters the scene. Their task is not only to monitor client satisfaction, but also to identify default risk at an early stage. Thus, we usually give new borrowers a short welcome call and ask them whether they have taken good note of the credit agreement. In case their phone does not answer for five days, we contact our security desk. This enables us to immediately address cases of fraud.

— How manageable is the structure of the Bank?

— Dmitry Leus:We use video surveillance systems allowing us to see what happens in any branch of our regional network. Our specialists from quality management provide real-time evaluation of our staff’s behaviour during client meetings and the on-boarding process. A bank is first and foremost a service provider and we are well aware that only high-quality service deserves customer loyalty.

— Is it very important for you to have real-time access to the Bank’s processes?

— Dmitry Leus:Yes, I think this is important, also in view of identifying any shortcomings at an early stage — before they become systemic. In addition, the system informs me about the number of credits awarded in every branch [Dmitry Leus turns around the screen of his computer where constantly changing numbers appear...].

The computer system allows us to monitor the effectiveness of the Bank’s newly created regional branches on-line. For example, as at April 29, fresh loans amounting to RUB 610m were issued. If we multiply this amount by 18.8% we get RUB 116m in gross revenues. If we subtract from this amount costs of goods sold (approximately RUB 80m) and loan loss reserves, we get the Bank’s net profits.

Bottom line, the Bank’s centralized system provides decision makers with an objective source of information and may correct the regional management’s actions if need be. We conduct conference calls with the regional leadership on a daily basis...

Chatting with the bank

— Which growth perspectives do you see for the future?

— Dmitry Leus:Going forward we intend to actively develop a number of new financial products. One of them is a lending product for small and medium-sized businesses which is in the launch stage now. For historical reasons, we have a well-balanced mortgage loan portfolio we would like to grow further should we be able to attract funding at comfortable rates. In addition to cash loans, we would also like to grow credit card loan solutions and plan market-entry strategies by October this year. Currently, we are developing our own payment processor for credit cards and plan to integrate it into the existing IT infrastructure.

— Such projects require substantial marketing efforts.

— Dmitry Leus:Correct. The Bank invests considerably into marketing — approximately RUB 8.5m per month. Hence, every credit application the bank approves “amortizes” RUB 1000 in marketing costs. As we lend massively in the Russian regions we used to advertise on Russia-1, a TV channel with many regional variations, but we didn’t include Moscow and St. Petersburg. When promoting credit cards we will also use TV as a medium, but we shall mainly have recourse to the internet and social networks when promoting credit card lending.

— Will there be changes on the Bank’s internet site?

— Dmitry Leus:Of course. For the moment, we only sell loans via our internet site. The next step will be to accept deposits on-line too. We also intend to link the Bank’s internet site to social networks and provide on-line chat rooms with client managers. By the end of this year, our customers will be able to communicate with their banker via Skype...

Oleg Potapov

Dmitry Leus: “Bank  is a socially responsible bank. We care about the financial literacy of the next generation.”

Aproject called “Lectures on Financial Literacy”, organized by the local branch of Bank  started in Lipetsk today. During the entire academic year, the Bank’s experts will be giving lectures on finance to the graduate students of nearby schools.

The first lectures, given on 20 September 2013 at two secondary schools, have been met with great interest from both students and teachers. Dmitry Isaakovich Leus

The Bank’s employees explained in comprehensive form the basics of personal finance, deposits, and lending. Students were given an opportunity to ask questions with regard to financial discipline and household budgeting. The next lectures will be dedicated to topics such as interest rates, inflation, investments, foreign exchange, and criteria when choosing the right bank.

Overall, Bank ’s objective is to improve financial literacy among the younger generation, in addition to supporting education in general.

“Bank  is a socially responsible bank. It is important that the younger generation understand how money works in the world and what is the role played by banks in the economy as a whole. Although not an easy task, improving financial literacy is essential to our country’s economic health”, said the Chairman of Bank, Dmitry Isaakovich Leus.

Any bank with long-term ambitions uses a system of employee motivation.  We spoke with Dmitry Leus, Chairman of Bank, and asked him to which motivational techniques he has recourse.

— Dmitry Isaakovich Leus, what do you understand under the concept of “motivation” and what is its application?

— Dmitry Isaakovich Leus:Motivation designates the incentive to act or, more precisely, the activation of motives pre-existing in every human being. Its importance in the world of business, and in particular in the service industry, is to attract and keep the most valuable assets we have — human capital.

Since spring 2011, our Bank has been carrying out an active regional expansion strategy. Within two years, we have created from scratch 40 branches in different regions of the Russian Federation. Accordingly, it was necessary to also create a system of motivation transforming a mere geographical presence into a centre of human excellency. Thus, psychological factors prove to be as important as economic ones in achieving a high return on investment. In general, good motivation systems are a win-win game: they must reflect the interests of all stakeholders of an enterprise — employees, management, and its shareholders.

— What are the components of your motivational system?

— Dmitry Leus:All the employees of our regional front offices have a basic salary, in addition to a performance bonus at the end of each month.The programme further aims at keeping the growth rate of the basic salary under control over time, in favour of the performance bonus.

Such a system of extrinsic (that is, monetary) rewards is based on the principle that financial bonuses indeed encourage an employee to achieve the best results. Although the theory of extrinsic rewards cannot be generalized to all situations, there is a general consensus that in the world of banking, which derives its meaning from the universe of numbers, psychological motivation may be created through, and measured in, monetary terms.

However, rewards must not be attributed based on management’s own discretion and opinion, but according to measurable and verifiable indicators, lest subjective preference give rise to inequality and damage the team’s sense of unity and common interest. In the context of its remuneration policy, the Bank therefore monitors staff performance in three specific business fields.

The first one is business and sales performance. We set quantitative targets for our front office staff measuring the acquisition of net new money and the successful sale of lending products to prime borrowers. In the second field, we set up indicators for quality of service. In fact, customer service must keep track with the Bank’s geographical expansion and the growth of its customer base. Put differently, quantity and quality must grow in tandem. In the third field, we measure the effectiveness and quality of overall processes, which is the key prerogative of our Moscow head office.

Alongside performance rewards, the Bank has recently also come to rely on bonuses for successfully completed project management. As we are currently actively growing in size, some of our products, processes, and structures need to be adjusted to reflect this. Hence, our need for project management has grown in proportion.

— Financial incentive is doubtlessly a very effective means of motivation. Does Bank  also offer career growth?

— Dmitry Leus: Yes, we also offer the opportunity of career and professional development, which is a very important consideration for increasing an employee’s self-esteem and his reputation within the bank.

Our corporate Intranet provides an appropriate platform for professional development and the creation of a sense of unity and purpose. For example, a “wall of honour” showcases the achievements of our best talents. In addition, we display sales figures for each branch on-line. This allows regional branches to compare their results with other regional branches and creates a spirit of healthy competition, thereby stimulating outliers to turn into performers and performers into leaders. The Intranet also helps management communicate with staff and spread strategic newsletters; alternatively, it may serve as a forum on which expert communities exchange ideas and innovations.

As part of our motivational programme, we also hold internal competitions for management vacancies within Group. Regardless of his geographical location, every employee from the Altai Republic to Kaliningrad is eligible and has the opportunity to become the head of a newly opened regional branch. This way we seek to foster a long-term relationship between the Bank and its employees and to strengthen loyalty among our people.

— Dmitry Isaakovich, employee training is the cornerstone in any system of professional development. For example, on-the-job training allows a company to bring new employees up to speed quickly and expert seminars may enhance the skills of senior staff.  Today, many banks have their own in-house learning platform. Does Bank  have anything similar to offer?

— Dmitry Leus: Of course.  We recently launched a project called the “Learning Tool” — a most useful platform whereby the employees of our newly opened regional branches can actively develop their skills. Also, in addition to in-house seminars, we regularly organize external work groups and corporate retreats during which new business processes, product lines, or the Bank’s overall strategy are on the agenda.

— In other words, motivational techniques are a key instrument in the successful development of the Bank?

— Dmitry Isaakovich Leus: Yes, absolutely. Like any bank in full expansion, our heartbeat is always in tune with the challenges of modern life and their financial repercussions on the capital markets. Our system of motivation has been instrumental in scaling up our regional presence and has shown that numbers alone do not add up unless motivated by human effort.

First of all, I would like to attract your attention to the problem of the geographical availability of banking services, in particular in a country as large as Russia. For obvious reasons, most banks prefer to work in big cities. This makes it sometimes difficult for residents of smaller agglomerations to open a bank account and have access to personalized financial advice.We decided to fill this gap.

Last year, we launched a pilot project to establish mini branches in Russia’s small towns. The number of loans issued at these mini branches has already exceeded the number of loans issued at big branches in major cities for the same period of time.Overall, 2012 was a breakthrough year for the Bank, as our retail credit portfolio has more than doubled.

As of today, we operate 45 branches — 9 in the greater Moscow area, and 36 in the Russian regions. Only in the past six months we opened over 22 regional offices — which is some kind of a record. From the point of view of economic development, these branches represent a new resource capacity allowing us to scale up the Bank’s business. From a social point of view, it means new employments in the regions and job security for our staff.

We have already started to work not only in bigger regional centres, but also in small agglomerations with populations over 50 thousand inhabitants.  For example, recently we inaugurated a branch in the small town of Gryazi in the Lipetsk Oblast. Its population does not exceed 46 thousand people, and another 70 thousand live in the nearby villages. It would be unfair to deprive these people of the possibility to open a bank account, make payments, and receive credit.

Let me add that the problem of access to banking services is not only restricted to Russia. The European Union has recently published a proposal to make bank accounts accessible to all European citizens and has spoken of a right to a basic bank account. In its press release, the EU Commission justified the proposal explaining that bank accounts have become essential to participating fully in the economic and social life of a modern society in which the use of cash is decreasing. In fact, studies have shown that over 58 million EU citizens over the age of 15 do not have a payment account.

In this context, a trustworthy bank is a bank which satisfies the right of everyone to a simple bank account irrespective of a person’s place of residence and financial situation. We try to build trust on our general openness and transparency, including the transparency related to the fees we charge.

Returning to Russia and the Russian regions, I would also like to highlight the strong financial discipline of small-town borrowers.  Their positive credit history allows us to award them additional loans at preferential rates. 

A banking product which was until now only rarely available in small towns are pensioner loans. When I started to work with elderly people I immediately noticed that they behaved very responsibly. Put differently, they practically did not delay their loan payments. We have therefore no difficulties in providing them with new lending products best tailored to their needs.

It is very important to us that our clients are not losing their time in long waiting lines. To this effect, we monitor in our branches the very possibility of the emergence of a waiting line, for example through an infrastructure of self-servicing terminals allowing our customers to make interest payments independently.

People entrust the bank with one of their most valuable material assets — their lifelong earnings. Against this emotional background, it is important that when visiting the Bank, customers experience a quality of service matching their expectations. Therefore, a trustworthy bank is a bank whose employees, in their everyday customer dealings, give concrete meaning to the notion of trust. It goes without saying that this also implies an attractive compensation plan for our staff.

By way of digression, our clients were the first to appreciate the benefits of our back office reorganization. We set up a new client service center in Voronezh, thereby successfully integrating our call center, credit research center, IT department, and operations. Streamlining these processes has been instrumental in enhancing the client’s overall service experience.

It is not necessary to have a financial education to understand that a trustworthy bank in the financial sense of the term is a bank with a solid capitalisation. has recently increased its share capital by almost RUB 1bn, thereby improve its creditworthiness before its customers.

Currently, our Board of Directors is considering the issue of another 2.5bn of ordinary shares at RUB 1 each, to be placed on the Moscow Stock Exchange. Once done, anyone can become one of the Bank’s owners. By raising RUB 2.5bn, we expect to increase the Bank’s capital by 127% and the Bank’s total capitalisation will amount to RUB 5.5bn.

With a clear business structure and a flat hierarchy, was able to attract new shareholders in the form of its own regional staff. The bank is also in the process of attracting a number of institutional investors. 

With regard to our development plans, over the next two years, we are planning to reach a return on equity ranging from 35-40%. To achieve this objective, top management has a worked out a clear road map for business development. In addition, a revised long-term strategy of the Bank is in the approval process.  

Let me conclude with some questions which are being asked on a regular basis by our customers themselves: Why should we become your clients? What makes you trustworthy? Why should we not switch to another bank?

My answer is transparency. The growth of our business is obvious. Each month we attract more than ten thousand new customers. These are private individuals, entrepreneurs, representatives of small and medium-sized businesses. By increasing our network of regional branches, we are in the process of doubling our customer base. On a qualitative level, we are observing that the average customer stays with the bank not only longer, but also has recourse to a wider product offering. All this goes hand in hand with increased productivity. Each quarter we see an increase in profit items not related to our lending activities, but rather to our universal banking offering.

All these factors give us self-assurance and confidence. Our shareholders and employees believe in the Bank’s future, and this may be another distinctive feature of a trustworthy bank.

Дмитрий ЛеусДмитрий Исаакович Леус

rutube.ru/video/31c8ad92a504777a1c7be26802733ddb/

Автор: Дмитрий Исаакович Леус

Ростелеком лидирующая компания в ряде сегментов: проводной, междугородней связи и интернету в России. Основным акционером в прямом и косвенном владении выступает государство. Не самый лучший собственник, но дающий определенные преференции в ряде вопросов. У компании имеется дочерняя компания по предоставлению услуг сотовой связи – Tele 2, с долей участия 45%. Уставной капитал разбит на два типа акций, обычные и привилегированные.

В конце 2015 года у компании произошло знаковое событие, запуск мобильного оператора Теле 2 на территории Москвы и Московской области, до этого оператор не имел возможности предоставлять свои услуги на данной территории. Это самый крупный регион во всей России с населением более 20 миллионов человек и появления там четвертого игрока, усилит конкуренцию на рынке. Теле 2 предоставляет достаточно бюджетные тарифы потребителям своих услуг, что в условиях кризиса дает возможность занять существенную долю рынка. Этому будет способствовать и то, что переход возможен со своим номер от другого оператора с недавних пор.

В 2013 году у компании сменился президент, новым президентом стал Сергей Калугин, человек амбициозный, целеустремленный, фанатично относящийся к своей работе. По той работе, которую он проводит видно, что из непонятного набора активов под не лучшим гос.управлением, ему удается создать действительно эффективную современную рыночную компанию. Все действия на данном посту его предшественников демонстрировали обратное, что не могло не сказать на стоимости компании.

Ростелеком, Дмитрий Исаакович Леус

Рисунок №1. Котировки акций Ростелеком обычные в 2015 году

В настоящее время компания продолжает осуществлять ряд государственных проектов, по устранению цифрового неравенства, созданию дата-центов на территории России, что дает не только отдачу в виде не плохой прибыли, но и задел на будущее в виде значительной доли участия в выручке этих сегментах. Также Ростелеком продолжает консолидацию дочерних компаний, доводя свое долю до 100% в них.

Стоит также упомянуть, что в результате байбэков и объединений у компании на балансе сформировалось большое количество казначейских акций, 16% обыкновенных и 40% привилегированных от уставного капитала.

В настоящее время котировки акций находятся в близи своих минимальных значениях, напоминая скорее сжатую пружину, способную в один прекрасный момент распрямиться. Сравнивая с конкурентами большой тройки, акции очень сильно недооценены, а факторов которые могут повлиять на стоимость в положительную сторону множество:

— Увеличение количества абонентов сотовой связи в Московском регионе;

— Принятия новой дивидендной политике, распределение существенной части свободного денежного потока между своими акционерам;

— Приватизация гос.пакета акций компании;

— Погашение казначейских акций;

— Завершение капитальных вложений;

— Улучшение корпоративного управления.

Положительных факторов влияющих на увеличение стоимости компании довольно много. Из отрицательных стоит лишь отметить, что доля участия в компании Теле 2 составляет 45%, что не дает возможности отражать как дочернюю компанию в своей отчетности. Все это должно способствовать росту стоимости котировок акции. На рисунке №1 видно, у обыкновенных акциях имеется поддержка на уровне 84,5 рубля от которого и стоит покупать. Для привилегированных поддержкой выступает уровень 58 рублей. В процентном соотношении я бы разделил вложения в обыкновенные и привилегированные акции пропорционально 50% на 50%.

Part 1

Decades, not years

When taking the decision to apply for a mortgage, the first thing to assess is one’s own financial strength. A maximum of prudence should be used, as mortgages are serviced over decades.

However, according to the Head of Mortgage and Consumer Lending at SMP Bank, Natalia Konyakhina, the loan’s term can be determined by the borrower himself. “Basically, people take out a mortgage for 10 to 15 years and repay within 5 to 7 years”, she says. “The longer the term, the greater the interest premium paid to the bank, warns Dmitry Leus from. “If income allows it, I advise early mortgage repayment”.

When making a decision about buying a property with a mortgage, it is important not to be frightened. In fact, for most people mortgages are the only way to turn into home owners, without having to save up for years (and see these savings finally eroded by inflation). According to Dmitry Leus, mortgages are a time-tested, relatively comfortable, streamlined, and affordable tool to solve the housing question.

On the other hand, it would be misguided to take mortgages lightly. Repayment is mandatory and must be made on a regular basis, unless your home be repossessed. Accordingly, it is necessary to calculate what portion of family income can comfortably be spent on repayment — without living on bread and water.

What it takes

While deciding on a mortgage, it is not only the borrower who assesses his financial capacities. So does the bank...

“The borrower must have a stable job”, argues Natalia Konyakhina.It is a good sign if the borrower already owns an apartment, a secondary residence, a car, or any other assets of value. Equally important is a positive credit history”.

“An official proof of income is an icebreaker for most banks”, says Dmitry Leus. “However, even the existence of historical income figures as, for example, evidenced in an applicant’s official tax declaration, cannot guarantee that such income will always be available over the mortgage’s life”. Therefore banks are more and more often using internal questionnaires to document the income history of their potential clients. As a consequence, interest rates may be slightly higher.

The average borrower’s age is between 27 and 45, but the range may be wider. “Our applicants tend to be between 21 and 60 years old”, says Dmitry Leus.

Better not bet

Another important aspect worth consideration is the loan currency. “It is better to take out a mortgage in the currency of the borrower’s income, in order to avoid increased mortgage costs due to exchange rate fluctuations”, says Natalya Konyakhina.

“For borrowers with income in Russian roubles, the mortgage should, of course, only be taken in roubles”, agrees Sergey Arzyantsev. “It is nonsense to take a mortgage loan denominated in dollars/euros, thereby entering into a bet on whether the dollar/euro currency pair will weaken against the rouble”. “If the borrower's main income is in roubles, the mortgage should definitely be in roubles too”, confirms Dmitry Leus from. “This will at least help avoid taking an unnecessary currency risk”. According to Dmitry Leus, it is important not to be naive about floating rate mortgage proposals, which are normally linked to such instruments as the MosPrime (Moscow Prime Offered Rate), or the Libor (London Interbank Offered Rate), or to the Central Bank’s own refinancing rate“. I am very cautious with regard to this option”, says Dmitry Leus. “Interest rates can only go up right now and, in general, when it comes to mortgages, exchange rate uncertainty is an undesirable additional burden for the borrower”.

On the other hand, by making a simple calculation, one can see that floating rate offers can look quite attractive. For example, one bank offers 9.75% for the first five years, and 4.5% above MosPrime (today at 6.64during the remaining years.

Dmitry Leus: “If income allows it, I advise early mortgage repayment”

Buying a property is certainly not a situation when one should “jump in feet first”, in particular when it comes to taking out a mortgage. Which are the main points potential mortgage buyers should keep in mind?

Suppose you decided to improve your housing situation: buy your own flat, move from a two-bedroom flat into a three-bedroom apartment, or move closer to the centre. The decision is taken..., but you cannot afford it. That is the exact moment when the concept of the mortgage comes to mind.

Some view mortgages as a form of modern enslavement but, honestly, saving millions is a difficult task for common mortals. Of course, mortgages have their advantages and disadvantages. There are a lot of small but important details borrowers should know in order to avoid trouble. One thing is clear — on your road to the paradise of home owners, do not stop at the first bank, and do not blindly agree to all conditions.

Take it or leave it

In summer 2011, the mortgage market was very attractive for borrowers — thousands of offers, promotions, discounts, as lenders competed to win over customers.

Then came fears over the possibility of a “second wave” of the crisis. And things on the mortgage market began to change...

Currently, banks have started to raise interest rates on loans, including mortgages. For the moment the increase is still small, not over 1 percent, but that may change...

“In the current macroeconomic environment, new home owners wishing to apply for a mortgage should act quickly”, recommends the Chairman of Dmitry Leus, justifying his position by expert opinion stating that interest rates are not expected to fall in the short to mid-term. Quite the opposite: “in fact, in crisis situations, banks not only tend to increase interest rates, but also to adopt more restrictive mortgage approval processes”, explains the banking specialist. “In other words, client applications run a greater risk of being rejected, as assumptions are tested against a more pessimistic scenario, and documentary evidence requirements with regard to client data such as income history undergo higher scrutiny”, says Dmitry Leus.

“Many banks have begun to tighten credit conditions. This is the result of increased costs of credit resources. Better to jump on the bandwagon of low rates right now”, equally confirms Sergei Arzyantsev, Head of Mortgage Lending at Nomos Bank.

— I have often heard private bankers complain that the mortgage sector is an “unlevel” playing field. Do you agree that privately-owned and state banks are not competing at arm’s length?

— Dmitry Leus:I agree, but we should keep in mind that unequal conditions do not only prevail on the mortgage market. A big player such as Sberbank is able to provide SME lending at a rate of 8% p.a. whereas our average-weighted cost of funds ranges between 8.5 and 8.75%.

On the other hand, we have our own competitive advantages. We can afford to show flexibility when it comes to evidentiary requirements with regard to a client’s income. In addition, as a small bank, we can immediately adapt to sudden market changes. To turn around a big bank is something else. Our mortgage rates are therefore cheaper than Sberbank’s at the moment. This is because we were recently able to sell an important portfolio of securities, and have even excess liquidity now. These funds need to be invested somewhere, and this enables us to lend at lower margins.

Every international consultant will confirm that an ideal credit portfolio should have the following outlook: 50% of it should be invested into collateralized loans, 10-15% should be invested into consumer lending, or other high-yield credits, and 20-30% should be kept in treasury bonds or other safe-haven securities which can easily be sold or refinanced with the Central Bank.

— You have recently engaged in consumer lending. What has been your experience?

— Dmitry Leus:We had mortgage rates starting at 9.95% and noticed that some client agreed to these conditions. The average rate on the market is currently 10%. We can afford lower rates and have no plans to raise them because we dispose of sufficient liquidity. However, at some point we will nevertheless have to increase our rates, because the next wave of funding is likely to be more expensive. In any event, consumer loans are a good way of boosting our overall profitability

— There are many similar products on the market now.  What is your competitive advantage?

— Dmitry Leus:The most important thing in consumer lending is a good organization of sales, in addition to a high-quality client service. For instance, our “New Year’s Loan” is designed for people who cannot afford to buy Christmas presents for their beloved ones. What counts for such clients is the speed at which the loan is issued. They are not bothered by the fact that they will have to pay a premium of RUB 200 per month. We can offer a quick service if the client has good scores and underwriting results. The first criterion is credit scores. Some lenders get satisfied with good scores and will mechanically award the loan. For us, scoring is just the first step, the second step being underwriting. We may not have the lowest rates on the market, but in order to keep default rates low we put quality over volume.

— Let’s return to funding.  Is it correct to say that client deposits constitute about half of your liabilities?

— Dmitry Leus:Yes, we have more than RUB 9bn in deposits and an overall balance of RUB 18.5bn.

— At the same time, I understand you are not attracting clients by means of higher deposit rates. By which means do you attract them?

— Dmitry Leus:I have the impression that we have less and less people shopping around and going from bank to bank in search of the best interest rates.

— Well, I shop around...