A new Russian bank, European-Russian Bank (ERB), has opened in the Czech Republic. It is the first Russian bank to win a banking licence to operate within the European Union. The bank’s key focus is on trade finance, focusing on the growing trade flows between Russia and the Czech Republic. Bank chairman Roman Popov speaks to Rebecca Spong about the challenges of breaking into Europe and his ambitions for the bank.
It took five long years for Popov to secure a banking licence to open a Russian bank within the boundaries of the EU, in the Czech Republic.
Indeed, when the concept of establishing European-Russian Bank (ERB) was first aired, the Czech Republic was not even a member of the EU, whereas by 2009 the country took hold of the presidency of the union.
The country’s accession to the EU was just one of the various challenges faced by those behind the European-Russian Bank in getting the necessary legislation in place to secure a banking licence.
The other obvious obstacle is that the bank is opening up for business when so many are closing up shop. Not only that, the bank has to contend with the rather dented image of the Russian banking sector.
However, on April 7, the bank officially opened its headquarters in Prague, and Roman Popov, chairman of the new bank, is upbeat about the bank’s potential. “Even taking into consideration the crisis, our bank’s strategy has not changed, international trade is likely to survive and trade finance is well placed as exporters look to find new markets,” he says.
And Popov has set himself some tough goals. Not only does he want to break into the European trade finance market, but he also aims to improve the image of Russian banks.
“There is some kind of prejudice in the market against Russia and this is what we are trying to change,” he remarks.
The roots of the bank
Targeting the trade finance market as a priority, the bank will initially be looking to support Czech-Russian trade flows. Although the volumes are not huge, trade flows between the two nations have been growing fairly rapidly. The bank will be able to offer cash, credit and foreign exchange transactions in US dollars and Russian roubles, and will ultimately be looking at financing trade flows between a broader Eastern European region and Russia.
The new bank is a subsidiary of the First Czech-Russian Bank (FCRB), registered in Moscow, set up in the mid 1990s to support trade and investment between Russia and Eastern Europe.
FCRB was initially established as a Czech-Russian joint venture, with the state-owned Czech Investment and Post Bank taking a stake in the Moscow-registered bank.
However in 2000, KBC’s Czech subsidiary CSOB acquired the assets and liabilities of Czech Investment and Post Bank, but declined to buy the Russian First Czech-Russian Bank. This left the Czech government looking for another partner in Russia, and they found one in the Russian company Stroytransgaz, the major engineering and construction company, and key supplier of oil pipeline equipment to Gazprom.
Stroytransgaz then entered into a five-year agreement with the Czech government, with the aim of building up the bank’s capacity before selling it.
This is where Popov comes in. In the early 1990s, he was the CFO of Stroytransgaz, but then took up the role of chief executive of FCRB.
During this time, the bank’s key activities were servicing businesses between the Czech Republic and Russia, supporting those businesses involved with Stroytransgaz, and aiding Russian business unconnected to the Czech Republic or Stroytransgaz.
By the time the five years were drawing to a close, Popov decided to sell his shares in Stroytransgaz and use the funds to become the majority shareholder of FCRB. The bank is now 100% privately owned, with Popov holding a stake of just over 75%.
“It was during these five years that the Czech-Russian trade business really became the priority business of FCRB. At some stage it became clear it would be beneficial to open a bank in Prague,” explains Popov.
“We didn’t see much Russian competition in the Czech Republic,” he adds.
He elaborates that the bank also wields some advantages over the competing banks in the Czech banking sector, the majority of which are owned by foreign banks.
“We have a good understanding of Russian risks and the mentality of Russian clients. Russia has a very different business environment and way of doing business compared to the west,” Popov explains.
Changing foreign perceptions of Russian banks is something Popov is particularly keen on, insisting the bank is not just out to make fast cash but cement long-term business and cultural links between Russia and the Czech Republic.
“We strongly believe in communication. Russian banks are not known for their transparency, but this bank aims to change this.”
The bank had originally opted for a different name without any references to Russia, but in light of this desire for transparency, it was decided that the bank’s Russian roots needed to be very clearly demonstrated.
Popov explains that although trade might be improving between Russia and Eastern Europe, public relations are not. “Russia still doesn’t have a good image, although it is debatable whether this is always justified.”
Under Popov’s guidance, the bank hopes to improve cultural ties between Russia and the Czech Republic through organising debates and cultural events as a means of encouraging stronger business relations. As an example of this, at the bank’s opening, renowned professor Sergey Kapitza was invited to give a talk on the current economic crisis in light of demographical changes, with local university students invited to attend and participate in the debate.
Popov is adamant that in a post-crisis financial world, banks certainly need to change their attitude towards conducting business. The bank is on the outlook for partners to buy into the bank at some point in the future, but how much money that partner can bring is not the only concern for Popov.
“We are really after someone who shares the same philosophy, we don’t want someone who just injects capital and leaves,” he says.
The bank is also hoping to announce the appointment of experienced trade finance bankers to head up operations in the near future.
The bank is well-capitalised but in terms of seeking additional financing capability, the syndications market is a potential option, once the markets revive, says Popov. Despite the lack of activity in this market presently, he argues that “the syndications market will stay alive”.
“Of course, at the same time, we are realistic about the challenges of the crisis – banks are not as easy to work with and are not participating in deals as easily as before,” Popov remarks, tempering some of his earlier enthusiasm.
The bank is also forging strong links between itself and the Czech Export Bank and it is likely the two will be working closely on trade deals in the coming months.