One bank has weathered the 1998 crisis that wiped out many of its competitors In Russia, suspicion invariably follows any business that prospers. Alfa-Bank is no exception, having survived the destruction of most of the financial sector in the 1998 crisis and gone on to be one of the most successful private banks in Russia.
The bank has, in the past year, invested millions of dollars in hiring top quality staff and technology, boosted its capital base, developed its branch network and broadened its range of services. Its long-term plans include raising money on the international markets and forming a strategic alliance with a western partner to underpin its ambition to become the country's leading bank.
Even the fact it has repaid a $175m (EURO187.3m) Eurobond, which came due at the end of July, failed to silence the sceptics. They say that Alfa-Bank was only able to do so by borrowing from other parts of the group and that it has a bigger exposure to its parent group in terms of guarantees than is revealed in its balance sheet. But chief executive Alex Knaster insists the bank is separate from the rest of the finance and industrial group (FIG). 'Most banks that folded did so because they were not run on a stand-alone basis. At Alfa all the businesses are run independently — loans to group companies are less than 5%. Not a single shareholder is on our credit committee.' This is accepted by Moscow bankers who say Alfa delegates more responsibilities to individual groups than other FIGs. A further problem for Alfa is that the parlous state of the sector makes it much harder for any individual bank to win international acceptance. As Knaster admits: 'The banking system is completely dysfunctional. Outside the top 50 banks, the average asset base of the remaining 1,350 is $15m which means they operate effectively only as treasuries for their companies.' Yet, some analysts are uneasy. 'It is known as the BTA (Been To America) bank, because it is always going on about how its senior managers are American-trained, English-speaking Russians,' says one. According to another: 'Alfa survived the 1998 crisis through a combination of good luck, good timing and good public relations. Right now it is doing very well on good PR. If you have an environment where nobody trusts the banks and you create a better impression than the others, you are likely to do well.' However, it did attract controversy last year when part of the group, Tyumen Oil, won a bankruptcy auction for control over Chernogorneft. This is the main subsidiary of the oil giant Sidanko, in which BP Amoco had paid $500m for a 10% stake. BP and others complained that the $178m price was too low. Alfa defended its tactics as rough but within the law. Despite these difficulties, the analysts are starting to be impressed by the bank's results. Fitch IBCA Duff and Phelps has upgraded Alfa's long-term rating to CCC from CCC- and are putting its individual rating of D/E on rating watch positive. Alfa has been one of Russia's strongest banks since the 1998 crisis that swept away much of its competition. The bank attributes its survival then to its conservative approach. It had a much lower exposure than many competitors to the state treasury bills (GKOs) and forward dollar contracts that allowed these rouble-denominated bills to be converted into dollars. Where many banks defaulted on their international obligations after the 1998 devaluation, Alfa has been able to arrange ways of paying off its creditors. Since then, Alfa-Bank, which, by the end of 1999 had a $233m equity capitalisation and $1.35m in assets, has performed better than most Russian banks and insists its record is good by international standards. 'What frustrates me is that we have a good organisation and our return on equity is 40%, which is as high as any western bank,' says Knaster, an American-born Russian who used to work for Credit Suisse First Boston. The strategy since the crash has been to increase market share and diversify the range of services to its customers, of which more than 80% are corporate. 'There is considerable volatility between the performance of different sectors and the only defence is diversification — we want to be a leader in all the sectors. So we do retail and investment banking and asset management. We are also starting an insurance business,' says Knaster. Backed by a $42m loan from the Agency for Restructuring Credit Organisations (Arco), Alfa has been building up its branch network, which now totals 58 and will rise to 70 by the end of the year. 'Only the state banks are larger and we are in the top four by almost every measure,' says Knaster. The bank has invested in hiring western-trained senior managers and spent $25m on revamping its information technology, where the extent of its commitment is shown by a staff increase to 180 from 50. The biggest block to further rapid expansion is the lack of an asset base, a problem that the bank hopes to rectify eventually through a strategic alliance with a western partner. First though, it will try to raise money through a $50m to $100m syndicated loan in the last quarter of the year and a $200m Eurobond in the first half of 2001 — though the latter will depend on pricing. With such an alliance, perhaps Alfa will finally inspire trust.