VTB and Russian Post go large on retail

Dmitry Rudenko,  Post Bank

A new bank created by VTB in partnership with Russia’s postal service will have 20 million customers by 2023 and rank in the top 20 in the country by assets, according to its chairman. 

Dmitry Rudenko, in an exclusive interview with Euromoney, says Post Bank will improve banking penetration in Russia. “It will solve the problem of accessibility to financial services across the whole of Russia, including its most remote corners,” he says. 

For the Russian government, creating a bank within the post office is a “socially significant task,” says Rudenko. “This is an opportunity to attract funds that the population keeps in cash into the national economy, as well as improving financial literacy,” he says. 

Post Bank, which is due to begin operations during March, will be based on VTB’s loss-making mass-market retail brand, Leto Bank. VTB will own 50% plus one share of the new lender, with the remainder owned by Russian Post. 

The bank will provide a full range of retail services with the exception of mortgages and will offer opportunities to promote products from other VTB subsidiaries such as insurance and pension funds, says Rudenko.

The first outlets will open in Russian Post branches in Moscow, Volgograd and Penza in March, and by the end of the year Post Bank will be present in 3,500 post offices across Russia. By 2024, the bank plans to have offices in 15,000 locations and to provide basic financial services throughout Russian Post’s 42,000-branch network. 

That will give Post Bank an even wider reach than Sberbank, Russia’s biggest retail lender, which has 16,342 branches. Rudenko said this would give the bank a unique advantage. “Everyone in Russia visits the post office at least once a year – to pay a fine, to collect a letter from the tax office, to send or receive a parcel,” he says. 

Rudenko added that a key market for the new bank will be pensioners, traditionally among the most regular users of Russian Post branches. “In eight to 10 years, the proportion of pensioners in Post Bank’s customer base should reach 30%,” he says. “Special financing solutions will be developed for this category.”

Younger customers will also be targeted with products such as student loans. In addition, Post Bank is promising to develop modern mobile and online banking platforms.

By 2024, the bank expects to have assets of R600 billion ($7.9 billion) and be making an annual profit of R20 billion, according to Rudenko. “We would like to become one of the first three banks that customers would consider,” he says.

Post Bank is the latest attempt to establish a bank within Russian Post. The idea was first mooted 15 years ago but previous projects failed to materialize. Rudenko says the main driver for the creation of Post Bank was the appointment in 2013 of a new management team at Russian Post, headed by general director Dmitry Strashnov. 

The change of management was part of a wider reorganization of Russian Post to improve service and inefficiency. Rudenko says part of the rationale for the establishment of Post Bank was to provide “the sustainable income needed for the implementation of post office reform”. VTB is due to transfer R60 billion to Russian Post over the next six years. 

Reactions to Post Bank’s launch are mixed. Some analysts note that the bank will have to contend with still-high levels of mistrust of the postal service among Russian consumers. “Russian Post is a huge and slow beast, which in my own life I try to avoid whenever possible,” says one. “This makes me quite sceptical towards the project.”

Olga Naydenova, a bank analyst at BCS Financial Group in Moscow, agrees that the Russian Post brand is “not strong” but notes that the company does have “meaningful assets”. 

She says “They have a huge branch network that they maintain anyway, so maybe it could provide good access to a new client base,”

Counter-intuitively, she adds that the initiative could work to the advantage of Sberbank. “It will create some competition in remote areas and individual segments,” she says. “However, it might also allow Sberbank to close some inefficient branches that it had previously been forced to keep open.”

Sberbank itself seems unfazed by the creation of Post Bank. A bank representative says Russian Post’s branch network is unlikely to prove a competitive advantage, noting that Sberbank already has branches almost everywhere it wants them. 

He adds that the bank does not expect Post Bank to be a serious competitor in the near future, pointing out that Sberbank has already spent five years and billions of roubles on modernizing its branch network and creating up-to-date digital platforms. 

Some analysts also question the wisdom of founding a new retail bank in Russia at a time of rising unemployment and falling disposable incomes. Rudenko, however, insists that the timing of Post Bank’s launch is an advantage. 

“I believe now is a good time to create a bank,” he says. “It is best to start a new business during a crisis – the resources are cheaper, the market is more open, there are new challenges, and economic difficulties stimulate the search for new solutions.”