Private banking is becoming one of the most attractive sectors of Russia's banking industry today. Though its client base is much narrower than that of retail banking, private banking promises fabulous profits to the lending organizations developing the Russian market, which is currently growing by 30 percent to 50 percent a year. This indicator looks especially impressive when compared with the situation in developed countries, where the sector grows by a mere 2 percent to 5 percent a year.
Here are some figures that should create a broader picture of the situation. According to data from Merrill Lynch and Capgemini, a consulting company and global leader in consulting and other services, the number of millionaires—in U.S. dollars—in Russia increased from 88,000 in 2004 to more than 100,000 in 2005; that is, by more than 12,000 in one year. Considering the high price of oil, the number is bound to increase just as much this year. In terms of the pace at which it is building million-dollar fortunes, Russia is second only to South Korea, leaving the European Union countries and the United States far behind. According to 2005 year-end results, the number of millionaires—again, in U.S. dollar—in those two areas increased by only 4.5 percent and 6.8 percent, respectively.
It is no wonder, then, that foreign banks are so eager to develop the private banking market in Russia. Early this year, Deutsche Bank announced its decision to set up a "family office" for Russian millionaires. Credit Suisse Private Banking and HSBC Private Banking Holdings (Suisse), the two leading banking groups specializing in services for the wealthiest people on Earth, have opened offices in Russia. Citibank is actively catering to Russians capable of paying the "admission fee" to the millionaires club. The Swiss financial group UBS has followed suit, and the American bank JP Morgan (according to unverified information) may soon enter the Russian private banking market.
Experts say there are two factors contributing to foreign banks' success in Russia: the "natural growth" in the number of millionaires and billionaires in the country, and the comparative passivity of domestic banks (primarily, Sberbank and Vneshtorgbank, the two largest players on the banking services market). Analysts say that Sberbank is deliberately refraining from developing private banking because it portrays itself as a "people's bank." Unlike Sberbank, Vneshtorgbank does not rule out the possibility that it may become a major player on this market, though it has not been overly active thus far. Therefore, aside from foreign banks, the most conspicuous firms on the private banking market are smaller Russian lending organizations like Gazprombank, Alfa Bank, Petrocommerz Bank, and Zenit Bank.
Experts believe that, with the growth of the Russian economy, competition will intensify between Russian and foreign banks for the right to manage Russian millionaires' capital. However, in the foreseeable future, they will compete not so much for Moscow millionaires' capital as they will for the assets of regional millionaires who demand first-class services.
Still, analysts believe that changes can be expected not only in the regional character of the market, but also in the mix of market players and the dynamics of the demand for various products and services traditionally offered by the private sector. Experts at Petrocommerz Bank say that allied services (for instance, providing legal advice on estate planning, matrimonial disputes and the protection of capital) will gain in importance for VIP clients.
By Anatoly Gorev