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9 Jan, 2008 06:44

Russian banks hit the big time

Russia's underdeveloped private banking sector has grown dramatically in the past 12 months. More than a hundred thousand Russians are worth more than a million dollars, and a growing number want their fortunes managed.

Global private banking assets topped $US 7.5 trillion in 2007 – up more than 120% on the previous year.  The figures follow research on the wealth management industry, released by Euromoney magazine.

To put that amount in context, it's the combined GDP of Germany, France and the United Kingdom. As well as more than one and a half times the entire market capitalization of all the companies listed on the London Stock Exchange.

And the banks managing all this private wealth are of course making money themselves. Net income growth for the private banking industry grew by around 44% last year – with China taking the top spot as the country with the fastest-growing market.

Ticket to ride

Amidst this world-wide boom, Russia has emerged as the fourth fastest-growing private banking market in the world. And domestic banks are ready to give the foreign giants who dominate the sector a run for their money.

More than a hundred thousand Russians are now worth more than a million dollars. And people with that kind of money usually want someone to manage it for them.

So, the management of Russian cash inevitably scored well in Euro Money's latest survey of the industry.

Private banking net income is up 88%, which shows that Russian assets under management are growing in profitability. Russians are getting richer and there are more rich Russians.

But Russia's private banking sector remains underdeveloped – presenting a golden opportunity for the global big boys, such as UBS, JP Morgan and Credit Suisse – who've all expanded their operations in Russia over the past year.

However, the richest Russians don't necessarily want to have a Russian bank branch. If you have a lot of money, perhaps you want the security of a foreign bank, or perhaps you just like the brand name.

But domestic players, like Troika Dialog, Uralsib and Sobinbank – are also building up their private banking operations.

And Troika’s vice-president Vagan Amichba – for one – believes the balance is set to start shifting – and soon.

“I think there's going to be quite a lot of consolidation activity in this sector in the nearest future. Then we'll see about five or six major players – both foreign and domestic – that'll compete with each other,” Amichba told RT.

Russia's private banks may lag behind their foreign rivals in experience and global reputation. But in one of the world's fastest-growing economies with all those millionaires they say there's more then enough money to go round.