Sampo Bank plans to expand operations to Russia

Finnish bank interested in serving prosperous middle class

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Sampo Bank, a part of Sampo Group, announced on Wednesday that it is planning to expand its operations to Russia. Sampo says that it wants to buy a Russian bank, and hopes to close the deal by next spring. Operations would begin by the end of 2006.
      Mika Ihamuotila, head of banking operations at the Sampo Group, said that Sampo has been examining the Russian market for some time now.
      He admits that there are risks involved in doing business in Russia, but he sees a greater risk in the possibility that the "train to Russia" might leave without Sampo being on it.
     
Sampo hopes to get a banking licence in Russia by buying a small Russian bank. There are plenty of to choose from; Russia has a total of 1,200 different banks. The largest, Sberbank, controls about 60% of the market.
      "New we are involved in searching for and evaluating possible targets for purchase", Ihamuotila said.
      He says that the number of banks in Russia is certain to decline sharply in the coming years, as solvency requirements become more stringent.
      Ihamuotila would not say where in Russia Sampo plans to settle. However, it is considered likely that the focus will initially be on Moscow, and possibly St. Petersburg as well, as is the case with other Western banks.
     
Sampo already operates in the Baltic States, where it bought out a number of small banks. Now Sampo has more than ten branch offices in Estonia, and in Lithuania, where it is the country's fourth largest bank.
      Another option would be for Sampo to start from scratch on its own. However, in such a case, it would take four years before Sampo could offer services to private clients. Under Russian legislation, new banks must first operate for two years offering services only to companies.
      Ihamuotila says that in any case, it will be years before Sampo's operations in Russia are "significant".
      Many Western banks operating in Moscow focus mainly on serving foreign businesses. According to Ihamuotila, Sampo is already setting up services for Finnish companies operating in Russia.
      However, Sampo would also like to serve Russian households. Ihamuotila notes that the middle class in Russia is growing rapidly and becoming more prosperous, and that banking legislation is also getting up to speed.
     
"Faith in banking has been weak in Russia because many people lost money in the banking crises of the 1990s. However, on the first of May last year a new law on the protection of deposits was passed, and people no longer need to keep their savings hidden in a sock", Ihamuotila explained on Wednesday.
      Another factor promoting the banking business in Russia is that the administration of President Vladimir Putin takes a positive view of home ownership.
      Currently Russia does not have a functioning system of housing loans. Most loans are taken in dollars or euros, and interest rates are between 11 and 12 percent. 


Links:
  Sampo press release 5.10.2005: Sampo Bank is planning to start banking operations in Russia

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