Alfa-Bank: doorway to Eastern Europe

Transaction banking is a key area of growth in Russia and across Eastern Europe, and international banks are looking for local partners that can bring them into growing economies. Future Banking speaks to John Traynor, Michael Lawrence and Dmitry Minaev of Alfa-Bank, Russia's largest privately owned bank, about what is needed to build services in the region.

The promise of growing opportunity in Russia and other economies in central and Eastern Europe is drawing the attention of many international financial institutions, which are looking to find partner banks through which they can build service capability for their clients. In a region where many of the largest banks are state owned and the majority of financial institutions are small or regional, some privately owned local banks sense a big opportunity.

For those banks, the emphasis is on building services of a quality and scale that can meet the needs of large domestic clients, multinational corporations and international financial institutions. For this reason, some have targeted transaction banking as a key area of service capability and have built up not only the expertise but also the systems to attain the required standards.

"Transaction banking for SMEs, mid-market businesses and corporations is at our core, and we are expanding our plans to provide financial institutions with correspondent banking," says John Traynor, head of transaction banking at Alfa-Bank. "This is a big area of growth. We have become a good partner for international banks doing business in Russia and have built up relationships with many domestic banks in the CIS [Commonwealth of Independent States] region with which we are expanding our network."

Robust product suite

Headquartered in Moscow, Alfa Banking Group maintains its position as the biggest Russian private bank in terms of total assets, equity, customer accounts and loan portfolio. At the end of 2012, it boasted more than 82,000 corporate customers and 8.9 million retail clients.

"We have a very robust suite of products that is equal to or better than that of our competitors, including mobile banking services," notes Traynor, "and through those products we have built relationships with international banks, which also appreciate our focus on regulatory and compliance issues. Now, we want to expand our relationships with regional banks."

Alongside its product range and commitment to operating at the standards expected by international banks, Alfa-Bank has also built its standing on transparency.

"A very important point for international banks to know is that we recognise banking as a personal business," says managing director of international and trade finance Dmitry Minaev. "A crucial issue is that we don't promise more than we can do, even though international banks expect a lot. We have to be transparent and we have shown that we can be. This business is all about trust.

Compliance, compliance, compliance

When it comes to regulatory compliance, Traynor is aware that the target is always moving, which makes the task for banks harder, but he also believes that this is no excuse for failing to keep up.

"Compliance with, for instance, the new capital adequacy rules in Basel II and Basel III is very important," he says. "That's why we have a dedicated team to focus on the implications of those rules. We must ensure that every transaction banking product we have is fully compliant and that we always have our capital requirements in mind. This focus is one of our biggest strengths."

These ingredients have positioned Alfa-Bank as a trusted and reliable partner bank at a time when their partner international banks want to access markets with huge potential, such as Russia, but are hesitant about making the necessary investment to build a presence on the ground. Alfa-Bank provides an inroad not only into Russia, but also into neighbouring economies such as Ukraine and Belarus, where it has banking operations that operate under their own management.

"Compliance, standards, market knowledge and a broad range of products represent our core competencies," remarks Michael Lawrence, Alfa-Bank's head of treasury. "We are a full-service provider of transaction banking products, and we want to be a payments services provider for our correspondent banks and corporate clients. We offer 100% straight-through processing of payments and have invested heavily in the payments-processing technology that is critical to corporates and financial institutions.

"A lot changed after 2008, but corporates always need to process payments, so we have focused on becoming the payments bank - and we have achieved that," he adds.

Customer-centric trade finance

One area in which services will increasingly be required across Russia and the CIS is trade finance. As trade flows grow and become more diverse for many countries in the region, this will be an area in which banks can differentiate themselves, especially if they are working in partnership with international banks.

For Alfa-Bank, this is also an area that typifies its approach to building new service capability, which is to start with the needs of the customer.

"Every bank is trying to work out what customers want, which means getting to know customers better; that is why it is important not to offer just a single trade finance product," says Minaev. "Trade finance could be anything from letters of credit to factoring, so we have to give customers whatever they need to optimise their cash flow. We try not to 'sell' trade finance products but instead, as service providers, find the right solution to meet our customers' needs."

"We have a customer-centric view of services because a bank can't be just a vendor," agrees Traynor. "It is about customer relationships, partnerships and value-added services. In 2013, we instituted a client advisory board to meet with the CFOs and CEOs of key clients to talk about the right mix of products. Customers tell us what they need and we'll deliver it."

Through its relationships with customer and international banks, Alfa-Bank is able to overcome the biggest challenge in the trade finance arena: gathering the right experience in each product team to ensure the right speed and quality of execution.

"Our competitive advantage is our focus on relationships and quality, and our attention to the needs of all parties involved in a transaction," notes Minaev. "We are a good counterparty for banks and corporates. We are also aware that trade finance means not only cross-border deals, but also intra-Russian deals. Russia has a lot of machinery production and domestic consumption, so we have to be able to deliver on both kinds of deal."

Investing in the future

Alfa-Bank clearly has a long-term strategy in place reflecting not only the needs of domestic clients, but also those of international banks and corporates.

"We have invested a lot of time on the technology side to make our operations more efficient," Traynor remarks. "If you get transaction banking right then business grows, unit costs go down and profits increase. So we need scale to make profit, and that is our goal at a time when some banks are leaving the market for transaction banking."

The bank is also fully embracing one of the biggest challenges in the industry at the moment: big data. Recognising the value a bank can derive from customer data, it is committed to developing new services in this area.

"We have spent a lot of time looking at feedback from clients, particularly in the rapidly growing SME sector in Russia, and we are finding that they increasingly ask us to manage their data on the accounts-receivable side," explains Traynor. "It is data that we already have and they want us to manage it for them, which means that they trust us as a bank. For us, it represents a significant opportunity to offer services around financial data.

"We have a passion for what we do. Our CEO is committed to our drive to develop new capabilities that meet the needs of our customers. That is why we have better capability than any of our rivals," he concludes.