Far Eastern Banks Use Advantages of Asian-Pacific Countries Neighborhood

Dmitry Yarovoy, the President of Far Eastern Banks and Financial and Credit Institutions Association, Chairman of OJS SCB of Primorye ‘Primsotsbank’, analyzing principle trends in the Far Eastern financial sector for Dalnevoctochny Capital.

“Dmitry Borisovich, what are the trends of the banking sector in the Russian Far East in 2011 and 2012?”

“During the last 18 months Far Eastern banks demonstrated stable growth almost in all areas. Last year the loan portfolio increased by 36.5% and reached RUB 880 billion. The deposit portfolio has also grown up significantly and reached RUB 1,042 billion by the end 2012.

“Traditionally, Amur, Khabarovsk and Primorye are leading regions in the Far East. We believe the positive trend for the banking sector of the Russian Far East will remain.”

“The geographic position makes it possible to call the Far Eastern Region “gates to Asia”. How does that impact banking operations?”

“Business community in general and the regional banking system in particular use all advantages of its location. I have to point out, that form year to year Far Eastern international trade companies increase their requirements to banking products and services. In such market environment Far Eastern banks have to develop international relations with financial institutions of the Asian-Pacific countries. For example, to meet business needs Primsotsbank offers the possibility of settlements with counterparties from China in national currencies for international trade companies.

Primsotsbank has been developing its international correspondent network since 1995 and has about 30 accounts with the leading banks of Europe, the USA and certainly Asia. Its specific focus is cooperation with Asian banks. Primsotsbank has direct correspondent relations with The Bank of Tokyo-Mitsubishi UFJ (Tokyo, Japan), Kookmin Bank (Seoul, Korea) and several leading banks of China. Such network enables our customers to make settlements effectively with their partners in different currencies - both in US Dollars and national currencies of Asian-Pacific Region countries.”

“What is dynamic of settlement under the Sino-Russian Trade?”

“Primsotsbank has been cooperating with Chinese banks for 10 years. At present Agricultural Bank of China, Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Harbin Bank are our partners. Primsotsbank is a leader in Primorsky region in settlements with China in national currencies. Our bank has commenced such operations with Chinese financial institutions since 2005. In 2011the amount of payments in national currencies made by our customers reached RMB 130 million (USD 20 million) and RUB 8.5 billion (USD 260 million) respectively.

“But USD payments in Sino-Russian trade are still significant - last year Primsotsbank processed payments for more than $800 million. However, the contemplated movement towards increase of payments in national currencies and growing demand of foreign trade parties make it possible to forecast increase of Yuan share in the volume of business between two countries. Actions undertaken by the Governments of both countries also encourage that.

“Having extensive experience of cooperation with financial institutions of China, our bank is the member of the Subcommittee on Cooperation in the Financial Issues of the Russian-Chinese Commission on the Preparation of Regular Meetings between the Heads of Government. We regularly provide our proposals of how to develop interbank cooperation.”

“In what other way Far Eastern banks develop international relations?”

“It is currently important for credit institutions of the Far East to attract investments and loans. Primsotsbank has experience in attracting investments from both domestic and international market for on-lending SMEs and other borrowers.

• In 2006 Raiffaizenbank successfully organized syndicated loan for Primsotsbank;

• MSP Bank provided a line for on-lending SMEs under the State Program for Small and Medium Business Financing;

• 2006 - International Finance Corporation provided sub-loan for Primsotsbank in amount of RUB 150 million;

• 2007 - KfW granted the loan for on-lending SMEs and mortgage;

• 2007 - equity investment from European Bank for Reconstruction and Development (12.5% of the share capital).

“What should be done for attract foreign investment?”

“It is well-known that the security of investment is one of basic conditions. From this point of view financial stability and reliability of an investment is prevailing over potential returns. In this case all factors are important for the investor: quality of the loan portfolio, capital adequacy ratio and liquidity cushion and so on. At the same time, assessing their risks and performing due diligence, foreign investors apply international standards and approaches. By the way, every year Primsotsbank has its financial statements audited in accordance with IFRS by Moore Stephens. It is also critical to have rating from international agency. In August 2012 Fitch Ratings affirmed Primsotsbank long-term rating at 'B' with the Stable Outlook.”

“Do Russian entrepreneurs use Trade Finance in their business?”

“Of course. We meet customer’s needs and provide TF services for them. Far Eastern credit institutions actively cooperate with their foreign colleagues in that field. For example, Primsotsbank makes post-financing using our lines with European and Chinese banks.

“However, it should be noted that medium-size regional banks are in this case in less advantageous position compared to the large federal institutions.

I believe that Export-Import agencies and banks of Asian-Pacific Region should pay more attention for cooperation with Far Eastern banks, which have rich experience in this field.”  

Yuri ROGOV.