Evgeny Dankevich, Chairman of Otkritie Bank’s Management Board, told BFM.ru about the impact of the ACRA rating on Otkritie Bank, what gives a bank a competitive edge today, and how life will change when the world goes digital.
Russia’s Analytical Credit Rating Agency (ACRA) gave Otkritie Bank an unexpectedly low rating. Earlier, you said there was nothing to worry about; could you please elaborate on this for us?
If we discuss indicators of risk, then any rating, even the highest one, includes certain risk indicators. For this reason, I wouldn’t pay too much attention to this – some risks are always mentioned. Regarding the rating itself, and its level, we of course believe that their rating of us as a bank is totally incorrect. On the other hand, ACRA do try to do their best, but they are a young agency and have not yet assigned many ratings – they simply do not have enough statistical data at the moment. When you rate major banks, these banks can significantly differ from one to the other, and there are always certain aspects to be assessed in one way or another. Perhaps, they just need more time. We are determined to continue working with the agency, and we expect our rating to be higher in the future. Now, however, all we can say is that the rating does not reflect our actual level, but what can we do? We will carry on working with the rating as it stands.
As the agency is young, does this mean that its methods might still be improved?
I am sure that excellent professionals work there, and that their methods will change over time. We will return to this question.
The rating is what it is now. What specific consequences are there for Otkritie, not including the rating rules and the rules which will take effect on 14 July?
The rules which will take effect on 14 July should, in fact, be mentioned. The rating, in and of itself, directly influences a bank’s ability to work with certain categories of public money and organisations. It is clear that Otkritie Bank was never among those banks which built their business around working with the state. Therefore, the rating doesn’t create any liquidity problems for us. We have always had excess liquidity, so, we have nothing to worry about regarding the 14th of July. Regarding everything else, the rating doesn’t have any direct effects, and we will carry on working as before.
Some analysts, however, argue that raising financing in the market will become more expensive.
Well, here I would disagree again. Ratings do not directly affect most of the funding sources available to major private commercial banks. Moreover, some of the funds that we will repay or have repaid which were accounted for in the rating are quite expensive. In this sense, retail funding is often much cheaper.
In order to settle this question completely, can you say that you do not expect any liquidity problems in the future?
None whatsoever. We have thoroughly prepared ourselves, we are absolutely confident and we do not have any liquidity problems.
Speaking of the future. The current situation is rather ambiguous: though we seem to have left the crisis behind, some still think we haven’t. Are you going to adjust your strategy in the near future?
We don’t think this is necessary, as the main trend we see at the moment has nothing to do with the international economic situation or certain economic processes. The economy has an identical impact on everyone. If there’s growth, if prices for oil or some other commodity start to grow in Russia or in all parts of the world, then everyone will benefit. Of course, some will benefit more than the others, but everyone will be better off than before. If the situation, on the other hand, deteriorates, everyone will be affected. The question is how will specific factors come into play? Not the factors which work for everyone, but those that work for you. What gives a bank a competitive edge today? Two things: the ability to provide the same service at a cheaper cost, i.e. efficiency, and the ability to attract a wide range of clients and to stand out among a wide range of similar offers. You need to stand out among the crowd, offer quality services and, at the same time, do it all efficiently.
However, in terms of pricing, it is rather difficult to compete with some of the top 10 banks. Probably, the emphasis, after all, should be on products and new services?
By competitive pricing you, probably, mean loans? In fact, this is not always the case. We offer mortgage loans at under 10% now; we do that, and these mortgages are in high demand now. However, it would be strange if I said that we were going to give corporate businesses cheaper loans than those of Sberbank. However, in segments such as small business and retail, our prices are competitive because we work equally efficiently and in some cases even more efficiently. For example, fewer people plus going digital equals lower service costs. We now offer one of the best terms of service in the market on a range of card products in terms of payments on cash balances.
Let’s talk about FinTech. The digital economy is a new trend. How are you in digital?
Otkritie is a leader in the digital transformation of banks; there is no doubt about this. There are two things that may cause revolutionary changes and there are things that are a must have. If you want to continue as a bank in the future, you must have digital distribution and digital servicing. We have two key projects in this area. One is Rocketbank, an online-only banking service with no employees, not even a call centre – just an App. At the recent Money 2020 exhibition, we were the focus of attention: apparently, our online-only banking service’s performance was better than that of most European (let alone Russian) services of the kind in terms of its growth rate and quality of product. This is a very interesting product, we really like it. It has met our expectations, and is also highly efficient. Another key project is Tochka, a mobile bank for entrepreneurs, which now accounts for over 50% of Otkritie’s new clients. This is an even more sophisticated project, and it is also completely digital and has no offices. This isn’t just a bank; it would be more correct to call it a whole range of services. Tochka is, probably, a prototype for future banks which we all will aim to become in the next two to four years.
How much does Otkritie invest in the development of digital banking? Have you seen results yet?
The good news is that in absolute figures we do not invest much because we can identify and select from promising projects in time, this allows us to access many good projects either very cheaply or even for free by only investing in product development. We also have a number of our own solutions, such as digital identification, which we have been working a lot on. We have a working face recognition prototype, a voice recognition prototype, etc. Speaking of return on investment, the two projects we just spoke about – Rocketbank and Tochka – they are, in terms of their business models, absolutely unique online banking services which are already profitable and may become the basis of a major digital business in the nearest future.
How will our lives change when we all “go digital”?
The digital world will be a much more honest place because it is clear already now that nothing or almost nothing can be hidden in it: everything is impartially registered and logged. This world will not be very convenient for those who grew up in the analogue world; however, a younger generation who have already got used to the fact that everything they do is seen through social media will be more comfortable with the digital world. In this sense, the world will be much more transparent and, on the one hand, safe, but, on the other hand, in full view; that is, it will be impossible to keep things hidden as in the past. In addition, everything will be very convenient, very quick and quite reliable. I am confident that the present cyber security problems, just as the security problems of actual physical banks, will be solved; it will be a different world – not only in banking but also with regard to many other services and everything that involves information, all of that will look very different. The next step will be artificial intelligence. Many things will be done by robots and subjective evaluation will become history. To sum it up, the world of the future will be an ambiguous, but very convenient place.
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