The Russian Banking Sector Proposal Essay

Foreign banks in the Russian banking sector

Barclays bank is a British multinational that put on hold its retail business in the Russian market. Barclays closed its retail business to offer investment banking. Initially, Barclays bought Expo bank to enable it offer consumer banking services, but later realized that the bank lacked the business edge to compete.

Barclays bank group president stated that Barclays had to exit its retail business to concentrate more on institutional banking. “Barclays Bank’s retail business is more labor-intensive and painstaking, while adjusting investment banking takes less time and resources” (Nikishenkov 2011).

HSBC bank closed its retail business due to competition from state owned banks, which were controlled by the state. Other competitors were established banks such as Raiffeisen bank and ING Bank Group (Aris 2011).

HSBC closed its retail business to offer services to institutional customers and corporates. This was to tap into the global clients doing business internationally who would benefit from the extensive global network of HSBC (Mauldin 2011).

KBC Group divested from the Russian market by selling its subsidiary, Absolut Bank. “KBC Group struck a deal to sell its Russian banking unit Absolut Bank, one of the final businesses it is divesting to meet conditions agreed with European regulators after it received state aid” (Herman 2012).

The state aid from Flemish Regional Government was to bail it out of the financial crisis. Therefore, it had to sell its subsidiary to meet the government debt and conditions set by the European regulators (Huybrecht 2014).

Raiffeisenbank success has been due to mergers and acquisition. It successfully acquired 100% of Impexbank. The other success factor was its rapid expansion of the sales network in the country.

It has reached more than 140 million clients (Palzer 2011). Unicredit success is due to its long presence in the Russian market and having a strong financial and capital base. “The other success factor has been good access to international markets, favorable positioning and core competencies” (Boker 2011).

Citibank has been successful because it invested in banking infrastructure before starting business. It laid down infrastructure such as ATM in major towns of Russia and opened more than 50 offices. It has a well established internet and mobile banking platforms (Nikishenkov 2012).

Hypothesis

1. Foreign bank exits the Russian market due to government interference.
2. Banks that are successful in Russia have been in existence for a long time.
3. Successful banks in Russia offer corporate, SME and institutional banking only.

Research Questions

1. What are the laws and regulations set up by the Central Bank of Russia (CBR) in regard to the operation of foreign banks?
2. Why do banks pull out of the Russian market?
3. Why do other foreign banks succeed in the Russian market?

Objective

The objective of the study is to determine the critical success factors in the Russian market. The other objective is to determine the causes of failure of foreign banks in the Russian market.

Subject of the research

Success and failure of foreign banks in the Russian banking sector.

Relevance of the research

The research is relevant because it will give insight into the causes of success or failure in the Russian banking market. This will enable banks develop mitigating factors to protect them in case they are faced with challenges.

Research plan

1. Theoretical concepts of banking operations
   1. Reasons for foreign bank entry into the Russian market
   2. Mode of entry and strategies used
2. Literature review
   1. Evolution of the Russian banking sector
   2. Current status of the Russian banking market
   3. Macro-economic effects of foreign banks
   4. Resistance against entry into the Russian market
3. Methodology
   1. Research design.
   2. Data collection.
   3. Case study research.
4. Results and discussions
   1. Data analysis.
   2. Business operation areas of foreign banks.
   3. Factors influencing close of business by foreign banks.
5. Summary, recommendations and conclusion.
6. References.
7. Appendices.

References

Aris, B. 2011, Barclays and HSBC Retreat from Russia Retail Banking. Web.

Boker, J. 2011, The Business Model is being Reshaped, but CEE Banking Remains an Opportunity. Web.

Herman, Y. 2012, KBC to Sell Russian Bank Subsidiary for 300 MillIion Euros. Web.

Huybrecht, V. 2014, KBC Group: KBC Repays Second Instalment of 500 million Euros in Flemish State Aid Again Ahead of Schedule. Web.

Mauldin, W. 2011, HSBC Leaves Russia Retail Banking. Web.

Nikishenkov, O. 2011, Barclays Checks Out. Web.

Nikishenkov, O. 2012, Surviving the Russian market. Web.

Palzer, M. 2011, Russian banking market remains highly attractive for foreign investors. Web.