Sberbank - Annual Report 2010 - Retail Business

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# Retail Business

In the development of retail operations, the primary objective is to transform the current isolated offerings into an integrated customer relations model.

## Lending

Lending was also a key focus in retail operations. The Bank sought to develop a new range of lending products and improve banking processes, in particular, by disseminating Credit Factory across the network.

## Loan Portfolio movement

In 2010, the Bank significantly simplified lending procedures for all loan types by streamlining loan execution, disbursement and maintenance processes. In particular, this was achieved by introducing electronic document management. As a result, the Bank was able to reduce interest rates on loans twice during the year and made a decision to cancel commissions on loans to individuals.

Amid a gradual recovery of the retail lending market coupled with the Bank’s pricing policy, lending volumes expanded in the reporting year. From March, newly issued loans steadily exceeded repayments. The Bank extended a total of RUB 737bn in loans to individuals in 2010 (a 1.8-fold increase year on year). The majority of the Bank’s loans, with a total value of roughly RUB 100bn, were issued in December 2010 when a special reduced-rate offer was available for Credit Factory loans. This was an absolute record for monthly individual lending in the Bank’s history.

The individual loan portfolio grew by 12.1% year on year to RUB 1,320bn. Consumer and mortgage loans drove growth, resulting in a decline in the share of car loans.

## Developing our product range

Over 2010 and early 2011, the Bank developed and launched an innovative product range. As a result, each borrower category, including salary programmes, bank employees and other customers, is offered individual interest rates on their selected loan type. Rate discounts are available to borrowers with good credit histories.

Instead of six types of personal consumption loan, the new range includes two universal products, an unsecured consumer loan and a consumer loan guaranteed by individuals. We also introduced two basic vehicle-financing programmes for the purchase of new and used cars. The above new loan types are only provided on the Credit Factory platform. There are three basic types of mortgage loan, including loans for the purchase of ready-to-move-in residential properties or properties under construction, and for the construction of new houses. In addition, there are a number of special-purpose facilities such as countryside real estate and garage loans, government-backed mortgage and mortgage refinancing facilities.

In 2010, the Bank also developed two new product concepts, Express Lending and the Buy-Back Car Loan, the latter providing for the possibility of repaying the major portion of principal with the last instalment.

In order to make its offering more attractive to customers, the Bank significantly improved its value propositions within a number of lending programmes during the year. It reduced initial instalments for mortgage facilities to 10-15% and increased the maximum value per single consumer loan, and the aggregate consumer loan payable per borrower from RUB 1.0m to RUB 1.5m, amongst other things.

The launch of the special offer “V desyatku!” mortgage was an important step forward in 2010. This programme offers clients a rate of 10% p.a. on a 10-year loan subject to an initial instalment of at least 10%. Sberbank is also participating in all special mortgage lending programmes being rolled out in preparation for the Sochi 2014 Winter Olympics and Paralympics. The Bank is offering favourable mortgage terms to Olympic facilities’ staff and special loan terms to Sochi citizens for the repair and reconstruction of their houses in order to harmonise the face of the city.

## Improving the lending process

The Bank extended Credit Factory, its centralised approach to processing applications for consumer loans, car loans and credit cards across its entire network in the reporting year. Credit Factory has made it possible to reduce loan application review times to two business days while simultaneously mitigating credit risk. Credit Factory is in place in all the Bank’s divisions and loans are issued at the same speed and on the same terms in the most distant locations as they are in Moscow. Wherever a loan may be disbursed, lending decisions are made in one of the Customer Operations Support Centres.

Close to 30,000 lending decisions are made within Credit Factory every day. In 2010, the Bank extended roughly two million loans worth a total of RUB 290bn, which is more than 50% of the total value of consumer and car loans the Bank issued during the year. The Bank intends to migrate its mortgage lending products to the Credit Factory platform in 2011.

In 2010, Sberbank also promoted other retail lending processes. The Bank began to provide prior-approval general-purpose loans and to issue credit cards alongside consumer and car loans up to the respective borrower’s credit limit. In addition, the Bank’s employees process consumer loans on the premises of potential borrowers’ employers, meaning that a borrower need visit the Bank’s office just once.

Other enhancements made during the year include simplifying the procedure for borrowers to verify their financial position, extending the validity of positive lending decisions and developing additional options of using safe deposit boxes for settlement of real estate transactions in mortgage lending, etc.

## Retail deposit operations

As deposit growth outperformed lending growth in 2010, the Bank’s focus on deposit operations lessened. Other banks continued to pursue aggressive policies to attract retail deposits and as a result Sberbank’s share in the deposit market declined from 49.4% to 47.9%.

The retail deposits balance rose 27.6% year on year to RUB 4,834bn, with the influx primarily driven by term deposits.

During the year the Russian currency appreciated which was reflected in the savings attitudes of people who favoured rouble-denominated deposits. The Bank repeatedly changed its pricing policy during the year based on the market and its current demand for foreign currency and rouble resources — it reduced interest rates on rouble-denominated deposits in January, May and August and increased interest rates on US dollar-denominated deposits in August. In order to encourage shorter-term deposits, reductions in interest rates on longer-term deposits were more significant.

## Private banking

Expanding the product range and improving service convenience were top-priority development areas in Sberbank’s private banking business. The Bank actively promoted Universal Banking Service Agreements and insurance products, and improved its cash and settlement and money transfer processes.

## Cash and settlement services

Cash and settlement services remain the most significant service line in terms of transaction value and fee and commission income. In 2010, commission income on retail cash and settlement services amounted to RUB 41.8bn or 32% of total fee and commission income.

The Bank processes payments from individuals, including payments for housing and public utility services, taxes and similar payments, and transfers to state non-budget funds. The total value of individuals’ payments increased by a factor of 1.4 year on year reaching RUB 1,621bn, and over 1,134 million payments were processed in 2010. To a great extent, growth in the value and quantity of payments is owed to billing processes and self-service devices: in 2010 the share of payments made using Sberbank’s billing process increased to 65.7%.

Despite tough competition from commercial banks and dedicated companies, the Bank has expanded its share of the money transfer market. The number of customer remittance orders rose 11% year on year to exceed 23 million. BLITZ express money transfers account for over 50% of all money transfers and are available at 10,800 Bank divisions.

BLITZ express international money transfers are increasingly prevalent between Sberbank divisions in Russia and its subsidiaries’ branch networks in Kazakhstan and Ukraine. In 2010 the Bank processed roughly 345,000 transfers with the Bank’s share in the cross-border money transfers market widening from 4.4% to 6.0%, thanks to BLITZ transfers. In 2011, Sberbank launched this service jointly with its subsidiary in Belarus.

In order to promote cross-border money transfers, the Bank began to process express transfers through MoneyGram, a major international money-transfer service, in late 2010. The Bank also entered into an agreement with the market-leading Western Union and intends to start processing Western Union transfers in late 2011.

Sberbank has successfully competed with other banks in payroll and pension-related transfers to deposit and card accounts. The Bank maintains the payroll accounts of over 50% of the Russian labour force and has agreements with over 272,000 companies to transfer their salary payments. Pension recipients account for over 40% of all social pensioners and over 95% of pensioners of the national security, defence and law enforcement agencies. Total salary and pension payments transferred by Sberbank in 2010 exceeded RUB 5,300bn, growing 27.2% year on year, and the number of recipients increased to 43 million.

## Bank cards

Card operations was one of the top-priority development areas in 2010. As the second-largest service line by size of commission income, it generated commissions of RUB 23.6bn or 18.1% of total fee and commission income in 2010.

The Bank has placed special emphasis on the implementation of a new customer service model within its card operations. The model is based on the Universal Banking Service Agreement (Basic Product), according to which the card is a means of automatic access to information on the client’s accounts, deposits, loans and transactions on a 24-hour basis. The technology has been successfully rolled out across the territorial banks and is a technological breakthrough for Sberbank. The Basic Product is in great demand.

Sberbank has actively expanded credit card operations. In 2010 the number of credit cards exceeded 1.9 million increasing more than fourfold. Since June 2010, the Bank has issued credit cards on the Credit Factory platform.

| 31 December 2010 | 31 December 2009
--- | --- | ---
Number of valid cards, million | 51.4 | 39.8
Number of customers having Universal Banking Service Agreements, million | 13.6 | 1.2
Number of ATMs, thousand | 27.9 | 22.9
Number of retailers and service providers using the Bank’s acquiring service, thousand | 123.3 | 92.5

Sberbank’s competitive advantages remain the following: an extensive network of outlets accepting cards, a broad product range and viable tariffs.

## Selling insurance contracts

In 2010, the most significant growth in fee and commission income was achieved on a new service type relating to the sale of insurance policies. The Bank earned agency commissions of RUB 9.4bn which contributed 7.2% of total fee and commission income in 2010.

In addition to voluntary group life and health insurance first offered to retail borrowers in late 2009, collateral insurance has been available in all the Bank’s branches since April 2010. Clients can now buy insurance policies in the Bank’s offices for cars and apartments that have been provided as security on car and mortgage loans. The Bank permits its customers free choice of insurer, and in addition to its partner insurance companies, continues to accept policies issued by all insurance companies that provide collateral insurance (the list of such insurers is shown on the Bank’s website).

Furthermore, two pilot insurance programmes were launched in 2010:

- A programme for card holders including life and health insurance, card fraud insurance and travel insurance for individuals traveling abroad and within Russia
- Life and health insurance for deposit holders

By implementing bank insurance programmes, Sberbank is making progress towards one of its key goals in this area — developing an insurance culture among Russian citizens and organisations with respect to preventing potential losses when using borrowed funds. Voluntariness is one of the key principles; that is, clients may decline the offered insurance options without the risk of being denied any banking services.

## Other services

Sberbank also offered other services to private clients in the reporting year:

- Foreign exchange operations — Foreign exchange transactions were performed at over 9,000 divisions, totalling an equivalent of USD 13.5bn.
- Selling precious metals and coins — In 2010, the Bank sold 1 million coins and over 4.9 tonnes of precious metal ingots.
- Leasing individual safe deposit boxes — Over 230,000 safe deposit boxes are available at over 1,000 divisions.
- Processing requests for transactions with shares in mutual funds — In 2010, 429 agency desks operated across the branch network and the total value of transactions exceeded RUB 1.1bn.
- Selling all-Russia and regional lottery tickets — In 2010 the Bank sold roughly 38 million lottery tickets worth RUB 1.2bn. The Bank decided to join the Olympic Lotteries project implemented in pursuance of the Russian Government’s Resolution on All-Russia Government Lotteries Conducted to Support the Sochi 2014 Winter Olympics and Paralympics.
- Processing requests to transfer the funded pension component from the Pension Fund of the Russian Federation to management companies and non-state pension funds and to admit the insured to the state programme for co-financing pensions — Roughly 420,000 applications processed.
- Selling obligatory pension insurance policies issued by Sberbank’s Non-State Pension Fund — Over 280,000 policies sold.
- Paying grants, copyright royalties and financial and humanitarian aid under agreements with charity organisations and foundations — The Bank paid an equivalent of USD 2m to 3,700 recipients.
- Paying unemployment benefits and benefits to individuals with children financed by the government and state non-budget funds — The aggregate value of payments exceeded RUB 113bn in 2010.

## Retail sales and services

Improving the quality of customer service and reducing queues in the Bank’s offices were the key focus in 2010. To that end, the Bank implemented best practices in service delivery, actively promoted distant sales channels and internet technology and centralised support functions.

Sberbank expanded the network of self-service devices by over 30% in the reporting year in order to facilitate customer access to its products. The number of ATMs and information and payment terminals increased to 44,900. The capabilities of access devices via remote channels, including Internet and mobile, were also significantly enhanced. As a result, the number of customers using the Mobile Bank service almost doubled, exceeding 22 million, while the number of “Sberbank OnLine” users increased to 7.5 million. At yea-rend, over 57% of transactions had been migrated to remote channels.

The Bank continued to set up a full-featured telephone contact centre to provide round-the-clock customer support via telephone and multimedia across Russia and to create an efficient sales channel. Currently, there are platforms in Moscow, Voronezh, Ekaterinburg and St. Petersburg. Their effectiveness may be evaluated as high with 80% of calls attended to by contact centre employees within 40 seconds. Lost calls account for less than 5%.

The Bank continued to migrate support functions to special-purpose Customer Operations Support Centres (COSCs) with a view to freeing up sales offices for customer service. In addition to the existing COSCs in Moscow and St. Petersburg, another two COSCs were opened in Perm and Krasnoyarsk. In parallel with opening the new COSCs, a considerable increase in their efficiency was achieved by means of significant improvements in all back and middle office processes. In 2010, pilot projects for electronic data processing were implemented in the COSCs in Moscow and St. Petersburg. The result will be harmonised processes and reduced customer service delivery times.

In order to achieve a new level of service delivery to wealthy clients, in 2010 Sberbank opened its first offices within a new sub-brand, “Sberbank perviy”, to focus on this client category in Moscow, Samara and Yaroslavl. They offer concierge services (information services); tax and legal advice from Sberbank’s partners PricewaterhouseCoopers, Deloitte and Baker & McKenzie; Allianz Index, an investment product with a guaranteed return on invested capital developed jointly with ALLIANZ ROSNO insurance company; term life insurance products; and the Investitsionny deposit product with a comprehensive ‘Deposit + Mutual Fund’ offer.

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