Understanding the Growth Opportunities in Russian and CIS Banking

Introduction

Up until the start of the financial crisis, the retail banking market in the Commonwealth of Independent States (CIS) was undergoing a period of rapid transformation, as banks developed new products, services and channels. The sudden shock caused banks to change their priorities. The crisis is likely to significantly change both short- and potentially long-term IT priorities.

Scope

*The Commonwealth of Independent States with focus on Russia

*This report covers the banking sector that has evolved from the communist banking system

Highlights

One of the side effects of the financial crisis in the CIS banking industry is the strong budgetary pressure to lower costs. However, this pressure is expected to be a short-term issue only. What is important is that the long-term growth objectives remain intact.

Companies that are interested in selling their solutions and services need to focus on the two primary criteria for selecting an IT vendor: price and the strength of the offering. It is important to highlight that the mentioned criteria take priority over local references and relationships

Reasons to Purchase

*This research will enable to you to understand changes in IT budgets and how they could impact your customers

*This research will enable you to understand how evolving business pains will result in demand for specific solutions


Report Highlights
One of the side effects of the financial crisis in the CIS banking industry is the strong budgetary pressure to lower costs. However, this pressure is expected to be a short-term issue only. What is important is that the long-term growth objectives remain intact.

Companies that are interested in selling their solutions and services need to focus on the two primary criteria for selecting an IT vendor: price and the strength of the offering. It is important to highlight that the mentioned criteria take priority over local references and relationships
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SUMMARY 1
Impact 1
Ovum View 1
Key Messages 2
The CIS banking sector represents one of the highest revenue growth potentials worldwide 2
The political and economic turmoil triggered a strong wave of reforms 2
Major strategic transformation is on CIOs' agendas 2
The transformation will rely heavily on technology 2
Foreign technology vendors should form delivery partnerships with local IT services firms 3
Balanced focus on solutions that address cost reductions and revenue growth is needed 3
MARKET ConTEXT 4
The CIS needs to be recognized as one broad market with Moscow as the financial capital 4
Economic growth in the CIS is expected to accelerate in 2011 5
The CIS banking sector has one of the highest revenue growth potentials worldwide 6
A crisis in the banking sector exposed many institutional weaknesses 7
A wave of consolidation is approaching 11
Reformation is needed 13
There is still plenty of room for growth 13
Business Strategy Overview and Technology Implications 14
The financial crisis forces banks to cope with new challenges 14
Inefficient utilization of distribution networks and customer bases 14
Questionable quality of service (inheritance of the bureaucratic communist system) 14
Levels of productivity far below the Western standards 15
Underperforming risk management processes 15
Post-communist corporate cultures 15
Major strategic transformation on the agenda 15
Customer-centricity 16
Consolidation and centralization of functions 16
Risk management 16
The transformation will rely heavily on technology 17
The demand for technology is on the rise, driven by a major overhaul of core systems 18
Compliance and integration requires IT investments into back- and middle-office platforms 18
The payment business needs the technology to tackle fraud 18
Technology spending to grow at a healthy CAGR 9.3% (2009-2014) 19
Growing need for IT talent to support the transformation 20
Technology Market Overview 21
Compliance with local accounting standards have driven the emergence of local banking platforms 21
Growing significance of specialized payment technology vendors 22
Card payment technology is expected to be in strong demand 24
The financial crisis has highlighted underperforming data management practices 25
Focus on sales optimization requires specialized technologies 26
Branch technology needed to drive productivity and servicing 26
Online banking is an opportunity for smaller or specialized banks 27
Contact centers will remain an important remote channel, particularly for mid-tier banks 28
ATM investment on hold until 2010 28
The product vendor landscape remains largely dominated by local vendors 29
IT services increasingly targeted by foreign vendors 31
RECOMMENDATIONS 32
Foreign vendors should form delivery partnerships with local firms 32
Foreign vendors should focus on acquisitions to gain presence 32
Local support is a core requirement 32
A balanced focus on cost reduction and revenue growth is needed 32
Banks primarily focus on the price and strength of offerings when selecting a vendor 33
APPENDIX 34
Ask the analyst 34
Definitions 34
Further reading 34
Methodology 35
Disclaimer 35
List of Figures
Figure 1: The Commonwealth of Independent States 4
Figure 2: GDP growth projections through 2014, constant prices through 2014 5
Figure 3: Russia is expected to be among the fastest growing banking markets in terms of revenues 6
Figure 4: The Russian and CIS markets promise high profits from banking in long-term 7
Figure 5: RUB-USD exchange rate development 8
Figure 6: Overdue loans/total loans in the Russian banking sector 9
Figure 7: The funding gap significantly increased in the Russian financial sector 10
Figure 8: Russian banking system pre-tax income 10
Figure 9: Profit forecast for 2009 in the Russian banking sector 11
Figure 10: Dynamics of household insurable deposits in Russia and Ukraine, 2000-2008 12
Figure 11: Retail Banking technology CAGR through 2014, geographical view 19
Figure 12: Retail banking technology spending through 2014, business function view 20
Figure 13: The centralized settlement structure of the Russian payment system 23
Figure 14: Credit card market growth projections 24
Figure 15: VTB Bank's more rigorous approach to risk management and risk monitoring 25
Figure 16: The branch network of Sberbank, the largest bank in the CIS 27
Figure 17: Selected product vendors with footprint in the CIS banking sector 30
Figure 18: Selected IT services companies active in the CIS banking sector 31

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