"Roman Avdeev: Moscow’s most unlikely billionaire"
Недавно я дал интервью изданию "Euromoney". Получилась довольно интересная беседа, обсудили большой спектр вопросов - от бизнеса до философии. Заголовок нескромный, но у европейских журналистов к этому другой подход. Текст интервью ниже. Заодно вспомните свой английский! :-)
Philosopher, philanthropist and father of 23 - Roman Avdeev is a far cry from the stereotype of Russian oligarch. Yet his ownership of Credit Bank of Moscow, one of the country’s fastest-growing lenders, along with canny deal-making in sectors from retail to pharmaceuticals, is fast propelling him up the rich list. And his status as one of Russia’s most independent billionaires gives him a unique insight into the country’s current pariah status.
Roman Avdeev is not your typical Russian billionaire. For one thing, there is the way he turns up for interviews with journalists - five minutes early and unattended by so much as an assistant, let alone the traditional entourage and security detail.
For another, there is his home life. Not for Avdeev the London mansion, Côte d’Azur villa, trophy wife and brood of spoilt brats at pricey English private schools. Children he certainly has - 23 of them, in fact, 19 of whom have been rescued from orphanages around Russia - but they live with Avdeev and his wife of nearly 30 years in the town outside Moscow where he grew up, where they travel daily to the local state school in two minibuses.
Then there is his charity work on behalf of the rest of Russia’s several hundred thousand orphaned children, an unfashionable cause to which he devotes a considerable part of his time and income. There is his passion for philosophy, about which he blogs with astonishing regularity, along with other favourite topics such as history, literature and education.
Above all, there is the fact that Avdeev’s estimated $1.4 billion fortune owes nothing to the murky privatizations of the 1990s or any connection to the Russian power structure - one of the few things he boasts about is his lack of political ties - and everything to his own efforts over two decades in building Credit Bank of Moscow into one of the country’s largest and most respected private-sector lenders.
Moscow’s foreign bankers, in particular, are unreservedly enthusiastic about both CBM and its principal shareholder. "Credit Bank of Moscow is one of the best, if not the best, SME and large-corporate lenders in the Russian Federation," says a veteran banker. "I’ve heard nothing but good about them over the years, and Avdeev also has a very strong reputation in Moscow. He’s someone both international and domestic counterparties feel very comfortable with."
Banking was not Avdeev's first choice of career. When the Soviet Union collapsed in 1989, the then 22-year-old Muscovite was studying to be an engineer while working nights to support his wife and eldest son. He promptly abandoned his studies and started a business importing urgently needed computer equipment into Russia, which in due course led to a tie-up with a Ukrainian electronics manufacturer.
Before long, however, Avdeev noticed that he was making more money on rouble to hryvnia currency transactions than on his trading activities and decided to make the move into banking. In 1994, he invested the proceeds of his computer business in CBM, a tiny two-year-old operation consisting of little more than an office and a licence, and began offering banking services to Moscow’s nascent community of retail businesses.
In the early years, these mainly consisted of small-scale enterprises, such as the numerous kiosks that sprang up across the city after the fall of communism. Most were cash-based, and CBM was able to carve out a lucrative niche providing secure cash handling. This in turn, explains Avdeev, laid the foundations of the bank’s lending business. "We developed a unique product whereby we provided very short-term - and officially unsecured - loans against cashflow."
In the crisis of 2009, for example, we had very limited losses
because we understood early on what was happening and,
thanks to the short-term nature of much of our lending,
were able to react quickly
Even today, when CBM has grown into Russia’s 14th largest bank with assets of close to R470 billion ($12 billion) and most of Moscow’s large consumer companies on its client list, cash handling and the lending associated with it remain a key part of its business. Not only is the segment a reliable revenue-generator, it also, says Avdeev, gives the bank a crucial insight into the overall health of the market. "In the crisis of 2009, for example, we had very limited losses because we understood early on what was happening and, thanks to the short-term nature of much of our lending, were able to react quickly," he says.
Indeed, the global financial crisis proved barely a blip on CBM’s radar. In 2009, the bank’s net profit jumped by more than 75% to R1.7 billion as a very modest increase in non-performing loans was more than matched by lending growth of close to 50%.
The breakneck pace of expansion was maintained in the years that followed as CBM took advantage of Russia’s massive consumer boom to leverage its extensive corporate-client base into a leading retail franchise. By the end of 2013, retail lending accounted for nearly a third of the bank’s portfolio - a figure that could have been much higher, says Avdeev, if CBM had been prepared to emulate the methods of some of its peers.
"The retail market in recent years was crazy - it seemed like all you needed to get a loan from some banks was a Russian passport," he says. "Many of our competitors took a very aggressive approach to retail lending, with intensive advertising and marketing campaigns, and this helped them to grow very fast. We refused to play that game, and at the time we paid the price in slower retail growth, but our model has the advantage of being much more stable.
With a return on equity last year of 20.1%, it would not appear that CBM has much to complain about in terms of profitability. The upside of the bank’s relatively conservative approach, however, can be clearly seen in its NPL ratios. Even as Russia’s economy ground to a halt at the start of this year, and the gloss finally began to go off the consumer story, bad debts accounted for just 1.6% of total lending, well below the sector average.
Despite forecasts of worse to come in terms of economic stagnation, Avdeev is adamant that CBM will be able to maintain its impressive asset quality. "I am confident that we can keep NPLs down," he says. "In fact, our newer retail credit portfolio is actually higher-quality than our older ones, which seems counterintuitive but is due to the fact that competition in the Moscow market is getting less aggressive as the economy slows."
Avdeev admits that the bank is seeing a slight reduction in activity by retail customers, particularly in the mortgage segment, where rising interest rates have crimped demand, but says interest in other consumer products such as car loans remains healthy. "The car market may be weakening but there are still a lot of cars being sold," he says, somewhat regretfully. (Car sales might be good for business, but Avdeev himself would prefer to be able to ride a bike, a mode of transport that still counts as an extreme sport in the SUV-clogged streets of Moscow. "I really envy Europeans having cities where it’s safe to cycle," he says.)
Even if the downturn does tighten its hold on Russia, Avdeev adds, retail will remain a key segment for CBM. "My ambition is to see retail lending account for half of the bank’s overall portfolio," he says. "Obviously we are not expecting the same pace of growth in the market as we have seen in recent years, but Moscow continues to outperform the rest of Russia and I am entirely confident that we will be able to expand our retail presence."
As well as providing an opportunity for growth, Moscow’s current economic resilience also validates and vindicates Avdeev’s persistent refusal to consider expanding outside the capital. "People often ask why we don’t look further afield, and the answer is that Moscow is our home market, we understand it, and there is still ample scope for further development."
As Avdeev points out, with a GDP of $520 billion, Moscow’s economy is larger than that of Belgium, and even after two decades of rapid expansion the city remains the fastest-growing region in Russia. "For me as the owner of Credit Bank of Moscow, that’s very good news," he says. "As a Russian citizen, I would obviously prefer to see the rest of the regions catch up with Moscow - but realistically I don’t see a chance of that happening in the next five years."
The other pillar of CBM's strategy that has remained constant throughout its two decades under Avdeev’s aegis is its unusually strong and effective corporate culture. Foreign bankers in Moscow cite CBM’s young, dynamic management team as one of its most valuable assets, while Avdeev says the biggest challenge facing the bank today is not the uncertain geopolitical outlook or deteriorating economic environment, but "finding and keeping the best people in the face of stiff competition".
What has changed since the early years has been CBM’s approach to corporate governance. Until 2008, the bank had no independent directors on its supervisory board. As the financial crisis began to rear its head, however, Avdeev - at the time still the bank’s sole shareholder - decided that a more balanced structure was needed and brought in CBM’s first two independent directors.
Initially, he says, the appointments met with resistance from within the bank. "It was quite challenging for management to accept changes to what had been a very successful system. Very quickly, however, they realized that the new system allowed us to have real discussions on issues such as strategy and risk management, and ensured that we had best practice to direct us."
Today, the bank’s 12-man supervisory board - they are all men - is led by Bill Owens, the former governor of Colorado, and features a strong line-up of local experts such as Troika Dialog co-founder Bernard Sucher and other respected international names. It also includes representatives of the European Bank for Reconstruction and Development and the International Finance Corporation, both of which bought 7.5% stakes in CBM in 2012.
Getting the IFC and EBRD on board as shareholders, says Avdeev, marked another big step forward for CBM. "It’s a guarantee of quality, and we felt the practical benefits of it immediately in the way the market viewed us." It also, he adds, made a further substantial improvement to the bank’s corporate governance. "For the first time, we were able to have genuine discussions at the shareholder level about strategy, and the multilaterals’ strong focus on risk management helped us to improve our processes."
That in turn helped set the stage for an IPO, which would likely have been completed by now if politics had not intervened. Unfortunately for CBM, however, its announcement in February of plans for a dual listing in London and Moscow this year was followed almost immediately by Russia’s annexation of Crimea and the consequent collapse of its stock market.
With no end in sight to the geopolitical and market turmoil in mid-August, when Euromoney visited CBM, the bank’s IPO ambitions remained on hold. Avdeev was adamant that listing remains a central part of the bank’s strategy - "I am absolutely convinced that CBM needs to be a publicly listed financial institution" - but that the timing, unsurprisingly, depends on valuations on Russian financial stocks returning to pre-Crimea levels.
If markets fail to normalize and CBM were to need a capital increase, Avdeev added, he would be prepared to provide one, as he did in 2007 and 2009. With a capital ratio of 15.2% at end-March and return on equity still well into double-digits, however, such an eventuality seems unlikely. "For the moment, we are well capitalized and have sufficient internal sources of capital to support our growth strategy," he says.
What is slightly surprising, particularly given that Avdeev is not planning to reduce his own stake in CBM via an IPO, is that he would apparently be happy to sell the whole bank tomorrow if the price were right. "Of course, if a buyer comes to me with an amazing offer, then I’d be happy to talk," he says, "but realistically I don’t think now is the time to sell. I expect to get a higher price further down the line."
So would he really have no qualms about giving up a business he has spent 20 years building? Absolutely, he says. "When it comes to the bank I am a practical guy. It’s not my baby, it’s not part of my family, it’s just a business."
Certainly, Avdeev has shown little hesitation about disposing of other assets over the years - indeed, he has earned a reputation in Moscow as an extremely canny dealmaker. In 2003, he sold out of a food-retailing network acquired only a couple of years earlier, making a handsome profit; in 2006 he reportedly obtained a good price for Chernozemie, the agricultural concern he had built up from small beginnings a decade earlier into a big player in the sector.
His most recent investment, in Russian generic drugs and medical supplies producer Veropharm, was turned around even faster. Avdeev bought a controlling stake in the firm in September last year; by July he had agreed a sale to Abbott Laboratories of the US for a reported $495 million.
That will leave him with only one other big asset apart from CBM - a relatively small real estate company called Domus Finance. Avdeev refuses to be drawn on possible future purchases or even promising sectors, but says his decision last year to establish a dedicated management company to oversee his investments, MCB Capital, is a clear demonstration of his belief in the future and potential of the Russian market "despite the upheavals we are currently seeing".
On the subject of those "upheavals", Avdeev is also tactful but appropriately philosophical. "At the moment it looks as though everyone is shutting off the air supply to each other, but at some point this will all come to an end and the various sides will sit down together and negotiate a solution," he says. "The current situation is negative for both sides, and the main problem is the lack of communication between the two sides."
Of the most recent round of western sanctions on Russian state-controlled lenders such as Sberbank and VTB, which closed international bond markets to Russian issuers again in July, he comments only that it would be an "illusion" to imagine these could work to the advantage of private-sector banks such as CBM. "Sanctions on state-controlled banks are automatically sanctions on the whole sector, because those banks make up more than 50% of the Russian banking system," he says.
Asked if CBM, which has acquired a loyal following among global bond investors since its dollar debut in 2006, might be a candidate for issuance if the market reopens later this year, Avdeev is equally noncommittal. "CBM has a strong reputation, and I am sure we would find demand for our paper," he says. "The question is whether it would be at a suitable price. When we see a chance to access international funding at reasonable levels we will not hesitate to come to market, but at the moment that is not the case.
"In the meantime, we have a fairly diversified funding base. If access to one funding source is shut off then we would feel it, but we don’t anticipate any major problems.
More surprisingly, perhaps, Avdeev dismisses the suggestion that European banks with a large presence in Russia - which includes UniCredit, Société Générale and Raiffeisen - could fall victim to the growing backlash against all things western. "I don’t expect to see any western banks leaving Russia, and I don’t expect to see Russian customers leaving western banks," he says. "I don’t think Russian customers are very influenced by political events in that respect - if banks provide loans and support local business, then customers don’t care whether they are Russian or western-owned."
Where he does sound a note of caution is over Russian government plans, announced in May, to create a national payment system. Prompted by the decision of Visa and MasterCard to stop servicing two Russian banks blacklisted by the US, the initiative - a pet project of president Vladimir Putin - has so far been long on aspiration and patriotic sentiment but short on technical detail.
"It would undoubtedly be possible to create such a system," says Avdeev, "but we need to ask what goals we want to reach, why we want it and whether it will be efficient. Like it or not, we are part of the global financial system, so the question is whether this payments system will help us to obtain a better place in the global system."
Similarly, he says, the oft-touted idea of creating a regional financial centre in Moscow would be positive for Russia, "but not if we end up constructing something local at the expense of global connections".
Despite the fact that the long-awaited move to Euroclearability of Russian equities, due to come into force in July, appears to have been put on hold, Avdeev insists that establishing Moscow as a financial centre is still a realistic prospect. "It’s not going to happen tomorrow, but there’s no reason why it shouldn’t be possible in the future," he says. "Moscow may never match London in terms of capital markets volumes, but that’s not a reason for not developing them.
"There has already been a lot of work done on this but we are still only at the start of the process and there is still much to do."
On the broader topic of Russia’s stagnating GDP, a problem that had already reared its head well before the Ukrainian crisis, Avdeev merely notes that the government needs to develop a new model to reduce the country’s dependence on natural resources.
Appropriately for a serial entrepreneur and the owner of a bank with a large SME franchise, he is eloquent when it comes to the vexed question of how to encourage the development of small businesses in Russia. According to Avdeev, the main reason for the sector’s failure to expand is not the traditional bogeymen of corruption and bureaucracy - although he admits that both remain an issue for businesses large and small - but the absence of entrepreneurial spirit.
"There is a lot of talk about how bad the conditions are for business here, and there are undoubtedly many things that the government could do to improve the business environment, but the main problem is the lack of a business mindset in the general population."
For that, he says, the education system is primarily to blame. "Under the Soviet Union, the education for the industrial community was among the best in the world, but the system needs reforming in order to be suitable a modern business environment. If we are to develop a business mindset in the next generation, and thus the thriving SME sector that Russia needs, education must not only impart knowledge but also show students the sources of that knowledge and how to apply it."
Euromoney suggests that, with his passionate convictions and business experience, Avdeev would be well-placed to add value in the political sphere. He firmly quashes the idea. "Every job should be done by professionals, and I am not a professional in politics, which is why I am not involved in politics," he says. "People shouldn’t get involved in areas for which they don’t have the necessary skills, and I don’t have the skills for politics. Everyone should focus on their own business."
In a country where politics, especially if it involves even a hint of opposition to the Putin regime, is a risky business, this is clearly an expedient doctrine.
For Avdeev, it appears to be more than that: it is a theme he returns to again and again. Asked, for example, if he would advise his nearly two dozen children to go into banking, he replies: "My advice to my kids is that they should live their own lives. They can choose banking or any other profession, but the choice must be theirs. I want to educate them and show them what opportunities are out there, but I don’t want to influence their choice in any way."
Indeed, although his two eldest sons have worked for him at CBM, Avdeev has no intention of passing on that or any other of his other businesses to them - he told local business journal Kommersant in March that keeping a company in the family was "a medieval concept". He has also said that, while all his children will get a good education and help getting started in their chosen careers, his charities will inherit the bulk of his fortune.