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The bear gets bullish


Only one outstanding casualty

I began by asking Pokamestov about the fate of Eurokommerz and whether any other Russian factors had also failed during the recent crisis. ‘Eurokommerz is no longer in the market, although it does continue to operate a small office in Moscow dealing with the winding up of the company’, Pokamestov said. ‘The former factor faces several court cases related to its debts, bankruptcy and its counter-party liabilities. Meanwhile, thanks to its securitisation deal, VTB Bank continues to pursue Eurokommerz’s debts’.

‘In terms of other players in the market, there were a number of departures – of small and medium sized factors with a limited domestic presence – but these appear to have been only temporary’, he explained. ‘These factors are now looking to re-enter the market following the easing of conditions that prompted their departure. It appears as though the restriction of resources, credit and risk management that characterised 2009, have lessened and that the improving situation should see their return’. 

When asked about the situation moving forward, Ilya said ‘in 2010, I do not expect to see any more departures - revivals and reincarnations perhaps, but no further casualties. There has been a distinct stabilisation of bank rates, credit risk and the wider global economy, and to paraphrase the words of Vladimir Putin “the craziness for Russia has finished”. Having said that, it is worth bearing in mind the reduction in banking rates introduced by the Bank of Russia - which have in recent months helped factors - may well also create competition for factors from the banks as terms of lending ease’. 

Not as rough a time as elsewhere

Looking back at 2008-2009, Pokamestov made clear that things weren’t as bad in Russia as they had been in other markets. ‘Not taking into account the fate of Eurokommerz, the fall faced by factors in the recent downturn was far less precipitous than that experienced by the banks’. ‘Thanks to risk management systems, strong monitoring of clients and their increasing recourse focus, Russian factors have managed to emerge from the crisis relatively unscathed’, Ilya said. ‘It is also worth bearing in mind that the number of factoring clients in Russia is far lower than those in other markets and this has meant that factors have been able to pay closer attention to their clients than is possible in other markets’.  

‘Taking the National Factoring Company (NFC) as an example, they boast around 800 clients, one hundred of whom account for around eighty per cent of their profits. With a staff of around 350 they have a high staff to client ratio – far higher than in more mature markets - which enables them to pay careful attention to their clients and risk management. NFC are admittedly pioneers in the market, but their staff number are indicative of the make-up of the Russian client-factor relationship’.  

Despite the limited losses, Pokamestov made clear that ‘it is still possible to count the number of good players in the Russian market on one hand and there remains significant potential for the further development of new and existing players’. 

‘The Russian market is peculiar in that when it develops, it does so more rapidly than other markets, but when it runs into trouble it also falls more rapidly than others’, he said. ‘I am not entirely sure why this is – perhaps because of our mentality, perhaps due to Russia’s economic landscape – but the industry has experienced exactly this rapid decline and rapid recovery over the last eighteen months. Fortunately, Russian factors are now springing back and really moving forward in the recovery phase’. 

Same clients, different offering 

Concerning changes to clients brought about by the downturn, Ilya indicated that ‘there has been no significant change in the type of client, the big change being the type of client factors are opting to fund, rather than the type of industry or client. Virtually every factor has restricted their selection, collection and risk management processes, and as such they have been the ones determining the client make-up of their portfolios’ Pokamestov explained. ‘In 2009 there were very few new clients for the industry, the focus of factors efforts being upon existing clients and ensuring that these were well funded through the downturn’.   

When asked about the product offering in Russia and the impact that the downturn has had upon its make-up, Ilya made clear that ‘factoring with recourse has become the increasingly dominant product in the Russian market. Whereas prior to the crisis the make-up of the market was around eighty per cent recourse and twenty per cent non-recourse, this has changed quite dramatically with around ninety-five per cent of the market now being recourse factoring. I expect that the situation will slowly work its way back to the pre-crisis 80/20 ratio, but this development will be slower than the move towards non-recourse factoring in the five years prior to the crisis’.  

And when asked about the provision of cover, Pokamestov stated that ‘there has been a virtually total absence of credit insurers in the market. Very few players have been able to offer any form of cover, with the possible exception of Societe Generale Vostok Bank and Promsvyazbank. There are however good players looking to develop their credit insurance offering in Russia, but at the moment the market is distinctly short of both reliable players and adequate cover’.  

Foreign caution. Adventurism wanted

Regarding the entry of foreign players into the Russian market, Ilya indicated that it had ‘been limited and pretty slow. If we take FIMBank’s involvement as an example, their entry has been positive but plodding’ he said. ‘They started looking for an investment prospect in February of 2009 and only appointed a CEO for their venture in February of this year. Russian factoring really needs more investment and dynamism from international players in order for the industry to really mature. There are a number of global players in the market – such as BNP Paribas, HSBC, Societe Generale and Unicredit – but all of them have a very limited presence in the market, are focused upon the Moscow-St Petersburg region and have been decidedly risk averse’, Pokamestov indicated.  

‘The reality is however that Russia is no more risky than any other market’, Ilya said ‘and I have been trying to convince foreign players of this fact for some time. A few years ago I held talks with Societe Generale in Paris regarding developing their presence into Russia. They were looking to develop into Russia in one or two years time, but I was able to convince them that the time was right to enter the market immediately. Since their entry four years ago, they have suffered no losses on the portfolio, with only a few delays in payment still being worked out due to changing client conditions. Their decision proved to be a good, profitable move; and their development –although still limited – has made clear that those factors that are established on a firm basis can find themselves in a winning position in Russia’. 

Meanwhile, ‘providing not insignificant competition to the foreign players, are those government banks that have recently entered the factoring field. Since the crisis, the government has paid increasing attention to the funding of SMEs and as such they have lent their support to the offerings of government banks – specifically VTB and Sberbank – both of whom represent sizable and well-funded competitors to foreign entrants. VTB boasts a host of oversees offices, which could support an international offering, while Sberbank is the largest bank in eastern Europe in terms of capital reserves’, Pokamestov said. ‘These government players can draw upon cheap financial resources and the huge authority of the Russian government in the eyes of their clients. And following the crisis, an image of reliability has become all the more significant. These government players should serve to make the market increasingly competitive, and this can only be positive for the development of the Russian market’. 

Developing into the near abroad 

When I asked him about Russian development into the CIS he stated that ‘this is one of the most popular questions posed on my website FactoringPro [a market intelligence website specialising in the Russian factoring market]. Countries in Russia’s near abroad are close in terms of mentality, law and history and so it is natural that Russian banks and factors should develop their presence into these neighbouring countries’, Pokamestov said. ‘It is evident that the likes of VTB and Promsvyazbank are already pursuing plans to develop their presence into the CIS’. 

‘In terms of timelines however, I expect that real development into Russia’s near abroad will be a time in coming. If we take Sochi 2014 [the 22nd Winter Olympic Games] as a signpost, I believe that foreign competition will have developed in Russia prior to the Games, with Russian development into the CIS becoming a reality some time after the event’.    

‘In terms of attracting foreign investment, Russia has been the most attractive CIS market in recent years’, a fact that should help make Ilya’s Sochi predictions a reality ‘but as the situation settles in the Ukraine it may well emerge as a major competitor in terms of investment’ he said.  

Lessons and positives from the crisis 

Finally, I asked Pokamestov what were the major lessons Russian factors had learnt from the crisis and what positives emerged from a difficult two years. ‘The first lesson is - “It is good to believe what you are told, better still to check yourself”. Make your own analysis of the situation and do not rely solely rely upon the insights of consultants and auditors’.  

‘The second lesson, and in the words of Roman Ogonkov – “risk management is king”’, Ilya explained. ‘Here in Russia we have no risk management systems comparable to those in more mature markets. Rather we have copy pasted our systems from banking technology, with little in the way of actual factoring risk management’. This evidently needs to change.  

Regarding the positives to emerge from the crisis, Pokamestov explained that ‘we have been able to “refresh our factoring blood”. The industry has left behind many of the bad practices that dominated 2008-2009 – issues such as bad risk management, bad players and poor relations between the industry’s various players’. Moving forward in 2010, he said ‘factors are beginning to cooperate with one another, real risk management systems are beginning to be introduced and new and capable players are emerging in the market’. Such developments can only be positive for the Russian factoring industry.   

Источник: www.factorscan.com

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