Bank Vozrozhdenie’s template for Russian banking

20 марта 2013 года

World Finance

By Dmitry Orlov Founder and chairman of the board of directors, Bank Vozrodzhdenie Wednesday, March 13th, 2013
As part of a former communist country, Russian banks found it tricky to enter the securities market in the 1990s. Bank Vozrozhdenie became one of the first in Russia to join. Years on, how has it faired?

I was head of the Moscow district branch of Agroprombank USSR when privatisation in Russia was initiated in 1990. From that point, my closest colleagues and I saw not a single reason to remain in the government structure. We felt enough confidence for the independent journey, so we took our own way and did the right thing. On October 12, 1990, our shareholders were called in on the statutory meeting. That was the day Bank Vozrozhdenie was founded.

Changes ahead

These were the times when the air was impregnated with the spirit of reformation and future development. Every single person was thinking of our country’s revival. That’s how the bank’s name was born — on our plans and expectations for the coming years of growth and development for modern Russia (vozrozhdenie means “renaissance” in Russian).

The foundation documents were sent for registration in October, and on April 12, 1991 — the national day of cosmonautics in Russia — Bank Vozrozhdenie got the registration certificate. It had 13 founders and, initially, a rather small charter capital of 100 million roubles.

Growing markets very soon opened up other opportunities for external funding. When the bank made to its initial securities issue, we didn’t have to invent anything new, we simply used the world’s best practice that had successfully worked for our Western colleagues for decades. For the investors it has always been necessary to access easily full information on the de-lineation of the management’s responsibilities, regulations and procedures for the operations taking place, so we initially paid immense attention to that matter.

Corporate governance

We adhered to a pro-active position on those matters, after it took five years to build a competitive business with the sound corporate governance system from scratch, within the newly developed market. These first years were very important as this was the time of main reorganisations and changes in our work. We started to work with international auditors and prepare IFRS reporting.

Even after all the market reforms, most of the companies in our country preferred to develop and grow on their own capital. On the contrary, we had an understanding from the very beginning that one day we would benefit from access to capital markets and high standards of corporate governance in the bank.

We put special emphasis on its improvement, working towards establishing a clear strategy of the bank’s development, transparent division of powers within the structure and among the top management. All that led us to the capitalisation growth, not to mention that high effectiveness of a decision-making process within the organisation contributes to the improvement in the business results, and its inconsequential foreign markets or national markets are targeted.

Everything changed in just one day. It was a real school of survival, which made my colleagues and I radically change our views and strategic plans for the future of business development.

The lead was taken from the world’s best practices, using principles and methods that were developed by Basel Committee on Banking Supervision, based on Corporate Governance Principles of the Organization of Economic Cooperation and Development. We surely comply with the Federal Service for Financial Markets recommendations. I’m pleased that Russian legislation in this sphere is continuously developing as well.

The right decision

In summer 1992, Bank Vozrozhdenie was among the first four Russian banks to have shares accepted for trade on the Moscow Central Stock Exchange and led the way on the Russian stock market as well. In 1996, Bank Vozrozhdenie became the first bank in Russia that issued ADRs. Passing all the required procedures and making the bank’s shares available to US investors supported high capitalisation levels within our country and on the overseas markets.

Foreign investors acquired the full volume of the offering of Bank Vozrozhdenie’s ADRs. This was definitely a real opportunity to attract serious interest among investors. Not only did we raise awareness and our reputation on the foreign markets, we also lifted shares liquidity on the national market. In 2000, CIBC became a shareholder. It acquired a stake of eight percent, which made it one of Bank Vozrozhdenie’s main stakeholders, and laid the foundation for long-term cooperation.

Our success in the SPOs was supported by the transparency of the company, the quality of the disclosed information and corporate governance — key decision-making factors in addition to financial results. In 2005, Standard & Poors gave the highest rank to Bank Vozrozhdenie on the transparency and level of disclosure. From then, the bank has constantly been presented in Standard & Poors top 20 ratings on transparency among other top Russian companies.

Like many banks with a similar history, we had some rough patches on our path of development and growth. Of course, surviving the early financial crises was part of it. But, in my opinion, the biggest challenge for us was in August 1998, when the whole Russian financial system fundamentally collapsed, following the sovereign default. By then, Bank Vozrozhdenie had been developing rapidly and we had a solid financial future.

Survival of the strongest

It was very important to establish and communicate a reliable business model resistant to all the external shocks and backdrops.

Everything changed in just one day. It was a real school of survival, which made my colleagues and I radically change our views and strategic plans for the future of business development. Some prompt decisions had to be taken to adjust to the situation in the country with banks, and the whole banking system.

Bank Vozrozhdenie presented a stabilising programme for a three-year period, which was accepted by the Central Bank of Russia, and in the post-crisis year of 1999 the bank was already officially classified as a financially stable credit institution. We always considered long-term stability as important as solid income.

We managed a successful combination of conservatism and innovation in our business strategy by always looking forward to future development, where we keep in mind lessons of our previous experience, which support our positive reputation with investors.

For us, corporate governance is always on the agenda. Its correct organisation is vital for all banks — whether working in international or national arenas. Continuous improvement puts the quality of management and cooperation within the organisation on a higher level, which promotes better efficiency and quality of business processes.

We are currently in the midst of a project aimed at operating efficiency improvements, and among the first steps there was reforming the corporate governance system. As one of the measures, we enhanced the Board of Directors’ role and its controlling functions over the CEO activities, as well as over the banks’ operation itself, implementing our strategic policies.

Keeping the balance of interests of our shareholders, board members, the banks’ management and clients is very important for long-term relations. Our positive track record of consistent communications with the investment community helped us to keep the trust of our investors, even during the difficult years of the crises. It’s also crucial for the stable growth of the business to remain on the improvement of risk management systems, and a high level of internal control within the organisation.

Developing successfully

As we all know, a successful business development is based not only on proper strategy, qualified top management and strong market positions — the access to investment capital is also a good indicator of performance. But investors won’t put real money into a bank whose business they do not understand, that doesn’t have effective control procedures for its operational system.

For us — a mid-sized private bank with no government support — it was very important to establish and communicate a reliable business model resistant to all the external shocks and backdrops. We continue to maintain high standards of information disclosure, transparency and control system within the organisation, as it’s essential for us to demonstrate that we value the trust of our investors, respecting their money and rights.

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