Dmitry Leus: "I see great potential in the

revival of small and medium-sized businesses

in the Russian regions."
Providing corporate loans requires a jeweler-like approach. The Chairman of the Board of Directors of
Bank Zapadny, Dmitry Leus, talks about his partnership with Vnesheconombank (VEB), todays survival
strategies of Russian niche commercial banks, the idiosyncrasies of state-of-the-art risk management,
and the Banks expansion plans.
By Natalia Trushina, Bankir.ru
- Dmitry Isaakovich, what is your assessment of the current state of the
Russian economy? Is the banking sector feeling the stagnation
announced by certain analysts?
- Dmitry Leus: To give assessments and predictions is an ungrateful task.
The Russian and worldwide economy are such that no one can hope to grasp
the full picture and make plausible forecasts. Today, even senior analysts
equipped with the most refined methods of forecasting struggle at making
straightforward statements. I will therefore not engage in forecasts and
complex theories. However, I am prepared to share some simple thoughts on
the current market situation.
In my view, at the present moment, both a crisis and a sudden breakdown are equally unlikely. I rather
expect a situation of slow stagnation requiring some time for adaptation. The banking sector, the
regulator, and private enterprises will need to renew their focus on their core activities. In such
circumstances, it is necessary for market participants to adjust their behavior in order to work effectively
and survive.
We must keep in mind that the popularity of any banks core products is in many ways a function of the
general market situation. How to explain otherwise the fact that in the recent years almost all financial
institutions rushed into consumer credits? Banks are only prepared to take risks if they are rewarded by
profits. If, however, costs of funds are high, banks need to play by different rules in order to develop in a
sustainable way.
Thus, as long as costs of funds were low, actively increased its mortgage loan portfolio. At the same time,
we heavily invested into our IT infrastructure, created a professional management team, and opened up
new branches in strategic locations. However, we were obliged to adjust our expansion plans in the
aftermath of the 2008 financial crisis. For a short while, we had recourse to various refinancing options,
but quickly realized that our profit margin in this particular segment was too small. Like many other
financial market players, we finally had to adapt our strategy to the new environment. Hence, our
attention switched to new lending products with smaller margins but higher volumes, and to repayment
schedules ranging between 2 and 3 years.
Currently, we plan to slowly return to mortgage lending, albeit on a much smaller scale than before.
- Could we say that Bank, like most of its competitors, is currently mainly active in the segment of
consumer loans?
- Dmitry Leus: This is correct, but we are not inactive elsewhere, and plan to expand our presence in
other sectors too. Consumer loans constitute a significant part of our current portfolio, but we also plan to
address the capital needs of small and mid-size businesses (SMB) and to provide corporate loans.

As you may know, we have recently signed our first contract with SME Bank (The Russian Bank for Small
and Medium Enterprises Support) a subsidiary of Vnesheconombank (VEB). Funds will be used for
corporate lending, mainly through our regional offices. This will undoubtedly have a positive impact on the
development of Russias regional economy. Bank has the intention of continuing its co-operation with
SME Bank and signing additional contracts over RUB 3bn.
Overall, we have been providing loans to SME Bank for quite some time. For example, in the past we
offered a product called The Millionaire, whereby individual entrepreneurs were eligible to receive
credits amounting to RUB 1 million if they met certain criteria. Accordingly, we have accumulated
experience in valuing small businesses and have even developed our own approach when lending to
entrepreneurs. This is a practice we can always return to, even when times are difficult.
It is my deep conviction that banks need to be diversified, even if some of my Russian colleagues may
disagree. In todays market environment, only effective diversification is able to successfully mitigate
certain regulatory risks. However, as long as there is a popular consensus that higher than normal profit
margins can only be reached at the price of higher risks, even a profitable bank may face the risk of a
regulatory crackdown if it concentrates its assets in high-margin product lines.