|03 April, 2019

INTERVIEW- Russia's largest bank in talks with top GCC funds and banks- deputy chairman

Sberbank is expanding Islamic finance offerings and will decide by the end of 2019 on whether to open a GCC branch

Sberbank headquarters in Moscow, Vavilova street 19

Sberbank headquarters in Moscow, Vavilova street 19

Sberbank

Russia’s largest bank, Sberbank, which holds nearly one-third of aggregate Russian banking assets, is looking into new opportunities in the Gulf region as it expands its shariah-compliant offerings, the bank’s first deputy chairman said.

“We are in talks with biggest banks here in the region and the largest funds and we see a lot of interest in Russian companies. We also have our interest in doing business here in payments and other business opportunities,” Alexander Vedyakhin told Zawya in a recent interview in Abu Dhabi.

The Central Bank of the Russian Federation is the founder and majority shareholder of Sberbank, owning just over 50 percent of its capital. International and domestic investors hold the remainder.

Russia and Middle East oil producers have started to forge closer business ties with a growing number of deals since the Russian-OPEC deal agreement was signed in December 2016 to cut oil output.

The United Arab Emirates has also cancelled a requirement for entry visas for Russian citizens, and tourists’ inflow from Russia into the UAE has increased significantly, according to Sberbank’s Vedyakhin. The number of overnight Russian visitors to Dubai in 2018 increased by 28 percent to 678,000, according to figures published by the Dubai government’s tourism body in February.

On whether the bank is looking at opening a branch in the Gulf Cooperation Council (GCC) to serve growing investments between Russia and Gulf oil producers, Vedyakhin said that it is weighing the positive aspects of physically expanding into the region as well as navigating any potential negative impact.

“As a corporation, if we see some good results, we will establish a presence in the Middle East,” he said.

As for which country is most likely to house a branch should it decide to open one, he said: “We have to start with a hub in the region, and the UAE is a hub so it could be Dubai or Abu Dhabi. We have started our journey here in the Middle East, and this is a good point to enter the market from the UAE,” he added.

“We also have good opportunities to develop Sberbank correspondent networks with Saudi banks.”

In November last year, Reuters reported that Abu Dhabi sovereign wealth fund Mubadala, Russia’s RDIF and Saudi Arabia were in talks to buy a 16 percent stake in a Russian oil drilling firm. (Read more here).

In January this year, Russian sovereign wealth fund RDIF also stated that it is set to significantly increase its number of investment deals with Saudi Arabia. (Read more here).

“We have certainly seen a trend of increasing ties in shared investments between Russia and the GCC through SWFs and energy, but also in commercial ties,” Karen E. Young, Resident Scholar at the American Enterprise Institute told Zawya in email comments.

In May last year, Abu Dhabi’ Mubadala acquired a 44 percent stake worth $271 million in Russian gas giant Gazprom’s subsidiary.  (Read more here).

In the same month, Dubai’s largest lender Emirates NBD agreed to buy Turkey’s Denizbank for 14.6 billion Turkish lira ($3.2 billion) from Sberbank. However, the Turkish lira’s subsequent plunge in value offered an opportunity to re-negotiate the acquisition price deal.

A statement from Sberbank and Emirates NBD issued on Wednesday said a renegotiated deal had been signed on Tuesday. Emirates NBD has now agreed to pay 15.48 billion lira ($2.77 billion) for a 99.85 percent stake in Denizbank. The deal is expected to conclude by the end of the second quarter.  (Read more here)

On the timeline for deciding on whether to establish a physical presence in the GCC, Vedyakhin said: “We have started and this is the first official visit from the executive board (to Abu Dhabi). By the end of the year, we can take a decision based on the results we see.”

Expanding Islamic finance offerings

Vedyakhin also said the bank has experience in Islamic finance, and that he sees opportunities in this sector.

“We made some deals and we have a really big pipeline for this,” he said. “This is really important for us, because in Russia we have about 14 percent of Islamic population.”

He said the Islamic finance team in Sberbank has structured a number of products for financing corporate clients. Currently, the bank offers murabaha products for trade finance operations, murabaha wakala for short-term financing, and an ijarah product for funding tangible assets. Furthermore, the bank has a structured deposit product based on wadiah and mudarabah.

It also has other Islamic finance products in the pipeline to assist export operations and local infrastructure projects. Last year, Sberbank financed export operations for commodity trading, backing a UAE-based exporter of wheat.

“One of the advantages which we have in the portfolio is a shariah-complaint digital startup financing. This startup is Payzakat project. Payzakat is a digital platform for collections and distribution of charity payments,” he said.

Islamic finance, however, is not yet regulated in Russia, but the group is talking with the Russian regulator on ways to proceed in this aspect, according to Sberbank’s Vedyakhin.

“The global standards in Islamic finance are not implemented in Russia, but we are on the way. Despite this, we have some specialised products for Islamic banking by Sberbank. In Russia, Islamic finance has just started, and we believe there are a lot of opportunities to increase the volume,” he said.

“Now, we are in the beginning phase in Islamic finance.  We have products, understanding, Islamic population in Russia, and we have the money and intention to take this forward,” he said.

On Tuesday, Sberbank announced its first letter of credit which is compliant with Islamic banking. The bank confirmed a letter of credit issued by the State Bank for Foreign Economic Affairs of Turkmenistan for reimbursement of the Islamic Development Bank on debt related to the TAPI (Turkmenistan–Afghanistan–Pakistan–India) gas pipeline project.

Sberbank attracts the most amounts of deposits in Russia, with around 15,000 branches, along with international operations in 21 countries including India, China, Turkey, the United Kingdom and many central and eastern European nations.

(Reporting by Nada Al Rifai; Editing by Michael Fahy)

(nada.rifai@refinitiv.com)

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