Efficiency 2015 Annual Report

Growth Is Always There if You Look for It

Despite the fact that 2015 was not the easiest year for the economies of both Russia and Latvia, ABLV Bank has managed to find growth opportunities, and in 2016 plans to increase the amount of granted loans by EUR 200 million. Oļegs Sirotins, Head of ABLV Bank Financing Division, tells about new products and the reasons why clients are interested in cooperating with a Latvian bank.

How was 2015 for your Russian clients?

Very difficult. We are working with them in the commercial property segment. Due to the depreciation of the rouble and the decline of commercial property values, generated revenue fell by half.

Normally, this should have led to a massive crisis of non-payments of loans…

But it didn’t. Although our “safety cushions” laid down in the loan projects, i.e. a moderate proportion of financing, extended payment schedule and others,  sometimes it might fail, given the extent of the economic changes. However, we initially choose the clients very carefully. Commercial property is not the only and often not even the main activity for them. That is why they can subsidize these projects not only from savings, but also from other businesses like trade and production. We hope that the situation will change by the end of 2016.

Where does this optimism come from? The signs of the Russian economic slowdown could already be seen in 2013 — even before the sanctions.

It is about the extent of that slowdown. In 2013, our clients hoped to develop and expand their business. The sanctions played a crucial role: we need to look no further than Moscow, where French and Italian restaurants are being closed one after another and replaced by home-grown pizzerias.

Is the urge to leave the Russian market for Europe noticeable?

The clients I have spoken to are not going anywhere. They believe it is just a temporary fall in the market. Diversifying the risks by buying or establishing some business in Latvia or any other EU country is a different story. However, these clients are not going to leave the Russian market completely. They are determined to overcome the hardships, which should end, sooner or later.

So, sooner or a bit later?

Many do not expect anything good from 2016, except when trying to impress someone by talking about potential growth. However, some die in war, and some profit from it. Crisis is an opportunity to participate in the redivision of the market and to increase your share in it.

Crisis is an opportunity to participate in the redivision of the market and to increase your share.

And did other investors move to Latvia instead of Russians?

We work with German and Italian investors. However, I would not say that they have replaced Russians in quantitative terms.

What are they interested in?

High quality commercial properties. Especially in areas with a high concentration of international representative offices. By the way, we are also seriously working with investors from Lithuania and Estonia; they are developing quite high-profile projects here.

In your opinion, why is the success of Lithuanians in our market not matched by our success in theirs?

It seems that Lithuanians not only work more actively, but are also more united. They support each other, which greatly increases the chance of a company to succeed abroad. For example, when opening a retail network, Lithuanians always sell Lithuanian goods there.

For Russians, confidentiality has always been considered as one of the advantages of working with Latvian banks. Will this advantage disappear after the Financial and Capital Market Commission’s announcement about the auditing of Latvian banks by Americans?

In today’s world, it is impossible to not participate in the general globalization process, including the globalization of fiscal control. It is important that this process does not take away any of our advantages over the competition from other countries, but places us on a level playing field. In fact, Switzerland’s banking secrecy, which it was renowned for a decade and a half ago, is long gone. Nowadays, Latvia can offer clients same services as Switzerland.

Ukraine, Belarus, and Kazakhstan — do you plan on increasing your presence in these markets in 2016?

In 2015, after some time-out, we decided to resume loan services to Belarussian businesses. However, just like Russians, clients from Belarus are currently reluctant to take hard-currency loans. Ideally, such a loan is useful for an entrepreneur, who has foreign exchange earnings. This is not that widespread in Belarus. And with the changing rates of Belarussian rouble, the scenario of Russian crisis is bound to be repeated.

Ukraine is out of the question for now, although, if the situation does not deteriorate any further, at some stage we could offer trade finance to our clients.

Nowadays, Latvia can offer clients same services as Switzerland.

Your bank’s new offers in 2015 involved trade and cargo ship financing. How popular were they?

Even more than expected. We did not make unrealistic plans to fill half of our loan portfolio with them, but today we have serious and interesting projects in both trade financing and shipping. Moreover, they involve the bank’s existing clients. All we had to do was to offer these instruments, and they were happy to use them, despite the fact that we significantly increased the requirements concerning shipping, in regard to both the age of the vessels and company size.

Are the traditional views of Latvian business, that you have to go to Scandinavian banks for “long money”, shifting?

Compared to the situation five years ago, they have changed substantially; although not enough to say that the problem is a thing of the past. It is hard to pinpoint the reasons. Maybe the client of the Scandinavian bank is a client who is ready to communicate and be liable to a faceless organization. Maybe, he likes the fact that he will not have to look away when meeting the bank’s owners on the street. However, there are clients who prefer a different approach, and they come to us.

Are the owners of Scandinavian banks changing often?

It is not so relevant now, but before the collapse of 2008–2009, Scandinavians attracted clients with cheapness. However, when the problems started, and everybody suffered them during the crisis, the client was left one on one with the same faceless organization, which, in turn, negotiated loan restructuring with him like one of their many faceless clients. Perhaps, he assumed that he has a name, reputation, credit history, and the ability to appeal somewhere. However, with Scandinavians it almost never goes further than that. An order came down from “above” and everyone ran in the new direction. Sometimes the same people, with whom the client had a pleasant chat some time ago, cause a lot of inconvenience afterwards.

A client can always come to us and share his ideas and get some advice. We meticulously scrutinize the client when starting a common project. Some are very confused by this. However, after that, we can react immediately to any changes in the project.

Considering the size of our bank, now we can offer large businesses much better conditions than Scandinavians.

Wellton Hotel Riga in Old Riga is the chain’s fourth hotel rebuilt with funding from ABLV Bank

You announced a EUR 200 million loan budget for 2014, and EUR 120 million for 2015. What figure are you planning for 2016?

If we account for all directions — not less than EUR 200 million. In our opinion, these plans are realistic, considering the growth possibilities that we have today. If we talk about trade finance, EUR 50 million covers only about 5–10 clients. The standard price of shipping projects is about EUR 5 million each.

We are still ready to work with commercial property, but in Russia the demand for hard-currency loans has significantly decreased, because few people have stable sources of currency earnings now.

As for Latvia, the market is very limited. For now, there are no ambitious plans to develop or purchase some large facilities in which we could participate.

What are the current interests of investors in the field of commercial property in Latvia?

There are plans to build hotels, a new warehouse complex construction project has been launched, and several deals on purchasing Class A office buildings priced at EUR 15–20 million are in the pipeline. I have not heard about any plans to expand commercial areas.

Our current size and resources allow us to finance a project of almost any scale in Latvia.

What about the industrial sites?

There are enough of them. Given the latest technology, they take up a lot less space — former factories, where communications, electricity and gas are already available, are sufficient. I do not know if Latvia will ever again have huge factories, but current production worth EUR 1–5 million can fit into half of the first floor area of our head office. 5–10 people, everything automatized — there is no need for more.

Of course, everything depends on the capabilities and wishes of the client. Our current size and resources allow us to finance a project of almost any scale in Latvia. Thus, I would encourage Latvian and foreign clients to consider the options for financing their business at ABLV Bank. That is possibly the best choice.

Table of Contents

Creative team: Arnis Artemovičs, Ernests Bernis, Jānis Bunte, Anna Celma, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Samanta Priedīte, Jūlija Surikova, Romans Surnačovs
Project managers: Anna Celma, Jūlija Surikova
Interviews: Jānis Bunte, Ingrīda Drazdovska, Konstantīns Gaivoronskis, Katrina Gordejeva, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Romāns Meļņiks, Sergejs Pavlovs, Romans Surnačovs, Jānis Šķupelis
Text authors: Leonīds Aļšanskis, Jānis Bunte, Anna Celma, Vladislavs Hveckovičs, Jānis Grīnbergs, Māris Kannenieks, Ļubova Kazačenoka, Jekaterina Koļesina, Zane Kurzemniece, Aleksandrs Pāže, Gints Pumpurs, Dmitrijs Semjonovs, Jūlija Surikova, Kaspars Vanags, Benoit Wtterwulghe
Photography: Arnis Artemovičs, Uldis Bertāns, Mārtiņš Cīrulis, Ieva Čīka, Krišjānis Eihmanis, Andrejs Hroneloks, Alise Jastremska, Valdis Kauliņš, Valts Kleins, Marks Litvjakovs, Sergejs Mazurs, Reinis Oliņš, Samanta Priedīte, Gatis Rozenfelds, Polina Viljun, LETA foto, Marka.photo, Studija F64
Proofreader: Jānis Frišvalds
Translators: Jekaterina Koļesina, Nataļja Malašonoka, Lidija Marsova, Jūlija Surikova
Design: Aivis Lizums, Valters Horsts

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