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Online press conference of Rietumu Banka: "Latvian banks. 500 days in the EU. New opportunities and prospects."

Anchor's introduction

Dear colleagues, RBC's press center is beginning an on online press conference with Rietumu Banka's management. Our guests today are CEO and President Michael Joseph Bourke and member of the executive board. Good afternoon, Mr. Bourke. And senior Vice President Alexander Kalinovsky: good afternoon, Alexander. Dear guests, I gladly yield the floor to you.

Thank you very much for your invitation to this press conference. I hope we will answer all the questions that the audience asks. We will be glad to meet its expectations.

Good afternoon. Thank you for the opportunity to be here. We hope that many of your Internet users and viewers are interested in questions on the Latvian banking system. We hope our answers will help some of them to get new information on the subject.

Mr. Kalinovsky: In terms of the main indicators, our bank's share is from 8 to 10 percent on the Latvian banking market and from 3 to 4 percent on the market of the Baltic states (we often consider not only Latvia but all three Baltic states: Estonia, Latvia and Lithuania). I can add that from the point of view of the market, this question obviously concerns both the bank's shareholders and management. But what has always been more important for us is our bank's development dynamics and our market share in terms of such an important indicator for shareholders and management as the bank's profitability. In terms of growth rate and profitability, our market share is from 12 to 15 percent, and we believe that we are doing everything right as long as we manage to maintain these dynamics.

Mr. Bourke: I cannot separate the situation with Latvian banks and that of the country in general, as these two things are directly connected. After Latvia became a member of the European Union, the country saw a boom in business and finance. Latvia is becoming one of the financial centers of Europe: a bridge between Europe, the American continent and countries in the east of the EU. We think that Latvia's accession to the EU provided a new stimulus to the development of the country in general and to its banking system in particular.

Mr. Kalinovsky: You know, I think the accession to the European Union implies a vast range of questions concerning all main economic indicators, and the banking sector has obviously changed a lot since Latvia joined the EU. Accession to the EU is an enduring process for any country. That is why the fact that Latvia joined the EU a year and a half ago does not mean that it was also a year and a half ago when serious changes occurred. Legislation, the legal basis - all that had been adapted to the EU requirements many years before the accession itself… We can state today that Latvia's banking system and economy in general are definitely benefiting from joining the EU.

Mr. Kalinovsky: We are bullish about them. I think that in order to understand the prospects of foreign companies in your country, it is just enough to visit Moscow, St. Petersburg and other Russian developing regions from time to time; many things are clear without saying. We think that one of the main factors impeding growth of the Russian economy is the lack of long-term and fairly cheap credit and financial resources. From this point of view, the growth prospects of foreign banks ready to work here, including Rietumu Banka, are simply unlimited. Of course, competition will intensify, but nevertheless Russian clients and the economy will only benefit from this, as competition always helps customers. We believe we have something to offer the Russian market. We believe the Russian market is growing and developing, that it has enough space for everyone who has decided to work here professionally and continuously and that it is not the time for banks to elbow their way into the established market. That is why we assess the development prospects in Russia and the CIS as brilliant.

Mr. Kalinovsky: Banking always implies two types of risks. The first concerns financial activities that cannot but involve certain risks. Any business may go wrong, and in the event that something happens in a business that has a bank credit, this turns into a problem for the creditor bank as well. As such, it is clear that Russia, like any other country, has certain business risks connected with clients' businesses. We think they are neither larger nor smaller than clients' business risks in any other country. Recent economic consequences have shown that serious business risks exist in large American, Swiss, English, German, Russian and Latvian companies, and their current level is approximately the same everywhere. A different matter is another risk category, usually called country risk, or political risk. As we see it, Russia's current country risk in the segment we work in (middle-sized business and individuals) is insignificant. We think today's Russia is a fairly stable system where it is possible to conduct business. Of course, it is more difficult to conduct business abroad than in your own country. I assume projects in Latvia for a Russian bank would be as difficult as project monitoring and financing for us in Russia. This is normal and we understand this. We are increasing the number of experts specializing in the Russian market; however, from our point of view, it would be an exaggeration to speak about some special Russian markets, at least with the region we work in.

Mr. Kalinovsky: I think our answer will be very brief: we have a lot of clients, a very brief answer. We can only tell you what kind of clients our bank provides services for. These are mainly medium-sized and large companies that need a full range of banking services including crediting, financial consultations and structuring. In addition, there are affluent individuals. Historically, these two categories have been our priority. Unfortunately, or probably fortunately, we simply cannot speak about our clients in more detail, because first of all, there are principles of banking confidentiality, and secondly, we strictly follow them.

Mr. Kalinovsky: Yes, it's true. We are seriously considering the acquisition of a considerable stake in a Russian bank. This is directly connected with our general plans and the additional plan that evolved after Dermot Desmond, our new Irish shareholder, joined us. All these plans concern business development in Russia. We have already commented today on the risks involved in business conduct in Russia by saying that it is very difficult to implement investment or credit projects in a foreign country. As such, we believe we need a Russian foothold to develop our business at a new stage, i.e. to develop our business in Russia. That is why the decision to acquire a Russian bank has already been made. Another matter is that we are now holding consultations: we have quite a few partners among Russian banks; we know the operations of dozens of Russian banks and have personal relations with them. We are assessing our possibilities and what can be acquired at present, so it is too early to announce the names. But what I can say now is that we do not see another way of reaching a new level of banking business in Russia for Rietumu Banka other than to buy a Russian bank.

Mr. Bourke: We have two main shareholders, individuals from Latvia. One of them has managed the bank since 1992. As Alexander said, the third major shareholder has recently joined us. This is also an individual, a famous businessman from Ireland, who is well aware of the situation not only in Europe but in Latvia as well. All our main shareholders are interested in the bank's development. In addition, several managers and key specialists have stakes in the bank's authorized capital. Mr. Kalinovsky: I would like to add that there are no legal entities among our shareholders. As Michael has just said, these are several founders of the bank, who are the major shareholders along with the new Irish investor…

Mr. Kalinovsky: I think the most important is to tell our clients about the possibilities they already have. I think advertising policies are, among other things, a good way to inform clients about the possibilities that are available to them.