Expert word

Hello, Mono!

Diversification is again out of fashion. The current vogue in Russia is mono product banks that focus on a particular kind of bank services - mortgages, consumer credits or plastic cards.

Though viewed differently in some quarters, the “mono" idea pays off in most cases. It is enough to see the banks that lead the various segments of crediting in order to assess the gains that product concentration promises to bring to the developing market. It is enough to calculate that it was specialized mortgage banks that were sold with the highest factors to the capital during a recent M&A wave. It is enough to recall that Oleg Tinkov, the new Russian economy’ enfant terrible, is now setting up a "plastic" bank intending to make it one the three top banks or even the number 1 bank in a year’s time.

By developing mono product business a bank immediately reduces its costs and raises its standards of the services rendered. In the long term, however, the mono idea is not that simple. Only those banks who concentrate on products with an acceptable risk level (ideally, with collateral) are in a position to stay loyal to it. Mortgage, car loan and factoring banks are prospering while those which require no collateral security or those dealing in plastic cards find it necessary to look for additional sources of stability. It is easy to take risks when your capital amounts to $80 million but when you are already worth $800 million, and the risks are still high, one is bound to think it is time to appreciate one’s achievements. So the gradual entry of Russian Standard Bank, Home Credit Bank and other retail credit leaders into the adjacent markets of mortgage, car loans and plastic cards is not solely due to the feverish consumer crediting market and the Russian Standard Bank vs. the People of Russia people notorious campaign, it also stems from their desire to raise their business to a new level.

The resulting scenario is well known: the snake devours its own tail, and the mono is replaced by diversification. So it appears that in several years’ time it will become fashionable to diversify again unless the fashion of selling to foreign investors leads to the total disappearance of Russian mono product banks.