http://bosfera.

ru/bo/2011/12/razvitie-v-regionah

Dmitry Leus: The Development of the

Russian Regions is Our Means of Survival
part3

- Dmitry Leus: You must be a very reliable client then... [laughs]. No, of course, there are
such people, but they are not in the majority. We have a lot of clients who know that Bank
Zapadny has been working on the credit market for over five years and has survived the
crisis. Of course, we will have to increase our rates at some point, to be in line with the
market, but we will never be able to offer the highest interest rates. In fact, our experience has
shown that even during times of strong discrepancy in deposit interest rates, capital outflows
do not exceed 20-30%.
- You are working on a joint project with the
pharmacy chain Rigla. A small bank
collaborating with a big network of
pharmacies...? What is the nature of your
collaboration?
- Dmitry Leus: We are currently launching a pilot
project during which Bank Zapadny will be
present with a small bank counter in ten Rigla
branches. For Rigla this generates an inflow of
new customers mainly interested in our services
but also having a look at the pharmacys offering
and vice versa. At the same time, such an
approach brings the bank closer to its clients.
Traditionally, a visit at the bank has to be planned
long beforehand and involves long waiting hours.
In contrast, here the client finds himself in a quite
natural way right in front of the banks counter
and can easily profit from the full spectrum of our services ranging from account opening,
deposits, loans, and credit cards. I repeat that the project just started, but if everything goes
well its prospects are excellent. Rigla disposes of a large network across the country with
points of sale in top locations.
In addition, also in collaboration with Rigla, we have started to implement a joint loyalty
programme. If the interest payments from Bank Zapadnys deposits are spent in a Rigla
pharmacy, the client receives a 20% discount on the pharmacys products. In reality, to get
such a discount is impossible, as medicine prices are regulated by the state, but here the
costs are borne by us. We offer a similar product for credit cards.
- Why did you choose a pharmacy chain as your strategic partner? Is it to enhance
your visibility?
- Dmitry Leus: This is not a coincidence. A person visiting a pharmacy is psychologically
speaking in the ideal state of mind for us. It is a perfect place to combine physical and
financial health, implying a certain concern about ones condition and a strong resolution to

http://bosfera.ru/bo/2011/12/razvitie-v-regionah

enhance or at least to conserve it. We were offered a partnership with the chain of coffee
houses Shokoladnitsa, but refused in light of the coffee-houses connotation of relaxation
and socializing. Our banking products need focused customers.
In general, I feel that the pharmacys customers will appreciate to have an open window into
the banking world, and that people may grow used to it.
- In addition to these unconventional plans, you are systematically opening new
conventional branches. More than 15 branches were opened since 2011. Can you tell
us more about this rather aggressive growth strategy?
- Dmitry Leus: I dont think our strategy is aggressive. Rather, it is a survival strategy. We
have simply understood that our development in the Russian regions is a top priority.
Our experience has shown that the default rate on loans in the regions is by far lower than in
the capital. In a small town everybody knows everybody. And the local security officer is most
likely an ex-chief of police who knows his way around. In such an environment it becomes
very difficult for creditors not to service their debt, or not to return their loans, because of the
negative publicity it immediately creates in the neighborhood.
Moscow is different. When we launch a new lending product in the capital we immediately get
hundreds of suspicious applications coming from fraudsters who are testing whether there is
a weak spot in our scoring or underwriting processes. Today such fraudsters dispose of very
sophisticated mechanisms. Normal clients only materialize in a second phase. In the
periphery, however, this pattern is significantly shorter if not fully absent.
- You have increased your capital. With what?
- Dmitry Leus: With revenues, in addition to the issue of new shares.
- Did the current shareholders repurchase these shares?
- Dmitry Leus: Yes.
- You have also issued bonds. Who are their buyers and what is their yield?
- Dmitry Leus: We have a good idea of who the potential bond buyers may be, as we have a
well-known underwriter. Even if the market is not purchasing our bonds, our underwriter and
partners have committed to purchase them. The funds raised will flow into our pipeline
products, but it is still too early to speak about yields.
- In September you surprised observers with having Bank Zapadny audited by KPMG.
When I recently checked who audited Bank Moscow a publicly listed company it
turned out it was no one from the Big Four. This begs the question why you hired such
an expensive auditor. Is this only linked to the bond issue or are there deeper reasons?
- Dmitry Leus: You are right in noticing that this was an expensive audit, in particular for a
bank of our size. The reason is simply that we already today strive to comply with tomorrows
standards. At the end of the process, auditors usually recommend what needs to be changed
or improved. We listen carefully to this advice. If we want to go public and going public is
the epiphany of every business the right asset structure is of key importance. If a globally
recognized auditor acknowledges our structure, this already means an 80% rate of success.
We recently visited the London Stock Exchange and were told that a public listing is possible
without a credit rating, but it is not possible without an international audit. Investors think the
same way. This is why we believe that having a good auditor will provide us useful guidance
and help us avoid mistakes going forward. In short, a KPMG audit is an investment into the

http://bosfera.ru/bo/2011/12/razvitie-v-regionah

future.
- An IPO is a long-term goal. What about the short term? Are you planning to attract
investors?
- Dmitry Leus: Certainly, but let us first ask: with what objective do we wish to attract
investors? We want to become a model bank with an absolutely transparent business and a
clear focus on improving processes in line with international standards. This must be the
objective and not the dissolution of our shares through a financial investor. This is why we
are only interested in attracting an investor such as, for example, the European Bank for
Reconstruction and Development. Put differently, we are looking for a partner ready to share
his know-how, expertise, and experience, and guide us by best practices and model behavior
not unlike an older brother. This must be the objective. With such an investor on our side we
will walk gently into the future.