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Can Alfa Be The Alpha Dog?


Something has gone wrong with an attempt by Russia's largest commercial bank to dominate one of the country's fastest-growing businesses: private retail banking. Alfa Bank, a leader of the Russian corporate-banking world, is treading water when it comes to individual accounts, growing no faster than the overall market. The bank is also falling behind rivals' growth rates on its home turf in Moscow, despite having spent $50 million on a network of high-tech minibranches throughout the city. Even worse, Alfa lost its coveted slot last year as the No. 2 retail bank, according to an Interfax ranking.

Help may be at hand though. Keen to maintain the momentum behind Alfa's aggressive retail drive, the bank is pinning its hopes on newly-installed Czech CEO Petr Smida. His predecessor, Russian-American Alex Knaster, left last year after helping to push through a tie-up between British Petroleum Co. and TNK -- the largest-ever M&A transaction in Russia. While Knaster, who once headed Credit Suisse First Boston Corp.'s (CSR

) operation in Russia, was known for his investment-banking prowess, Smida, 41, is a retail-banking guru. And that's just what Alfa needs. Although a foreigner and a newcomer to Russian banks, he brings a wealth of experience as a General Electric Co. (GE

) consumer-finance whiz. Alfa is counting on him to spearhead a renewed push into a booming retail market.

Smida's first move was to sack four top managers, including the head of retail banking -- a position Smida has temporarily taken on himself. He says Alfa must rethink its way of doing business or risk losing out to rival private banks and state-owned Sberbank. Certainly the opportunity for growth is there. Russian retail banking now boasts $40 billion in deposits and is growing 65% a year. While 68% of that money is parked at Sberbank, a relic of the Soviet era, the race is on among private Russian banks to chip away at the government-run bank's dominance. The key, Smida says, is offering better service. One of his goals is to handle 80% of retail account service via Internet or telephone. That will not only keep costs down but also help deal with a pressing need to improve the bank's spotty reputation for customer service. Its 20 new minibranches are plagued by Soviet-style lines and an undertrained staff. "People come to the branches, but we don't succeed in serving them well," acknowledges Smida.JUST NOT FAST ENOUGH. To be sure, Alfa's chief problem is an enviable one: It's growing fast, just not quite fast enough. Although Alfa's deposits rose by 63%, to $1.3 billion, in Russia last year, they were up just 50% in Moscow. That was far below the 90% growth for the city, Russia's banking hub. Alfa is keen to expand in retail because of its overwhelming dependence on corporate banking. It has the second largest corporate loan portfolio in Russia, lending to clients such as electricity concern United Energy Systems and food processor Wimm-Bill-Dann Foods. The new focus on retail banking reflects the thinking of Alfa's owners, Russian tycoons Mikhail Friedman and Petr Aven. "They're trying to become a universal bank, which diversifies their business," says James Longsdon, a banking analyst at Fitch Ratings agency in London.

Smida, who admits he's a novice when it comes to Russia, made a name for himself in the 1990s by helping to pioneer consumer finance in his native Czech Republic. After that, he honed his skills as head of GE Capital's Czech unit and served a stint as senior vice-president at GE Consumer Finance's global headquarters in Connecticut. Smida is confident Alfa's profit machine can keep on spinning. "The proposal was to be CEO of the best private bank in Russia. How many times in life does a proposal like that come?" he says. Now Smida's job is to work some of that old GE magic to help Alfa regain lost ground. By Jason Bush in Moscow


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