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Factorscan.com. PSBank: a factoring ‘big brother’

A number of multinational banks are playing an invaluable role in the development of factoring globally. Acting as ‘big brother’ institutions, these international banks – headquartered in often larger, more mature, factoring markets – help to provide those new markets into which they develop with invaluable systems, skills and experience. International banks such as Austria’s Intermarket and Raiffeisen, Russia’s Promsvyazbank and Italy’s Unicredit Group have all played, and continue to play, a vital part in promoting the introduction and spread of receivables finance into their ‘near abroad’. These banks have taken a lead in the emergence of invoice finance into large parts of eastern Europe and the Commonwealth of Independent States (CIS), complimenting the work of international and local associations as the product has gained further ground in the region. These ‘big brother’ institutions have established leading market positions in a number of regional markets and look set to become central players in such fledgling factoring states as Belarus, Kazakhstan and Moldova.   

 In the first of a two part look at factoring ‘big brothers’, Factorscan speaks with Oksana Nekhvorosnaya, Head of Import Factoring Division, at Promsvyazbank in Russia, about the role that PS Bank has played in developing factoring into its ‘near abroad’, the key motivators behind these moves and why the bank applies a similar approach to its operations in all the countries of the CIS.

 Trade partners

 One of the key areas into which Russia has been developing its economic and political influence in recent years, is into its ‘near abroad’, specifically the Commonwealth of Independent States  (CIS – Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan) and it is into these countries that PS Bank’s has also sought to build up new factoring operations. The reason for this focus has in large part been due to the economic significance of these neighbouring countries and Russian interest in partnerships with these states, but linguistic and cultural links have also played their part. And if one examines data concerning trade with Russia’s ‘near abroad’ the motivations behind PS Bank’s decisions to establish a factoring and banking presence in these countries becomes apparent.

 According to data from the Russian Federal Customs Service for the eight months of 2009 Russian trade turnover with Belarus amounted to $14.5 billion, $12.5 billion with the Ukraine and $8 billion with Kazakhstan. Russian trade with the remainder of the CIS countries is comparatively much lower, but it is upon funding this bilateral trade that PS Bank intends to focus, with the development of these relationships a key motivator in its strategic expansion into the CIS.

  Russian Federation. Volumes of trade with the CIS countries in January-August, 2009 (millions, USD)

 

Country

Turnover

Export

Import

Azerbaijan

1097.6

949.9

147.7

Armenia

428.2

366.9

61.3

Belarus

14509

10416.9

4092.1

Georgia

173.5

150.1

23.4

Kazakhstan

7958.4

5773.1

2185.3

Kyrgyzstan

797.6

551.9

245.7

Moldova

555

367.4

187.6

Tajikistan

468

348.3

119.7

Turkmenistan

702.5

677.1

25.4

Ukraine

12559.9

7298.4

5261.5

Uzbekistan

1520.5

1079.7

440.8

Data: Federal Customs Service, Promsvyazbank

Developing into the near abroad

Promsvyazbank’s aim is to establish partnerships in international factoring with the countries of the CIS and is working towards creating favorable conditions for doing so with all of the countries of the union. Such a decision ties in well with Russia’s current trading focus upon the countries of its ‘near abroad’ and with the goals of the bank.

Concerning decisions to develop our operations into one country or another, we rely upon our own representatives’ in-country and upon our past experience and statistical knowledge to best develop our presence and scope into these new markets. When considering entering its specific markets, it is worth bearing in mind that the situation in each market is individual and very particular, so it is difficult to speak in generalities. Conditions vary widely across the different countries of the former Soviet Union. The Baltic States for example have joined the European Union and as such have seen an expansion of European banks into their financial space. International banks are meanwhile very active in the Ukraine, with the presence of Russian banks much lower there when compared with the other states of the former USSR. At the moment, we are concentrated upon cooperation with those Russian companies that conduct import and export business with CIS countries and in the coming five years we intend to further develop our factoring relations with these countries, who are increasingly ready for the factoring product.

Keeping a handle on the essentials

The most important thing for us is to establish a solid partnership between the two parties to the trade transaction, and this is the case no matter what country we are operating in. PS Bank is ready to take on only those risks which it can understand. If there is a lack of clarity regarding the business environment into which we develop our operations or the companies themselves, we will not take on the business. As a rule when dealing with these new markets, there are complications associated with currency legislation and customs legislation, the regulation of banking activities, business transparency and the quality of information disclosure. If we can overcome these issues through a solid partnership however, we will consider developing our offering into these environments.

The most important aspects factors need to pay attention to when developing their operations into new markets, are ensuring that procedures are followed as they would be at the parent bank and by insisting upon the appropriate mitigation of risk. By implementing such measures, PS Bank guarantees the stability and quality of the service that it provides, and this means that no matter what market we are operating in, the same systems are applied to clients, debtors and the product, irrespective of location. A shared lingua franca and business connections are also significant when it comes to counterparty transactions – and Russia is fortunate that many of its CIS neighbours speak Russian – although cultural and linguistic connections are not central to the factoring relationship in the same way that consistent risk management and the application of processes are.

Future intentions

We have been fortunate in recent months that we have been able to secure both liquidity and credit insurance for our operations in the CIS region. In those markets where our bank has both experience and solid partners - in particular within the framework of the Factors Chain International (FCI) network - we have achieved success in being able to continue to offer and fund operations in the region.

Looking forward, we intend to apply our own experiences and those of the FCI network operating in CIS to assess the quality of potential new factoring partners in the region.  Further development will depend upon the business activity of CIS countries in the international arena, and our factoring department has shown its willingness to develop operations into those countries that present opportunities for Russian business. Further development into the near abroad looks likely in the coming years.