When Russia became the 156th member of the World Trade Organization on August 22, 2012, the potential trade opportunities for U.S. companies expanded greatly. With enormous infrastructure needs, and consumption among Russian consumers rapidly rising, the growing market offers considerable potential for U.S. exporters. The country’s WTO membership will directly benefit U.S. economic interests by providing new and enhanced market-access opportunities for U.S.-produced goods and services. In addition, integrating Russia into a rule-based trading system, and providing the means to enforce those rules, may further strengthen U.S. commercial interests in Russia.
In late September 2012, Mark Garfield, head of International Banking at Zions Bank, joined a delegation of business leaders from the World Trade Center of Utah for a week-long visit to the country. In addition to participating in the Annual General Assembly of the World Trade Center Association, the group attended networking and market research seminars, and met with local banks and businesses.
Garfield worked to establish connections with Russian banks in order to explore the possibility of correspondent banking relationships through SWIFT--a network of participating banks that facilitates the sending and receiving of financial information in a highly (or more) secure environment. As a means to control transmissions and communications between banks in different countries, SWIFT offers a Relationship Management Application (RMA) that provides SWIFT keys, which enable highly (or more) secure transmissions between banks. As global trade increases, banks with international services must continually update and maintain sufficient correspondent relationships in order to meet the needs of their clients.
In meetings with Russian bankers, Garfield found a banking system that has evolved significantly over the last 15 years, as it moved from the structure that was in place during the days of the former Soviet Union to one based on a more free-market economy. There are approximately 900 banks in Russia with the largest 100 accounting for 90% of all banking assets. The banks are both privately and state owned, with eight of the 10 top banks either partially or completely owned by the government. Private and state-owned banks serve different sectors of the economy, such as agriculture and commerce. In addition to the state and privately owned banks, there are a number of licensed foreign banks that operate in the country, such as Raiffeisen Bank (headquartered in Austria), Unicredit (based in Italy), and Citibank (located in the U.S.).
Private banks are typically owned by a small number of individuals. An example is Promsvyazbank, which is the second largest private bank and the 10th largest bank overall. It is 88.3 percent owned by brothers Dmitry and Alexei Ananyev, who were ranked by Forbes as the 49th and 50th wealthiest individuals in Russia. On the same day that Garfield visited, Promsvyazbank announced a $500 million IPO on the London and Moscow stock exchanges. This public offering will improve the bank’s capital position and increase the number and nature of its investors. The IPO is also an indication of the evolution of the financial sector in Russia.
Garfield made visits to several other banks in Russia to explore forming relationships between them and Zions Bank, and to determine the nature of the overall financial system there. In addition, the visits provided him with the opportunity to acquaint the banks with the attributes and strengths of the U.S. financial system. He focused on the regional differences among banks in the U.S. In doing so, he pointed out the geographical reach and significant market share of Zions Bank through its presence in the Intermountain West. He also described the types of businesses and commerce common in this region of the U.S. that might be valuable to the Russians.
Garfield’s efforts paid off when, a few days after his return, Zions Bank received its first request to exchange an RMA with Transcapitalbank, one of Russia’s top trade finance providers. The relationship is only the beginning of correspondent banking relationships that Zions hopes to form with financial institutions in Russia. Transcapitalbank is an important contact because of its long-term relationships with major Export Credit Agencies (ECAs), which enhance relationships among governments, financial institutions and exporters to facilitate financing. The primary objective of ECAs is to remove the risk and uncertainty of payments to exporters doing business with companies outside of their own country. ECAs come in a variety of forms with some being government-owned and others private companies. The ECAs that Transcapitalbank has relationships with include EXIM Bank, Euler Hermes and Atradius.
When asked to comment on the prospects for other banking relationships that might result from his visit to Russia, Garfield said, “With Russia’s admission into the WTO, it will be interesting to see the trade patterns that emerge between our two countries. Zions Bank is pleased to be able to provide our international banking services and will do so in measured manner. In this way, we will be able to establish relationships with Russia that will be beneficial to local exporters and provide them with a safer financial environment at the same time.”
In terms of his impressions of the country as a whole, he noted that the warm reception he received at each of the institutions he visited was heartening, as was the English language facility of the bankers he interacted with. “As someone who was raised during the Cold War, it was refreshing to have had a visit that offered so much promise in terms of cooperation and commerce, even friendship. I came away feeling very hopeful about the significant potential that exists for increased interactions and connections, which could benefit so many businesses in our area.”
Key Statistics for Russia:
- The largest country in the world by land mass, with more than 17 million square miles spread out over nine time zones.
- A population of more than 142 million people.
- The ninth largest economy in the world (as of 2011).
- Expected economic growth of 3.5% in 2012.
- Imports worth $29.60 billion as of July 2012.
- The U.S. currently ranks 10th among its main trading partners.
- The 31st-largest export market for U.S. business in 2011, accounting for 1.16% of total U.S. trade. and making it our 20th-largest trading partner overall.
- U.S. exports to Russia in 2011 were $8.3 billion, the highest since 2008, a 39% increase from 2010 and more than double the growth rate for overall U.S. exports.
Sources: World Bank, U.S. State Department, Reuters