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British banking giant Barclays is quitting the Russian retail scene

British banking giant Barclays is quitting the Russian retail scene, citing various local problems. Barclays is following in the footsteps of Spain’s Santander, Belgian KBC Group and Swedish Swedbank, which have also recently announced they plan to exit the Russian retail sector.

The British group stated that it had no plans to leave the Russian market completely and its investment business, based on its Russian subsidiary Barclays Capital, will stay intact. A similar strategy was adopted by Swedbank.

“We’ve made a decision to focus business on government entities, large corporations and multinationals and to exit the retail business where we were unable to compete,” Bob Diamond, Barclays Group president, said last week. In a note to investors Diamond stated that his bank has written off goodwill capital of 243 million pounds ($391 million) as a result of retail conditions in Russia.

Russia is not an exceptional case for Barclays, which has been experiencing similar problems worldwide. Diamond said that in all Barclay’s businesses in India, Pakistan, Russia and the UAE, there was a total loss before tax of 612 million pounds ($985 million). And business in Indonesia was closed for the same reason, he said.

Vladlen Kuznetsov, a Moody’s rating agency analyst, said that foreign banks are looking at the Russian market with less optimism compared to 2006-07, when direct investment in the Russian banking system was at its peak.

“Now foreign banks face increased competition, primarily from state-owned retail banks, while their own resource base is decreasing. They have also switched to a policy of less tolerance to risks,” Kuznetsov said.

Elena Lozovaya, Swedbank’s CEO, said: “It has no doubt been a difficult year for our retail customers… As part of the customer strategy, [we are shifting] mainly to the home market clients of Swedbank Group and preparing [to exit the] Russian retail business.”

A London banking expert, who preferred not to be named, said that retail business is more labour-intensive and painstaking, while adjusting investment banking takes less time and resources. Barclays spent $745 million to get into the Russian retail market when it acquired midsized Expobank back in 2008.

In retail banking, scale matters – the bigger you are the more efficient you become moneywise, one local banking expert said. “You’ve got to have a synergy across the business and you have to choose your battles carefully, meaning a bank is not willing to fight if it costs a lot,” he said.

Oleg Vyugin, MDM board chairman, told The Moscow News that big state retail banks, such as Sberbank, have advantages, because they can lead the market where they want.

At last month’s Troika Dialog forum, Vyugin and other bankers said the dominant position of state giants is a reflection of the growing weakness of the commercial banking segment in Russia.

Alexei Simanovsky, head of the banking regulation department of the Central Bank, said that the growth of banks with foreign capital had stopped. He and other experts, who spoke at the Troika forum, suggested that a limit on market share for state banks was appropriate.

These banks should switch to expansion in markets abroad, such as Eastern Europe, he said.

James Watson, director of Fitch Ratings agency in Moscow, said the exit strategy by foreign banks was not necessarily a big problem.

“We’ve seen a 12-14 per cent credit growth, but banks from developed economies are dealing with their own problems and need to raise capital,” he said.