HSBC to quit Russian Retail Banking

HSBC has announced that it is pulling out of retail banking in Russia. This follows on the heels of Santander who exited Russian retail banking in December 201 by selling their consumer lending business to Orient Express Bank and Barclays who announced their exit from Russian retail banking in February 2011 having written down £243m on an acquisition.

HSBC and Santander are two of the most successful Western banks in emerging markets with both being strong players in Latin America, and HSBC being very well established in Asia with Santander building it’s presence there. (See http://www.itsafinancialworld.net/2011/03/santander-moves-into-rural-china.html ) It is therefore very telling that both of these banks have decided that domestic competition makes it too tough and not profitable enough for them to continue to offer retail banking in Russia. Certainly building a significant presence in Russia, given the vastness of the country and given that most banks still believe that having a physical branch network is key to winning in retail banking, is a significant investment and capital demands from existing markets rising, it is understandable how they might have come to this conclusion.

Interestingly HSBC’s and Santander’s views are not shared by the French banks, with both Societe Generale and BNP Paribas continuing to invest in and grow their retail banking presence in Russia. Citibank has also built up a strong retail presence in retail banking in Russia. This was under the leadership of Frits Seegers who then moved from Citi to Barclays and repeated, less successfully, the opening of retail branches in Russia.

To date Santander does not seem to have made a strategic error in their expansion plans, so it will be interesting to see how this one plays out.

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