DalRybBank was established in 1989 in Vladivostok, Russia. In 1992 it was made a corporation and received a General license. The bank was created by fishing industry companies of Primorsky Region: DalRyba (10% of the outstanding stock as of 19.09.97); Nakhodka Fishery Port (1,5%); Active Trawling Fleet Base (5%); et al (Moscow Registrar).

Current situation

In 1997 DRB was the leading bank in the RFE, and was alone with its close follower, Far Eastern Bank, (FEB) is in the top 200 banks of Russia. DRB accounted for 19.9 % all regional banking assets, 40.4 % of capital, 52.9 % of profits, 18 % of outstanding credit, 46.6 of investment in securities. The 1997 net profit of 54 billion rubles was not only the largest among the financial institutions of the region, but among non financial as well (DRB website).

Unfortunately, 1998 was not the best year in the bank’s history, as probably it was not for most of Russian banking community. DalRybBank lost RR 160 million due to the August financial crisis (Lykov, 1999). In the fall of 1998 it experienced a bank panic and still has extensive liquidity problems. Although since the misfortunate August, the Bank has made some positive movements toward the problem resolution, it is still in a shaky position. The culmination came on February 1, 1999, when the Board of Directors dismissed the CEO Ms. Belyaeva, who had headed DRB since its establishment (Lykov, 1999).

Credit Policy

Since the 1995 the Bank positioned itself as universal "investment bank for small and medium business as well as for industry." (Lykov, 1999). The bank was created by the companies closely related to fishery industry on the RFE and the initial mission of the bank was to finance and serve this industry. Since then the Bank greatly diversified its operations and credit portfolio. Already in 1996 the share of fishery industry in portfolio of loans constituted only 40% (TS).

DalRybBank has changed its investment priorities several times during its recent history. So, DRB’s loan portfolio had been growing up until 1995, when it reached 230 billion old rubles. In 1996 due to the emergence of government securities market (GKO) with relatively high interest rates, the bank significantly increased its GKO holdings, at expense of its loan portfolio, which fell to 165 billion not-denominated rubles. At same time the profits soared. Yet when in 1997 interest rates on government bonds came down to earth, so did the bank’s profits. Once again DalRybBank changed its investment priorities: it withdrew the funds from securities market and again increased its portfolio of loans. "The share of investments in securities in the Bank's assets made up 16.2% as at 1 January l998, a decrease of 5.1% in comparison to 1 January 1997. This decrease was caused primarily by a decrease in returns from government securities." (DRB website). Also in 1997 the Bank started operations with hard currency bonds, the holdings of which had been increasing during the first half of 1998 (DRB website).

Financial Crisis

Due to the August default the Bank lost 160 billion old rubles, of which 120 were the hard currency bonds of VneshTorgBank - government owned bank (Lykov, 1999). As far as I know, the Bank does not have any ruble forward contracts - another major source of losses to the Russian banking industry. Yet DalRybBank had hard currency denominated obligations to foreign banks, which on January 1^st, 1998 constituted the amount of 4 million dollars (TS).

The 160 million new rubles worth of securities of high liquidity was a significant amount to create a liquidity problems. To add fuel to the fire, in September DalRybBank experienced a major bank panic. And because the DalRybBank held 40 % (TS) of deposits in the region (not counting Sberbank), the Bank was especially vulnerable to deposits outflows and suffered most of Primorye banks. The bank had nothing to do, but after a recommendation of the Central Bank to sign an agreement with Sberbank (alone with other 6 major retail banks of Russia) for the latter to take over the deposits of DalRybBank. Yet not all the DalRybBank depositors used the opportunity and switched their deposits to the state owned bank; until now DRB is paying off its suspended deposits (Lykov, 1999).

The Bank’s business clients suffered from the liquidity problems as well: their payments did not come through the bank. Some companies left the bank. "Payment in process" obligations, to my mind, must constitute the abrupt increase in "other liabilities" category of DalRybBank’s balance sheet as of December 1. (See the appendix)

Although by now the situation improved a bit, and some clients came back (Lykov, 1999), it is still a shaky one. Attempts to revive the situation included 7^th issuance of common stock, which increased the bank’s chartered capital to 35.9 million rubles from the previous 20 million rubles ("DRB issues stock"). The bank also actively call in outstanding loans yet that was just enough to pay off the suspended deposits at a rate of 300’000 new rubles a day (Lykov, 1999). There were also no help from outside: DalRybBank unfortunately did not receive any stabilization discount loans from the Central Bank, despite the fact that it applied for the help.

On a recent Board of meeting major shareholders of the bank agreed to proceed with two strategies: to sell the partially build office building or to issue another issue of common stock. The building, which was financed by the bank to become its new office building costs $15 million (Lykov, 1999), yet the bankers understand that the bank will not be able to find the buyer for it at par value, and would agree to sell it at a considerable discount.

Seven "S" Analysis

Structure

Source: Adapted and translated from DalRybBank's Internet site at www.vladivostok.ru/dalrybbank. 1999

According to the available diagram and information, DRB structure is a matrix: geographic and functional. The bank has very good representation in the Russian Far East. In fact the affiliation network of 12 banks is the second largest in the region after Sberbank’s (DRB website). This feature allows the bank to work closely and fast with its clients and engage in local investment projects. Yet due to the financial difficulties, the bank decided to sell three unprofitable branches in Moscow, Anuchino, Primorye; and Ussurisk, Primorye.

Since major financial resources are clustered in Vladivostok and to a lesser extend in Nakhodka, I assess that the 6 Vladivostok branches and the head office in Vladivostok and the branch in Nakhodka are of the greater importance to DRB in terms of operations.

The domination of the Vladivostok branches, explains that the functional structure in the described matrix dominates over the geographic one. Departments of the Bank are grouped into two categories: line departments including Treasury, Financial Markets, International Relations, Dealing, and Credit departments; and staff departments: Accounting, Marketing, Human Resource, Law, Information Systems, and General Support departments. (see the diagram).

The Board of Directors consists of 9 members that traditionally have played active role in managing the bank (DRB website).

Since the bank's establishment in 1989, the position of CEO of the bank has been filled with a woman director. Ms. Belyaeva has been the director of the bank from the very start and only in February 1999 she was dismissed from the post by the Board of Directors. New CEO is the ex-CFE of the bank Ms. Alexandra Konstantinova, who worked in the bank since 1989 and left the bank in March 1998 to become retired. Konstantinova has extensive experience working in Russian banking sector, she started her career in GosBank, In 1987 after the reorganization of banking sector, became a senior accountant KraiZhilSotsBank. She has been in DalRybBank since 1989. Before resigning in February 1998, she had a position of a deputy chief finance officer. [Lykov, 1999].

Staff

The staff had grown from 245 employees in 1989 to 747 in 1996 - the year of prosperity. The number of employees then decreased to 715 in 1997 (TS). Due to the present liquidity problems the bank recently laid off 20 % of employees (Larina).

From what I heard and read in newspapers the Bank's employees have been praised for their proficiency and other qualities and skills. DalRybBank has had numerous joint programs with its international partners - the programs that were directed to the bank's proficiency development - including the proficiency of its employees. ING Bank - Holland bank - has a $3 million development program with DalRybBank. It includes consulting and traineeship of DalRybBank's "rising stars" in ING Bank’s branches around the world. (Lykov, 1998).

According to words of Clients Relationship Dept.'s head Mr. Kochubey, DalRybBank ranks the process of hiring employees as rather important: applicants are required to have special education, experience, and certain human qualities. The bank hires young people as well, who are then trained. (Schteinberg).

As for the top management, it is as well considered to be one of the "most important assets" of the Bank. "It is open to change and have a strong determination to position the bank as a regional leader." (TS).

Shared values

Some newspaper publications and the Bank's Mission statement pointed out the coherence of the bank's employees in "positioning the bank as the leading diversified bank of the region" (DRB website).

Yet not everything was perfect in this respect. There were tensions between the ex-CEO Ms. Belyaeva and the major shareholders. In fact, this problem could have come from the disagreement among the parties about the appropriate strategies for the Bank and the inability of the CEO to obtain a stabilizing discount loan from the Central Bank. The latter, in turn, might be a result of "somewhat strained relations" between the Bank/CEO and the Central Bank that were relevant as early as in 1995 (Voronovoy). This "strained tensions" culminated in fire of Ms. Belyaeva in February 1999 and appointment of a new CEO, Ms. Konstantinova.

Skills

According to the Staff section of the analysis, the efforts of the Banks in terms of hiring and development of its employees, must have led to positive results. The cooperation with ING Group ensures the movement in the right direction and the constant inflow of new skills and expertise from abroad. Although I do not have extensive internal information about this aspect of the bank's life, from what I read, I have an impression that the bank fully utilize the available skills and readily seeks to expand them to support its position as the leading bank. The bank employees are also praised for their personal characteristics such as friendliness and goodwill (Schteinberg).

Systems

According to the annual report of 1997 and numerous newspaper articles, DalRybBank seems to position itself as the technological leader among the RFE banks.

In 1997 the Bank managed to transfer its international payment system to new SWIFT platform Also now the bank has access to the Internet and Reuters. The bank also opened its web site on February 1, 1999. In September 1997 the Bank established the first in the Asian Part of Russia remote dealing room of Moscow Interbank Currency Exchange (MICEX) (DRB website). It significantly increased the ability of the bank and its clients to operate on the Russian government and corporate debt and equity markets in real time and fully integrate into the Russian Financial System. The management of the bank also promoted to its clients new " Bank-Client" system, which allows bank clients from their office to operate remotely with their funds via a computer and a modem. By May 1998, 50 clients evaluated this new arrangement. (Schteinberg).

DalRybBank also has been one of the largest issuers of debit card. It was active two different cards systems: VISA and Golden Crown. Golden Crown system originated in Russia, thus have a limited scope of use. The bank has a number of ATMs that operates in different parts of the city and the region, where the card holders can get cash from there debit cards, also there are a number of retail businesses (gas stations, stores, and ticket reservation) that take in the debit cards in payment. Golden Crown cards issued by DRB can be also be used in other cities of Russia. The bank also offers "installment salary card projects" to fishery companies. The number of accounts increased 5000 in 1997 (DRB website).

DalRybBank is a member of VISA International System and offers to its clients VISA Classic cards. It entered the VISA relatively recently and did not have many clients (DRB website). The major competitor of DalRybBank in this market had been IncomBank until recently when it went bankrupt after the August crisis.

Style

The fact that the bank has been headed for ten years by a woman-CEO, who recently was replaced with another woman, builds a reputation of a conservative, that is risk averse, style of the management.

The bank’s management always keeps its eyes open to any changes on the domestic and international financial markets. It proved to act proactively in anticipation of any changes. The switch from GKO to hard currency bonds of VneshTorgBank most likely came from ruble devaluation fears and willingness to hedge exchange rate risks. Yet the bank failed to anticipate the default on these obligations alone with GKO default.

Strategy

The bank has a diversified growth strategy as its long term strategy. It might seem strange but in the strategic plans of the bank there were all the factors present of Porter's model. It is geographically focused bank that until recently expanded its branches network into other regions of RFE and Russia. Also it used to be a specialized bank that changed its strategy to diversify its operations, interests, and portfolios. In all, I would say it is a diversifies bank/"cost leader" with increasing scope/focus .

Yet today's bank's short term goals and strategies are diametrically opposite to its long term ones. Currently the bank is pursuing a retrenchment strategy: it shrinks geographically - eliminating a number of branches; it calls in its outstanding loans to compensate deposit outflows; sells some property (ATMs); laid off 20% of its employees. In other words, it scrambles for liquidity. On a recent meeting the Board proposed two alternatives to improve the Bank's liquidity position: 1). Sale of its new office building or make new issue of common stock. (Lykov, 1999).

Financial Analysis

The scrutiny of the financial statements of the bank supports the trends identified previously. The dynamics of balance sheet numbers show a significant increase in government securities holdings in 1997; a decrease in cash and equivalents in 1998 – indication of the liquidity problems. As for the sources of funds, shareholders equity decreased a little bit during 1998; customer deposits also shrank. The category other liabilities" grew almost five times for the recent year - the fact can be explained again by the liquidity problems: this category might include deferred payments of bank’s clients.

The income statements tell us that the negative trends have been present since 1996, which mostly is in line with the general trends of banking industry. Revenues have been falling dramatically. Yet the non-interest expenses have not keep in line with them which led to even sharper decrease in net profits.

The ratio analysis also portrays negative tendencies. A liquidity ratio (cash/deposits) decreased 10 p.p. during 1998 from 24 % on January 1 to 14 % on December 1, 1998. While gross profit margin (interest income/revenues) had been increasing from 28 % in 1996 to 34% in the first half of 1998; net profit margin (net profit/revenues) was decreasing from 34% to 9% in the same time frame. This once again points out that noninterest expenses lagged behind the interest expenses, despite the efforts of lay-offs. Return on Equity was knocked off from 55% in 1996 to only 7% in 1H1998.

Du Pont formula transformed not in the good direction: it is very clear that almost tenfold decrease in Return on Assets has been due to both fall in Assets turnover and profit margin.

SWOT Analysis

Strengths

• Wide Affiliation network - second largest network in RFE - 12 branches
• Technological Leadership - one of the largest operators of debit cards in the RFE,
• International Support - Joint development programs with a number of foreign banks
• Good Management Team - the core of the bank management are the people who worked with it since its establishment in 1989.
• Support of the Regional Government - Primorsky Krai governor recently offered to be guarantor of a DalRybBank's discount loan.
• Large Enough Shareholders Equity to offset losses of financial crisis. On December 1, 1998 equity ratio was 25.7 %, significantly higher than CBR requirements and other Russian and foreign banks ratios.

 

Weaknesses

• Poor current liquidity situation
• 160 million rubles worth of defaulted government bonds in the portfolio.
• Loss of some important corporate clients
• Little support from the CBR

 

Opportunities

• Ruble devaluation - major clients of the bank are export oriented companies.
• Geographical proximity to developing Asian Markets
• Sakhalin oil Projects

Threats

• Loss of trust in Russian banking system - lower levels of deposits
• Decreasing profits and increasing risks
• Competition from larger foreign and Moscow banks

 

References

DalRybBank (1999): n.pag. Online. Internet. 15 April 1999. Available: http://www.marine.su/dalrybbank

Dalrybbank issues stock (1998, September). Vladivostok News, 176. Available: http://vladnews.ru/1998/iss176/.

Larina L. (1999, March). Nikolay Neskoromnyuk The Change in the Top Management was a need. Golden Horn, 18. Available: http://vladivostok.ru/Golden_Horn/.

Learn the truth about your bank (1999): Moscow Registrar. n.pag. Online. Internet. 15 March 1999. Available: http://marmozsoft.molot.ru/banks0199/.

Lykov K. (1998, May) Holland ING Group will develop DalRybBank's employees. Konkurent, 17.

Lykov K. (1999, April). Shareholders decided to save DalRybBank. Yet, late. Konkurent 12.

Tiger Securities. (1997). Vladivostok banking - focus DalRybBank. Vladivostok: Author.

Schteinberg S. (1998). DalRybBank's Priorities. Rybak Primorya, 15 May 1998.

Voronovoy A. (1996) They count, look about and smile with apprehensions. Konkurent May 1996.