VTB plans to grow ahead of market

MOSCOW (Reuters) - Russia's second-largest bank, VTB (VTBR.MM) (VTBRq.L), plans to grow ahead of the market and keep margins stable in 2008, despite slower growth in the Russian banking sector on the back of the global credit crunch.

Andrei Kostin, VTB's chief executive and chairman, told the Reuters Russia Investment Summit that he was confident that the shares of VTB, currently traded lower than its book value, will grow in the future.

"We believe that our credit portfolio will grow faster than average market rates, and our share will be growing. The same is true about the retail sector," Kostin said.

"I think we would like to go head with such borrowing (before year end)," he said. "In general I think it is important to continue borrowing in these conditions."

Kostin said he expected tough months ahead for the Russian banking sector due to the slowing economy, higher interest rates and strained liquidity but said the bank could benefit.

"There will be a consolidation in the banking sector," he said.

"We would like to have a cash fist. Some big business opportunities could arise and it will be difficult to do them without free cash. We are accumulating some cash," he said.

Outside Russia, Kostin said VTB had looked at buying Germany's Dresdner Bank but decided against an expensive purchase and wanted to grow organically, instead.

It is preparing to set up a brokerage in the United States, open an office in Dubai and enter private equity to buy distressed assets in retail or property.

VTB is still considering buying stakes in Western banks, but to make profits on resale operations rather than to grow business.

"To some extent we will do what Deutsche Bank is doing, to turn from a corporate bank into an investment-corporate bank," he said.

In Russia, VTB is now cutting the maturity of its lending to 1-2 years from the previous 3-5 years and is hoping to attract Asian and Arab funds over time into its capital to support its share price.

VTB's shares are down over 50 percent since its float last year as Western investors dump emerging market stocks and especially Russia after its war with Georgia in August led to a sharp confrontation with the West.

Kostin blamed speculators for VTB's stock decline saying other investors including funds from Russia, Europe, the United States and Singapore were worried but were still holding on to the stock.

"There can't be two opinions whether the markets will rise. The situation when VTB's capitalization is 0.9 (times) its book value cannot be seen as normal".

"We are talking about when it could recover and unfortunately the situation is such that pessimism is prevailing. Before the second quarter of next year, we can't expect major changes," said Kostin.