VTB Bank, a subsidiary of the VTB Group, is one of the leading universal banks in Russia. It was incorporated in 1990 and is headquartered in Moscow, Russia. The bank is listed on the St. Petersburg stock exchange. VTB is operating in Russia, Europe, Asia and Africa through its subsidiaries. The bank has pursued the growth merger and acquisition and expanded its operations majorly through acquisitions. The bank provides services to corporate clients and retail clients; most of its business is through the corporate clientele. As of May 2021, there are 350 operating banks; among those, 239 hold a universal license, and the remaining banks have a basic license; additionally, there are 39 non-bank financial institutions in Russia (Bank of Russia, 2021). Porter’s five forces model is used to assess the business and financial risk VTB Bank is exposed to in the market.
VTB Bank- Competitive Rivalry in The Market
The Russian financial services industry is dominated by larger banks and the consolidation of assets among the leading financial institutes, and this phenomenon has led to a moderately competitive market. The major competitors of VTB in the Russian banking sector are Sberbank, Gazprombank and Alfa-Bank. In 2020, VTB had reported $17.1 billion in revenue and earned $901.1 million in profits; the bank has total assets valued at $245.3 billion (Forbes, 2021). Sberbank, the largest financial services institute and universal bank in Russia, has reported $47.3 billion in revenues and earned a profit of $10.4 billion (Forbes, 2021). Gazprombank has reported a net interest income of RUB 169,517 with a year-on-year gain of 19% and a Profit of RUB 55,995 (Gazprom Bank, 2021). Alfa-Bank has a net margin of $2,171 million and a Profit for the year of $1,347 million (Alfa Bank, 2021). Therefore, the market is highly competitive.
VTB Bank – Threat of Substitutes
The threat of substitutes remains low to moderate. The industry has always been an important part and the business community; however, lack of invocation and adaption of new technologies has left them trailing. Fintech companies emerged and took advantage of the situation. They leveraged the technology and improved the efficiency of the processes and service delivery. According to research conducted by Statista (2020), the finance industry exhibited the most noticeable digital transformation, with a penetration rate of over 80 per cent in terms of financial technologies in 2019; market outlook projected a positive trend would continue, with digital payments value rising along with users’ volume in coming years. However, traditional companies are responding to the threat and try to adapt to the new dimensions in the industry. Therefore, the threat remains moderate in the short-term period.
VTB Bank – The Threat of New Entrants
The threat of new entrants is considered to be low in the industry. There are industry-related barriers to entry that discourage new entrants. The important can be classified as already established incumbents, capital intensive industry and high compliance cost. Financing is a vital component of any business, and capital intensive sector deters newcomers as it is difficult to raise significant capital and remain profitable with a highly leveraged structure. Firms with high capital cost tend to lose competitive advantage (Thompson, 1984). Other barriers to entry include already established incumbents; they have achieved economies of scale and already have their market share. Lastly, high compliance cost forces the organization to employ more workforce to adhere to the requirements, resulting in higher cost. Therefore, the threat is considered to be low to moderate.
VTB Bank – Bargaining Power of Buyers
In the Russian banking industry, buyers have moderate bargaining power. It is directly proportional to the market competition, concentration of buyers’, switching cost and brand loyalty. As per the report published by Melkadze (2021), since 2013, however, the Central Bank of Russia implemented a policy for reducing the volume of financial institutions in the country, resulting from which the state revoked over 500 bank licenses. This policy concentrated capital and reduced the competition. The important segment of buyers, retail customers, are not focus and thus does not hold higher bargaining power. However, there is low switching cost among banks, and there is no or minimal brand loyalty; this makes it easier for the customer to leave the business. Taking into account all the factors, buyers have moderate bargaining power.
Bargaining Power of Suppliers
Suppliers hold moderate bargaining power. Suppliers have higher bargaining power if the risk of forward integration is high, suppliers are concentrated, and the supplies are essential for the business. The financial services industry risk of forward integration remains low because it is difficult to replicate the distribution network of the existing business. The critical remaining supplies consist of cash providers such as retail customers, institutional investors, and financial experts. Retail customers do not hold higher bargaining power due to lack of leverage, and on the contrary, institutional investors have higher power owing to the high cash deposits. Therefore, if there is an over-reliance on the supplier, it will increase the suppliers’ power, and the supply chain risk will be significant (Dada et al., 2007). Whereas financial experts are in excess supply, then demand and therefore do not have higher bargaining power. Therefore, suppliers have moderate to high bargaining power.
References
Alfa Bank. (2021). IFRS Audited Report 2020. Available at: https://alfabank.com/app/uploads/2021/02/IFRS_Audited_Report_2020.pdf
Bank of Russia. (2021). Banking Sector. Available at: https://www.cbr.ru/eng/banking_sector/
Dada, M., Petruzzi, N. C., & Schwarz, L. B. (2007). A newsvendor’s procurement problem when suppliers are unreliable. Manufacturing & Service Operations Management, 9(1), 9-32.
Forbes. (2021). Sberbank. Available at: https://www.forbes.com/companies/sberbank/?sh=686401861867
Forbes. (2021). VTB Bank. Available at: https://www.forbes.com/companies/vtb-bank/?sh=586305a5620a
Gazprom Bank. (2021). Documents and Tariffs. Financial Statements. Available at: https://www.gazprombank.ru/upload/files/iblock/3e9/GPB_IFRS_FS_2020_ENG_secured_2.pdf
Melkadze, A. (2021). Banking in Russia – statistics & facts. Available at: https://www.statista.com/topics/7661/banking-in-russia/
Statista. (2020). Digital payments in Russia – statistics & facts. Available at: https://www.statista.com/topics/6920/digital-payments-in-russia/
Thompson, A. A. (1984). Strategies for staying cost competitive. Harvard Business Review, 62(1), 110-117.