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Thursday, 14 November 2013

Russian Sberbank, a ‘relic from the dark ages’, skips 30,000 jobs. This ‘march towards efficiency’ is extremely tough for its personnel, but inevitable for a bank in the 21st century

It was a small message in yesterday’s financial newspaper “Het Financieele Dagblad”:

The Russian national bank Sberbank wants to increase its profitability and therefore the bank is going to cut its expenses. As a painful result, 30,000 jobs will be lost.

Sberbank, the largest bank in Russia and the largest credit supplier in Eastern Europe, announced this measures on Tuesday. In reaction to the announcement, the Sberbank stock is quoting 2.4% higher.

Sberbank set as a target to double its profits at the end of 2018. About 30,000 of the 250,000 jobs in total will be lost. A little more than 25% of all branches will be closed down in the next five years.

Sberbank is a Russian utility bank, where most Russian people receive their salary and state benefits and where they keep their household money. Besides that, the Russians also pay their mortgage amounts, taxes and numerous other utility bills at Sberbank. It is a semi state-driven bank, like many Western European countries also had in the post-war years.

The cause for this news message is a sad one, but it also brought back some mixed memories of times past.

At the beginning of this century, when my wife and I were still dating, I visited her a number of times in Russia.

One traditional trip during my visits always led us to an undistinctive and unrecognizable office building near the Zanevskiy Prospekt in St-Petersburg, close to the beautiful Neva river. Here in this office building, run by the city, my Russian visa needed to be checked in, as well as the immigration form that I received during my flight to ‘Piter’.

After waiting in line for at least half an hour, while filling in a few large, incomprehensible forms, we received a small bill for tourist taxes that needed to be paid at the local Sberbank branch.

After entering the old, steel entrance door of this particular Sberbank branch near Zanevskiy, I felt always like I was warped back in time: from 2008 – the time of my last visit to this bank – to the end of the sixties:

The building, in Soviet style architecture, was starkly furnished and had five or six counters of which the purpose was only clear to insiders. In the waiting zone, there was a old, wooden table with numerous small forms in trays and a voluminous ring binder that contained instructions for filling in all of these forms, which were meant for:
  • Paying utility bills;
  • Paying the rent on rental homes;
  • Making cash withdrawals;
  • Paying state taxes;
  • A zillion purposes more. 

There was no physical evidence at all of any serious kind of office automation. 

When there had been a PC, it would have had a steam engine, running on alcohol; I’m fairly sure about that. Everything was done by hand by the often gloomy looking office clerks and tellers and in a tempo that would have driven many western people crazy.

After filling in one or two more incomprehensible forms by hand and paying a staggering €0,50 in tourist tax, I took the stamped bank receipt and brought it back to the city office building, where I could collect my passport one or two days later.

It was this enormous culture shock of a modern western guy, that emphasized how many years Sberbank leaped behind in comparison to its peers in the West. With all due respect for the enormous development that Russia has gone through since the end of socialism in 1990, in 2008 the Sberbank was nothing less than a ‘relic from the dark ages’.  

Sberbank was a bank that its customers would gladly like to ‘short’, but still couldn’t, due to its vital role for utility payments and receiving state benefits. And according to my wife, little has changed since then.

When I read this news message today, I feel extremely sorry for the 30,000 personnel members, who now lose their job and (perhaps) their future. The economic times in Russia are as tough as anywhere in the world for simple people that don’t reside in some ‘inner circle’ and don’t have friends who have friends.

Nevertheless, I could not help but think that this bank could easily be five times as efficient and customer-friendly with less than half of the personnel.

Of course, this would claim an enormous investment of perhaps €2 billion or more in:
  • an internetbased personal banking portal for its corporate and private customers;
  • modern frontoffice automation;
  • central backoffice automation for Sberbank’s key processes;
  • better trained and more customer-friendly personnel;
  • refurbished and modernized offices. 

While this €2 billion+ investment for modernizing the whole bank sounds like a huge amount of money, the savings on an annual basis could at least amount to €1.3 billion euro on personnel expenses alone. I calculated this amount based upon Russian salaries of about €9000 per year in average for clerks and management.

Not only the approximately 20,000 branch offices of Sberbank (my guess) suffer from excess personnel and totally obsolete processes, procedures and office automation (if any); also the numerous head offices in the different parts of Russia suffer undoubtledly from too many ‘apparatchiks’ and managers that are pushing too much paper.

This circumstance turns this massive lay off and reorganization operation in a tough, but inevitable ‘march towards efficiency’.

Nevertheless, I can’t help doubting whether this particular efficiency operation will indeed turn Sberbank into a much more modern bank. In Russia old habits die very slowly, and excess personnel is such a habit, while efficiency and customer-friendliness are not.

In Russia, inefficiency goes hand in hand with the traditional goal of ‘a decent job for every person that can work’. That is the reason that Russian companies have often much more personnel than comparable Western companies. The fact that the salaries are still low, makes that labour-intensive work yet pays off in Russia. These days, the salary costs per FTE (full time equivalent) for Sberbank are undoubtedly much lower, in comparison with Western banks and companies.

Nevertheless, you could say that the excess personnel is a huge dissatisfier for semi-commercial firms and corporations, like the Sberbank. Eventually, the salary costs per FTE will inevitably go up and then the poor efficiency rate will put a halt on profitability for this bank. This makes the current efficiency operation an inevitable one, although the outcome might be uncertain yet, when it comes to efficiency..

However, this is not the only thing that is haunting this former Soviet statebank. In 1997, when the Russian ruble collapsed, countless Russians (among whom my wife) lost the lion share of their life savings, stashed at the Sberbank: sometimes for thousands of dollars per person in savings.

All these people received the crisp message from their local Sberbank: “We’re sorry, your money is gone! It has vanished! Next customer, please!” 

It will probably still take a few decades, before Sberbank loses this image of a bank which lost billions in embezzled money, as a consequencey of massive fraud and corruption. As it is like John Goldsmith stated in his wonderful book “Bullion”: “money does not vaporize, it just gets another owner”

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