TEL AVIV, July 17, 2008 (PRIME NEWSWIRE) -- Bank Hapoalim (TASE:POLI) (LSE:BKHD) (Pink Sheets:BHKYY) has signed an agreement to purchase approximately 78% of Moscow-based SDM Bank based on a total company valuation of US$142.5 million, becoming the first Israeli bank to acquire a Russian bank.
SDM Bank, which was established in 1991, is one of the most profitable private banks in Russia in terms of its return on equity (ROE). As of the end of 2007, its assets totaled US$632 million and its credit portfolio amounted to US$310 million, with an annual average growth rate exceeding 30% (in dollar terms) for the years 2004-2007. SDM's net profit for 2007 was US$15 million, reflecting a return on average equity of 31%.
SDM Bank has 700 employees, and is engaged in nearly all areas of banking activity. One of the bank's clear advantages is its wide network relative to its size. In and adjacent to the capital, Moscow, the bank operates 12 branches and 30 service centers. The bank also has 10 branches in major cities outside Moscow, including Saint Petersburg, Rostov on Don and Nizhny Novgorod. The bank operates 450 ATMs and has extensive credit card activity.
SDM's client base is comprised of 13,000 corporate customers and 120,000 retail customers. The bank is notable for its strong management and its conservative and highly transparent style, and will continue to be led by the same Chairman and CEO after the acquisition.
The Chairman of the Board of Directors of Bank Hapoalim, Mr. Dan Dankner, said: "The acquisition of control in SDM Bank is in accordance with Bank Hapoalim's multi-year strategy, one of the most important objectives of which is to increase the Bank's international activity. This is in line with Bank Hapoalim's goal of strengthening its foundations as a global bank that operates worldwide, including in emerging markets.
"Russia is a large and important country, and its economy has been one of the fastest-growing among the emerging markets in recent years. Russia has immense potential for sustained growth supported by its enormous oil and gas reserves.
"The acquisition of SDM is a significant step in the realization of our strategy. SDM will join Bank Hapoalim's expanding presence in the emerging markets, together with BankPozitif in Turkey, BankPozitiv (formerly DKB) in Kazakhstan, and the recently acquired Ukrinbank in Ukraine. The acquisition represents a major growth engine for Bank Hapoalim for the coming years. I am certain that Bank Hapoalim's entry into Russia will improve our ability to serve our customers worldwide, and will strengthen the economic ties between Israel and Russia, to the benefit of both countries."
Mr. Zvi Ziv, Bank Hapoalim's CEO, stated: "The acquisition of control in SDM is another step in Bank Hapoalim's penetration of important markets of the former Soviet Union. I am confident that Bank Hapoalim will be able to take advantage of the great potential existing in Russia, as have many other leading foreign banks. The banking sector in Russia is undergoing a process of rapid expansion and is narrowing the gap with Western banking systems and I am quite sure that we will be able to play a beneficial part in this process. Via SDM, we intend to develop activity in diverse areas of banking in Russia, building on the expertise and experience of our employees and SDM's current management, and further transforming Bank Hapoalim into a global bank."
Background on Russia economy
Russia's GDP reached US$1,300 billion in 2007, representing a real growth of 8.1% compared with 2006, while per capita GDP amounted to US$9,100. Russia has foreign exchange reserves of US$550 billion (the world's third largest) and is graded BBB+, BBB+ and Baa2 by the S&P, Fitch and Moody's international rating companies respectively (long-term external credit rating).
The results of the May 2008 elections indicate that the pro-business economic policy followed in Russia in recent years will be maintained, based on continued structural reforms in such key areas as energy, taxation, financial infrastructure and the development of human capital.
Russia's rapid economic growth has been particularly apparent recently. In the last quarter of 2007, the growth rate reached 9.5%, the world's second highest rate of growth after China. The rapid growth is continuing this year and is based not only on the expansion of the energy and commodity sectors, but also on wide-ranging economic growth. Non-financial investment is currently increasing by an impressive rate of 20% annually. The output of the construction industry rose by 30% in the first quarter of the year compared with the same quarter in 2007. Retail sales, which are a good indicator of domestic demand, are now expanding at an annual rate of 16%. Industrial production is also growing, especially in the machinery, equipment, automobile and metals industries. Although buoyant energy demands and worldwide price increases have led to an upsurge in inflation in Russia, it is widely believed that this is a temporary phenomenon and that the inflation rate will revert to a single-digit level in 2009.
The improvement in Russia's macroeconomic position is supported by a large balance-of-payments current account surplus of 7% of GDP, in addition to a substantial budget surplus. International investors' confidence in the local economy is increasing, as is demonstrated by the amount of foreign investments, which are expected to reach US $25 billion in 2008.
Russia's proven oil and gas reserves are the largest in the world. Russia also has abundant mining and natural resources. The level of education in Russia is relatively high but the average wage is still lower than in the West. These factors, along with Russia's stable government, have enabled the Russian economy to enjoy very rapid growth during the past nine years. The annual real growth rate averaged 7% in the years 1999-2007, and growth rates at this level are forecast for 2008 and 2009. Russia's anticipated admission to the World Trade Organization in 2008 is likely to further accelerate this growth.
The Russian banking system expanded by over 30% annually during recent years compared with much lower figures in Western Europe. ROE in the banking sector in Russia averages around 24%. The extent to which advanced banking products, such as mortgages, credit cards, asset management and retail loans are gaining a foothold in the Russian market is expected to assure continued growth and profitability. The banking sector in Russia is highly fragmented: The country has 1,200 banks, 4 of which are government-controlled and account for 40% of the sector's total assets. Among the private banks, 200 are controlled by foreign investors. Consolidation is forecasted for the banking sector in Russia during the coming years.
About Bank Hapoalim
Bank Hapoalim is Israel's leading financial group. In Israel, the Bank Hapoalim Group includes financial companies involved in investment banking, credit cards, trust services and portfolio management. The Group also has holdings in non-banking sectors.
Internationally, Bank Hapoalim operates through 44 branches, subsidiaries and representative offices, in North and Latin America, Europe, the Far East, Turkey and Australia. In these markets, the Bank is engaged in trade, corporate finance, private banking and retail banking.
Bank Hapoalim is the only Israeli Bank listed on both the Tel Aviv and London Stock Exchange. In addition, a Level-1 ADR is traded "over-the-counter" in New York.