The SME lending market will see its volumes more than double by the year 2010 and reach $80-90 billion

In the next two years growth rates in the local SME (Small and Medium Enterprise) lending sector will reach 70-100% per year. According to Csaba Zentai, Alfa-Bank’s director for the development of SME corporate business, the current market potential is estimated at $35-40 billion, with only a third of demand being met. Mr Zentai made these comments as part of an internet conference titled “SME Lending: The Next Big Thing in Banking Services?” which was held on 19 March on Alfa-Bank’s website.

Currently more than half of all companies in the SME sector operate in the retail segment. In the case of Alfa-Bank, these companies make up nearly 70% of the Bank’s credit portfolio. Mr Zentai emphasised that SME business is a very promising sector where the risk is much lower than in the consumer lending market and the margin is higher than in corporate lending. The average share of bad loans in the market does not exceed 3% and Alfa-Bank currently holds none of this share.

According to Csaba Zentai, the ideal SME lending customer is a company or an individual entrepreneur that has been engaged in services, trade or manufacture for at least 9 months, has maximum annual earnings of $30 million, and has a government or foreign stake in their authorised capital which does not exceed 49%.

In 2008 Alfa-Bank plans to increase its SME lending portfolio to $700 million. The volume of applications received gives the Bank reason to believe that this target will be exceeded. The shares of Alfa-Bank’s central and regional portfolios in this segment in the current year will be evenly divided between Moscow and St Petersburg (55%) and the regions (45%). From 2009 onwards, a higher growth rate is expected from Russia’s regions.

Before the end of 2008, Alfa-Bank will open more SME points-of-sale in all regional branches which serve corporate clients. By the year 2010 Alfa-Bank’s market share in this segment is expected to be around 4%.

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