Rapid expansion within the retail sector suggests that retail products will become more important to the Bank’s overall strategy. The Bank’s retail strategy reflects this, and the Bank considers retail banking to be an integral component of its business. The Bank aims to be one of the top three privately owned banking groups in terms of revenue generated from retail banking, and it intends to maintain a top three position in retail product markets including lending and card issuance.
The Bank has focused on serving Russia’s emerging middle class (which is expected to continue to grow rapidly as the nation’s economy expands) and the Bank has defined its target market as households with monthly disposable income of over USD$350 per person. The Bank’s strategy has focused on marketing lower risk credit products to this customer base, and the Bank has aggressively promoted car loans and, more recently, credit cards. Retail deposits, which remain a volatile and expensive source of funding for a private bank in Russia due to competitive pressure from state-owned banks, were slightly deemphasised in 2004. The Bank has sought to maximise income from its retail business by expanding its network of distribution channels. In addition to Moscow and regional full-service branches, the Bank has expanded its direct sales channels to certain Moscow car dealerships, as well as popular shopping malls.

Deposits

The Bank’s aim is to grow retail deposits in order to expand, diversify and lengthen the maturities of the deposit base, and thereby support further expansion of lending operations. As at 30 June 2006, retail customer accounts of the MDM Bank Group accounted for RUR8,770 million with a 36th position among Russian banks, according to Interfax.
The Bank is also developing a range of retail lending and fee-based products as sources of sustainable, recurring income. The Bank is seeking to position itself for future expected growth in these markets.

Debit Cards

Overall, plastic card issuance increased by 39 per cent. in the twelve months ended 30 September 2006 to a total of 770,000 cards outstanding (excluding card issued by MDM Bank St. Petersburg). This cemented the Bank’s position as one of Russia’s leading card issuers. As at 30 September 2006, the Bank worked with more than 60 banks under agent and sponsorship agreements for issuing and acquiring card programmes. In the nine months ended 30 September 2006, the Bank added 25 banks of which 18 banks as associated members of VISA International and 7 banks as MasterCard affiliated members. The Bank’s processing center currently services more than 500,000 cards for bank partners. In the nine months ended 30 September 2006, acquiring turnover at the merchants network of bank partners amounted to
USD$696 million increasing by 29 per cent.

Lending

The Bank launched its retail lending business in the third quarter of 2002 when it began offering car loans. The volume of retail loans of the MDM Bank Group reached RUR19,817 million from which car loans have amounted for approximately RUR16,736 million as at 30 June 2006. In the second half of 2003, the Bank also began offering credit cards, consumer loans and mortgages, but as at 30 June 2006 these products comprised only a small, but increasing part of the MDM Bank Group’s loan portfolio.