HSBC is to close down its retail operations in Russia, making it the second foreign bank to leave the state-dominated sector in as many months.

The decision by HSBC, on the back of a similar plan at Barclays, comes as both rethink their global strategy to cut back on operations that are a drag on group profitability.

But their departure also highlights the increasing dominance and competitiveness of state-owned banks, primarily Sberbank and VTB, in the short period since Barclays and HSBC attempted to break into the market less than three years ago.

HSBC said in a statement that its “strongest opportunity” in Russia lay in corporate banking, echoing a near identical statement by Barclays in February.

Bankers and analysts said the two groups had little hope of making inroads against state-owned incumbents and well established foreign lenders such as Citigroup, UniCredit and Raiffeisen, which already have a wide reach across the country as well as years of experience.

“It’s a difficult market in Russia. You can’t just come in and say, ‘I’m HSBC’, ” said an executive at a rival Russian bank.

Roland Nash, strategist at Verno Capital, a hedge fund, said: “The investment a foreign bank would need to [make to] catch up with the incumbents right now is very high indeed.”

Stuart Gulliver, HSBC’s chief executive, is set to signal next month that close to half the group’s global operations are insufficiently profitable. In the US, as in Russia, he is expected to signal a preference for a growth strategy centred on corporate banking rather than a high street presence.

HSBC made an initial investment of $200m into its Russian business when it first opened branches in 2009, while Barclays bought the local Expobank for $745m in 2008 before the global financial crisis.

David Nangle, an analyst at Renaissance Capital, said: “Both of them came in [to great] fanfare . . . but both of them realistically only opened a handful of branches. It’s very easy for HSBC and Barclays to go.”

Most banks in Russia are finding it hard to keep up with Sberbank, which already has half of the nation’s deposits, and is staying ahead of the curve thanks to Kremlin-enforced reforms, such as a shake-up in the top management and a roll-out of new products.

Mr Nash said: “The way the government has chosen to sponsor reform in the sector is through Sberbank” instead of reforming the industry.

For banks with an established presence, the potential rewards are great. The industry is only starting to mature as mortgage and consumer lending takes off, while banks currently enjoy an average spread of 9 percentage points between the average mortgage rate and the rate payable on deposits.

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