May 11 (Bloomberg) -- VTB Group, Russia's second-biggest bank, raised $8 billion in the world's largest initial public offering this year, as annual loan growth of more than 30 percent attracts investors.

State-run VTB, which owns about 10 percent of Russia's banking assets, sold 1.51 trillion new shares for 13.6 kopeks each, the Moscow-based lender said in an e-mailed statement today. The stock rose 8.4 percent in so-called conditional trading in London, valuing the bank at $38.5 billion. That makes it Europe's 21st-biggest lender, ahead of Paris-based Natixis and Frankfurt-based Commerzbank AG.

VTB's earnings more than doubled last year to a record $1.18 billion as Russian companies and consumers boosted spending on everything from real estate to cars. Shares of state savings bank OAO Sberbank, VTB's bigger rival, have risen 100- fold since President Vladimir Putin came to power in 1999. The economy has grown more than 6 percent annually on average since to reach $1 trillion, making it the world's 10th largest.

``People want exposure to the Russian macroeconomic story and banks are the best way to do it,'' said Kevin Dougherty, who helps manage $200 million at Pharos Financial Group in Moscow and ordered VTB stock. ``VTB shares offer a good way to diversify from Sberbank.''

Loan Growth

Russian companies and consumers borrowed 47 percent more money from banks in 2006 than they did a year earlier, and growth of at least 30 percent is likely through 2010, according to Deutsche Bank AG, which helped manage the VTB sale.

Including VTB, Russian companies have raised $16.7 billion in stock sales this year, excluding so-called rights offers such as Sberbank's $9 billion sale in February. That puts Russia on track to exceed last year's record $18.9 billion of share sales, the most for an emerging market except China, according to data compiled by Bloomberg.

VTB's IPO is the second-largest ever in Russia, trailing last year's $10.6 billion sale by state oil company OAO Rosneft. Last week, AFI Development Plc, Israeli billionaire Lev Leviev's Russian property unit, raised $1.4 billion in the biggest IPO ever by a European real estate developer.

VTB sold depositary receipts for $10.56 each, near the top of its range of $8.77 to $10.79. It had sought between 11.3 kopeks and 13.9 kopeks for its ruble-denominated shares. Goldman Sachs Group, Citigroup Inc. and Renaissance Capital managed the sale along with Deutsche Bank.

It's the first foreign listing by a Russian bank, giving VTB a wider investor base. Sberbank's shares, which trade in Moscow, have risen 65 percent in the last six months, valuing the lender at about $86 billion.

Soviet Trade Bank

Soviet leader Mikhail Gorbachev, facing economic collapse, created Vneshtorgbank, now VTB, out of the monolithic Gosbank in 1990 as he sought to revamp the communist financial system. The same year, he carved out of Gosbank what is now Russia's central bank. The Soviet Union was disbanded in 1991 and Gosbank ceased to exist on Jan. 1, 1992.

VTB's role in the economy has surged since Putin tapped Andrei Kostin, a former Soviet diplomat with a doctorate in economics, as chairman in 2002. Putin last year awarded Kostin the Service to the Fatherland medal for his work in the banking sector. Kostin's won a new five-year contract in April.

Kostin, 50, has pushed VTB into retail lending, the industry's fastest growing segment, by acquiring two privately owned competitors. He has also expanded beyond Russia's borders, acquiring banks in former Soviet states of Ukraine, Georgia, Armenia and Belarus. VTB may make more acquisitions, according to its stock memorandum. Kostin hired former Finance Minister Mikhail Zadornov in 2005 to run the bank's retail unit, VTB 24.

Retail Boom

Retail lending in Russia, the world's seventh most populous nation with 143 million people, has yet to catch up with smaller, former communist economies in eastern Europe. Consumer loans are growing about 75 percent a year and currently account for about 8 percent of gross domestic product, about half the rate in Poland and Hungary, according to Deutsche Bank. Housing loans are growing at 180 percent.

VTB plans to add at least 180 new retail branches inside Russia over the next two years, or at least one every four days, increasing the total to 500. The bank now has 524 outlets, the third-largest network after Sberbank and Russian Agricultural Bank, the state lender to the farming industry. It also has the second-largest ATM network. VTB's assets may jump fivefold over the next five years to $248 billion, according to Deutsche Bank. Assets rose 43 percent last year to $52.4 billion.

`Attractively Priced'

``VTB's attractively priced,'' said Aivaras Abromavicius, a partner at East Capital Group in Moscow, which oversees $6 billion in Eastern European stocks and ordered shares. The fund manager has reduced its exposure to oil and gas in favor of domestic industries which are growing faster, he said.

Russians, who lost billions of dollars in multiple bank collapses and stock market schemes in the 1990s, rushed to buy stock in VTB's so-called ``people's IPO,'' which President Vladimir Putin called a ``stable'' investment during a news conference in February.

Toting schoolbags and sport bags filled with rubles, Russians stood as long as five hours to buy shares at VTB outlets nationwide in the final days of the month-long sale.

More than 131,000 individual investors bought a total of $1.6 billion of stock, ``making it the most successful Russian retail offer to date by number of applicants and value of demand,'' the bank said in the statement.

To contact the reporter on this story: Todd Prince in Moscow at Tprince2@bloomberg.net

Last Updated: May 11, 2007 08:09 EDT