Millennium taps flimsy banking greenfields

Despite this, Millennium bcp announced it would cover business segments that were either intensely disputed – like retail and SMEs – or fully catered for by the banks already operating on the market, like the corporate segment.
“At this point, it is a very thorny task to start anew in the local banking system. Banks are consolidating their positions, the competition is extreme, and therefore new players are given limited development possibilities. Break-even prospects are either very remote or discouragingly slow,” said Radu Craciun, chief analyst with ABN Amro Romania.
Millennium's own estimates say that it will take four years until the bank starts making a profit, although the management hopes to break even earlier than that.
That will basically mean that the bank has until 2011 to cover the EUR 300 million investment made up to that point, which is almost 50 percent more than market leader BCR's record net profits last year. BCR's market share stands at roughly 25 percent, while Millennium's target is to acquire two percent of the market in a few years' time.
Millennium's stepping into the Romanian market through a greenfield investment is justified, said Liviu Voinea, the head of the Group for Applied Economics (GEA). “The decision came after missing out on two acquisition opportunities, hence it was a necessary decision,” said Voinea.
All the more so since opportunities for other acquisitions are utterly unappealing or mostly out of reach right now and Millennium bcp would have had to wait a good while for another shot at a decent deal.
Currently, almost 90 percent of the local banking system is already controlled by foreign players. The remaining 10 percent of banking assets is split between Banca Transilvania (BT), CEC and the small-league Banca Carpatica (BC).
Of the three, CEC and BC have overtly been up for sale, but CEC's long-drawn-out privatization failed this year, and so has BC's philosophy “Everything's for sale, at the right price.”
On the contrary, BT has been playing hard to get and is still maintaining this strategy, although there have been plenty of famed window shoppers interested in it, possibly even Millennium bcp. However, BT's short- and medium-term strategy does not include its potential sale at least until 2009, said shareholders. That is also when the state might reconsider CEC's privatization; therefore BC is now, at least theoretically, the sole player up for sale, but its market share makes it considerably less attractive than its two competitors for investors' money, said Craciun.
“At this point, I cannot say that there will not be any greenfields in the banking industry on the short- or medium-term, but neither are there many choices when it comes to acquisitions. I cannot see the point in buying a one-percent-market-share bank, for instance,” said Craciun.
Voinea was also less than enthusiastic about any players' choosing to go the Millennium way in the near future.
“Many important banks are still missing from the market, HSBC being the most illustrious example as the leading European lender. But in order to have greenfields, especially on the investment banking segment, there needs to be big volume deals which are still missing from the market,” said Voinea.
“Maybe in a few more years, other big banks will come to Romania,” he added.
But since Millennium bcp was keen on breaking into the market before the industry exhausted its lending explosion and lost its under-banked quality, and since the EUR 300 million the bank will invest in setting up greenfield operations by 2011 was more affordable than the EUR 0.7-1 billion it might have had to pay for CEC or BT, the lender took the plunge hoping for the best.
Bank officials said they were content with the decision they had made, optimistic about the future and not keen on growing more through an acquisition.
“Nothing is ruled out, but we have no intention of making any acquisitions on the local market at this point and have not studied any of the banks up for sale,” said Christopher de Beck, vice-president of the Millennium bcp Administration Council.
However, if the right opportunity came along, Millennium would consider the alternative to have a share in it – on one condition. “As a rule, we always have the majority of operations, meaning at least 51 percent of the shares,” said De Beck.
In Romania, the bank said it would act as a universal bank, but concentrate primarily on corporates.
“The bank's focus is not clear to me yet; they say they will heavily target corporates, but the advertising campaign is mainly focused on family or individual values,” said Voinea of GEA.
“New players hoping to tap the corporate banking market cannot adopt a strategy that focuses on launching new products. Most of the exiting banks are part of big European or international groups and their products are already sophisticated and diversified enough. The sole aspects in which newcomers can make a difference is in commission, interest rates or the quality of services,” said Craciun of ABN Amro.
On the corporate banking market, Millennium will compete against traditionally corporate inclined players like ING Bank, Citibank and ABN Amro, but analysts say the new lender will not erode their market shares.
“Millennium is probably bringing in its own international clients, therefore it is not necessarily taking from other banks' customers,” said Voinea. He added that the two percent market share targeted by Millennium for the upcoming years is “ambitious enough, but not impossible to reach.”

Ana- Maria David