Bauspar gains ground in Romania

Aurelia Cionga, president of Raiffeisen Banca pentru Locuinte, says the bank’s potential financing level in Romania has reached close to RON 3 billion (EUR 682 million) under the Bauspar savings and loan system. She adds that 500,000 individuals are currently using Bauspar to improve their homes or buy real estate, as it provides betters terms both in loan costs and deposit yields than regular banks.

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How does the savings and loan market look at the moment and what are your expectations for the second half of the year?

I am one of the people who believe that any crisis can be an opportunity provided you understand what has generated the change and how you can react. From this perspective we might say that the events in the last four-five years have represented an opportunity for the savings and loan system because they allowed it to prove one of its main features, its sustainability.

What are the costs of the Bauspar system?

The product has a saving and lending stage. In the saving period we are talking about an interesting yield nowadays because for the normal savings period of three to five years the yield can be 8-10 percent. It is composed of the bank interest and the state incentive for annual savings. For lending, the interest rates are 4.5 to 6 percent in RON (fixed interest rates, guaranteed for the whole lending period).

In recent years, people have been tempted to believe that interest rates would continue to fall, the same way they believed six or seven years ago that wages would continue to climb. In the economic cycle, both move up and down. The efficiency is related to the good yield in the savings stage and lower cost of borrowing.

Has the bank’s strategy changed in the last decade, since it started operations in Romania?

Raiffeisen RbL is part of a banking group, and as a result the product we are offering is part of the mix of products offered by Raiffeisen for individuals through the commercial bank and other subsidiaries. What has probably significantly characterized these ten years is the need to position the product in the collective mind. When we are talking about a country such as Austria, which has a penetration rate (for this product) of over 60 percent, it essentially means that there is one such contract for each household. An Austrian has an average of six such contracts during his or her lifetime.

In recent years we have put a lot of effort into getting the product out of the bank branch and taking it to the people. In fact we have adopted two action lines. One is providing information about the system in partnership with city halls; in two years we have established partnerships with over 100 city halls and over 15,000 people have signed contracts as a result of this move. The second is the partnership we have with other players to make people embrace financial products, including Bauspar, from school.

This product is highly regulated and bears a low risk for users, and has been adapted in time to market movements. We have tried to be among the first to make a move on the back of the reduction of interest rates in recent years. We also grant financing when a client wants to respond to an opportunity and get access to financing for a shorter term. More clients are deciding to get financing through this product instead of another banking product.

What is the penetration rate in Romania?

The short answer is 2 percent. In Austria we are talking about a product that has 50 years of history. In Germany, where the penetration rate was at the same level after the unification of the country, including in the former East Germany, today it stands at 30 percent. The official figure used by the Association of Home Banks is 2 percent, computed as the number of contracts (500,000) in reference to a population of 20 million.

The problem is to what extent this is the real comparison we should make, because in Romania only half of the population uses banking services. Even if we reach 4-5 percent there is still room for growth – this is the good side of the story along with the fact that in Romania the system became operational ten years ago. In the first five years it coexisted with commercial banks – which is still happening now – but it was a period in which we had a lending boom and an overheated economy.

On the medium term, the objective on the market is to reach 10 percent (e.n. penetration rate) in three to five years. At present 500,000 Romanians are enrolled in the system, with the same number of contracts. We have around 200,000 clients.

Contracts often impact the whole family which in Romania means it impacts around 1.5 million people. The growth level in recent years makes us believe that its role will be enhanced.

What do clients do with loans from the Bauspar system?

Anything to do with home acquisition or improvements is in our field of activity. We have loans that range from RON 5,000 to RON 500,000 – from replacing the windows and roof repairs, to construction and property purchases.

From the technical point of view, two out of ten loans are for acquisitions, one is for construction – meaning stages prior to land registry submission – and seven are for renovations.

We have seen growth in lending lately, linked to higher demand by eligible customers. This is a good thing, after several years of looking at ways to increase consumption.

How much was contracted last year by customers in financing?

We are looking at the stock because clients enter and exit the system. The sum is getting closer to RON 3 billion – which is the financing potential on the medium term.

In a market with two players, each linked to a strong financial group, the main client base is the one of each of the groups. Even combined there is still a lot of room for market share outside the client base of our groups. One thing we have recently been pursuing at Raiffeisen RbL is the diversification of the distribution network through agents (sole traders) in direct relationships with banks, either through partners or brokers of financial products that are also interested in distributing this product. We employ 75 people.

Do you see rural areas as a growth engine?

We have clients in rural areas. Our typical image of a rural area needs to be adjusted. The existence of sole traders or financial product brokers that leave the branch and address the rural environment is very important, but at the same time we have to bear in mind that the mobility of people in rural areas is greater today. Rural areas are definitely of interest for the savings and loan system and the real question is how to access this segment.

Ovidiu Posirca

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