“Banks turn to loan brokers to diversify their alternative sales channels and tap into new client categories. External sales forces also allow banks to redirect their internal resources to other directions, especially since brokers take on the responsibility of putting together initial papers. They thus save bank employees the time and energy of doing it themselves,” said Catalin Parvu, general manager of the retail banking and operations division with Piraeus Bank Romania.
At the end of 2007, loans granted by the bank via brokers amounted to about 38 percent of its total credit portfolio, added Parvu. “It is a significant growth considering that sales made through this channel represented some 18 percent of the bank's total loans in December 2006,” he said.
“Back in 2004, banks' sales force was made up almost entirely of their own employees. Nowadays, brokers have become an important means lenders employ to reach their objectives. Banks are closing more and more profit-creating partnerships and thus increasing the size of the credit brokerage market continuously,” said Bogdan Georgescu, head of the direct sales force with Unicredit Tiriac Bank. At the beginning UniCredit-Tiriac used brokers for its Bucharest market alone, as this used to be the only place where they actually existed. “Now, we collaborate with such companies all over the country. Their numbers have gone up almost 70 percent in the last year,” said Georgescu.
On the flip side, banks that already have big branch networks rely less on external help and more on their own staff for meeting their client numbers.
Volksbank went from broker-affinity to broker-independence as it made its way to the top of bank rankings.
“This type of collaboration has been part of the bank's strategy ever since we started to develop our retail network. We started off as a small bank and thus used all traditional sales force: agents, intermediaries and brokers. After that we started to develop our franchise network,” said Dan Pantilin, head of the alternative sales division at Volksbank Romania. Right now, the bank relies mostly on its own staff to meet its sales targets. “Under these circumstances, brokers are responsible for about five percent of our monthly sales,” said Pantilin.
Regardless of banks' individual experiences with brokers, the industry as a whole is paralleling the general growth of the credit market and its gradual complexity.
“We think that the local loan brokerage market will grow in the next four years and will probably come to represent 20 percent of total loans. At this moment, more and more Romanians are turning to loan brokers, especially extremely busy and high-income people.
It is thus clear that the market's growth will be accelerated by the increase in incomes and the sophistication of target clients,” said Parvu. Indeed, brokers have a bigger shot at penetrating the market more rapidly if they take a top-down approach.
Either way, in a market where lending is booming and free services are scarce, Romanians are still far from queuing up at the doors of credit brokers. In fact, credit brokers are virtually unknown outside Bucharest and the loans they intermediate nationally represent less than five percent of bank loans – this is the most optimistic take on the market's state.
What causes brokers' lack of sex appeal with end-clients is a mix of distrust, lack of variety, novelty of the trade, and a few other reluctance-inducing factors.
“The local market has a very low degree of complexity, both as regards its needs and the array of banking products on offer. Then, the lending process has a short four-five years history,” said Anca Bidian, CEO of KIWI Finance, the biggest credit broker on the market.
“This kind of service is highly dependent on banks' offers and clients' demand. The variety of banking products on hand is wide enough to cover most of the customers' needs, but there is still room for improvement as regards collateral-backed loans and project finance,” said Roxana Gavrila, communication manager with Credit Team. Another challenge brokers must face lies in the market's lack of homogeneity, paralleled by extra-fragmentation.
“Number-wise, there is a lot of competition on the market, but it is extremely unbalanced in its influence: there are a few known brokers and a few hundred local firms, about 300 or 400,” said Gavrila. The increased segmentation reduces the market's strength as a whole, she added. “The Romanian brokerage market is 45 percent controlled by small local players based outside the capital city. The remaining 55 percent goes to Bucharest-based firms. In the coming years we will see a stricter pecking order and with it, more far-reaching services, because many of the big players have development plans and have started to expand territorially,” said Gavrila. As they move further in-field, things might get tougher than they thought.
“In Bucharest, people have a vague idea about what credit brokers do, but outside the capital, there is a severe lack of information. There are one or maybe two brokers actually specialized in credits outside Bucharest,” said Victor Sraer, partner at Rapid Finance.
For instance, the Timisoara market is fairly limited at this point in time, said Claudiu Butnariuc, credit consultant with Timisoara-based Vertical Finance. “There is a maximum of maybe three major players and a few smaller ones, but soon we expect to be faced with increased competition,” said Butnariuc. Brokers might also be having a credibility problem stemming from the lack of any regulations, supervision authority or selection standards on the market.
“There are no strong players willing to act as market ‘educators.' The present situation of the credit brokerage market is comparable to the state of the insurance brokerage market seven or eight years ago,” said Sraer. “In 2008, we will see new entries on the market, both internal and external players. For this reason, a validation of this sector would definitely be beneficial,” said Bidian.
Other factors acting in favor of the brokers are related to banks' still limited reach across the country.
Bank loans have a limited weight in the Gross Domestic Product (GDP), among the smallest in the region – about 18 percent last year. Local credit rates are smaller than Hungary's, Croatia's and even those of the Baltics, which serves to show the extensive space still remaining for lending. On top of that, brokers in Romania account for less than five percent of bank loans, according to the most positive market estimates. In Central and Eastern Europe (CEE), brokers intermediate about 40 to 70 percent of total loans, while in Southern and Eastern Europe (SEE) the percentage drops to almost 30 percent of loans.
On the other hand, Romanians have embraced lending more rapidly than their neighbors. They take on bigger loans relative to their incomes than the Polish or Lithuanians, but are still under Euro-zone averages, according to studies conducted by Kiwi Finance.
“I estimate that the growth rate of the banking brokerage market will outpace the growth pace of retail banking in the next five years, at national level,” said Bidian.
“Our statistics show that Romanian credit brokers will come to intermediate about 15 to 20 percent of loans by 2012. The average intermediation rate in Western Europe is 51 percent,” said Gavrila.
By Ana-Maria David