CEE lenders in Romania unveil growth tactics

UniCredit is the top Central and Eastern European (CEE) player in terms of size, revenue and branch network. Erste Bank is its main contender. Raiffeisen International has the biggest geographical coverage among all international banks in CEE. Romania is a hot spot for all these CEE players seeking to strengthen their position in the region. Together with the Czech Republic, Hungary and Slovakia, Romania is positively viewed as one of the most dynamic developing markets. Ukraine and Russia, too, have the best prospects of turning in large gains in upcoming years, according to the players' estimates.
On the bad side, 700 CEE banks will disappear in the next three years due to mergers and acquisitions, said analyst Dragos Neacsu of Deloitte Romania.

UniCredit bets on Poland and Turkey
UniCredit Group is represented on all five continents through banking subsidiaries, investment centers and representative offices. The group's present strategy is to reach out to markets where there is a gap in terms of banking penetration and ride the wave of the ever-growing retail lending.
In Europe, the group currently holds the crown as the most important CEE player, with top financial institutions in 20 countries. Of the 20, Poland and Turkey stand out.
“One of the most important CEE markets is Poland where UniCredit Group operates Bank BPH and Bank Pekao. The two are together by far the leading bank on the Polish market, with a 20 percent market share, EUR 33 billion net assets, over 1,200 branches and more than 6 million customers,” Rasvan Radu, CEO of UniCredit Romania, told Business Review.
Turkey is another very important market for UniCredit.
“Yapi Kredi is number four on the Turkish banking market and has a 10 percent market share. It has a leading position in such market segments as credit cards, assets under management, non-cash loans, leasing and factoring. It is worth saying that Yapi Kredi has EUR 27 billion net assets and over 600 branches,” said Radu.
Overall, things are looking up for the group. China and India aside, CEE is one of the fastest growing regions worldwide with prospects of remaining so for a time to come. Moreover, of all economic sectors, banking ranks high in terms of profitability.
“Sustained growth in banking volumes will keep profitability high, with earnings in the region expected to double from 2004 to 2008, reaching almost EUR 33 billion in 2008,” said Radu, adding that the banking sector in Russia is expected to achieve the strongest increase in profitability in the 2007-2008 period.
“Profitability will also be strong in Turkey (16 percent), Romania and Croatia (12 percent) and Bulgaria (10 percent),” estimated Radu.
Bulgaria is one of UniCredit's strong points in South-Eastern Europe. Compared to Romania, it provides the group with more medals, and divisions that are not yet present in Romania have already been established in Bulgaria.
“In Bulgaria, Bulbank, HVB Bank Biochim and Hebros Bank are leading the market as top credit institutions while quickly expanding on the mortgage, small business and leasing markets. Following the completion of their merger, UniCredit Bulbank will be the market leader, with more than 1.2 million customers,” said Radu.
Measured against its leading southern neighbor, UniCredit Romania's best bet is third position in rankings by assets, attainable only after its merger with HVB-Tiriac is completed in June. From thereon, an acquisition might come to complete the bank's organic growth.
Bulgarian-Romanian differences do not end here. Group division UniCredit Clarima AD is present on the Bulgarian consumer loan market, while in Romania this is the sole division that has yet to be implemented.
As far as the leasing business goes, subsidiaries in both Romania and Bulgaria hold leading positions, although their focus differs.
“UniCredit Leasing in Bulgaria is especially strong in supporting SMEs and big corporate business, while UniCredit Leasing Corporation in Romania has a long experience as a universal leasing provider, offering products in the field of vehicle, mobile, real estate leasing and leasing-related services such as insurance, construction management and fleet management,” said the UniCredit Romania CEO.
On the whole, the group's business is thriving and has no reason to lose momentum any time soon.
“The banking market in Central and Eastern Europe will continue to grow strongly in the forthcoming periods, supported by a combination of robust economic development and a remaining gap in terms of market penetration. The main driver for volume growth in the region will continue to be retail lending,” said Radu.
Retail loans in CEE as a whole are expected to grow at an annual average rate of about 31 percent in the 2007-2008 period, he added.
“We believe that the strongest increase will be seen in Ukraine and Russia, where retail loans will go up by around 55 percent and 47 percent respectively – almost double the rate achieved by the CEE market as a whole,” said the UniCredit CEO.
Following Ukraine and Russia, he listed Romania, Serbia, Turkey and the Baltic States, where UniCredit expects retail loans to grow by around 30 percent year on year.
“Overall, lending activity at a regional level is expected to have an average 24 percent year on year increase in the 2007-2008 period,” said Radu.

Erste seeks consolidation, not new buys
Austrian-based Erste Bank is right on UniCredit's tail in the rankings of Central and Eastern European banks, but its country spread is significantly smaller than the Italians'. The Austrians prefer to strengthen their present positions rather than try to conquer new ones.
“Erste Bank's home market is represented by the CEE region where it is present now in nine countries: Austria, Czech Republic, Slovakia, Hungary, Croatia, Serbia, Romania, Ukraine and the Republic of Moldova. Should we engage in further transactions, the priority would be to enhance our market position in existing markets rather than venturing into additional countries,” said Manfred Wimmer, chief of strategy at Erste Bank Group and vice-president of the BCR supervisory board.
Apart from Austria, which is by far the most developed and mature market, the group's business has thrived in the Czech Republic, Hungary and Slovakia. “When we talk about the market position of our businesses in the various markets, this is, of course, very well developed in Romania, alongside the Czech and Slovakian republics,” said Wimmer.
The group's general strategy is to establish full financial groups on the markets where it is present and thus provide all the products and services available within the group. “Nevertheless, this also depends on the level of development of those specific markets. In Austria, a very broad menu of wealth management services is in place, whereas in Romania our customers do not yet demand all of these services. This is mainly dependent on the different level of disposable income,” said Wimmer, as to why not all of the bank's divisions have been transported in Romania yet.
Erste officially entered the local market last year, when the group became majority shareholder of leading lender Banca Comerciala Romana in exchange for a record breaking EUR 3.75 billion.
The investment so far seems to have paid off. “Out of over 15.6 million clients in CEE, over 3.2 million clients are in Romania,” said Wimmer.
However, he added that Erste's expansion strategy does not necessarily involve going after market leaders. “BCR was in quite good shape in terms of profitability, efficiency and general market position, compared to the other banks at the time of its takeover,” Wimmer said.
Among Erste's long-term objectives for BCR, the vice president listed the need to strengthen the leading position on the market across all customer segments to increase profitability and efficiency levels to make BCR the best-in-class and to streamline processes and systems in order to foster convergence across the Erste Bank Group.
Unlike UniCredit, which developed its business in Bulgaria to a greater extent compared to Romania, Erste did just the opposite.
“In Romania, Erste Bank is present through a full financial group whilst in Bulgaria it is present only through its leasing subsidiary: Immorent,” said the chief of strategy.

Raiffeisen buys 10 banks for EUR 2 bln
Raiffeisen's growth tactic is apparent: where possible, be the first foreign player on the market, then consolidate and extend on as many markets as profitable and, finally, keep your eyes on the future star markets of Ukraine and Russia.
Its journey toward CEE expansion started 20 years ago in 1987, when the bank set up its first base outside its Austrian home market.
“The Raiffeisen Bank in Hungary is the nucleus of our network in CEE. At that time, we were the pioneers who moved into Hungary long before the change of system in Eastern Europe became noticeable. In spite of our long experience in doing business in the region, founding the bank was like jumping into cold water; yet, from the first year on, we earned money,” said Herbert Stepic, CEO of Raiffeisen International Bank-Holding AG.
With Hungary, Raiffeisen's growth began parallel with the changes in political systems throughout CEE. “We accompanied the development from a mono-bank system to the modern market systems that have become established today and in many cases we actually added to the momentum,” said Stepic.
From 1991 until 2001, eight more banks were set up in Poland, Slovakia, the Czech Republic, Bulgaria, Croatia, Russia, Romania and Serbia. In most cases, Raiffeisen employed the first-comer strategy, which turned out to be a winning tactic.
“In many countries we were the first foreign bank on the market. This helped us tremendously in terms of brand perception and when recruiting competent staff. Today, Raiffeisen is a leading bank brand in CEE,” said Stepic.
From 2000, consolidation followed Raiffeisen's expansion. The first acquisition was Market Banka in Bosnia and Herzegovina in July 2000. Then came Banca Agricola in Romania and other banks in Bosnia and Herzegovina, Slovenia, Kosovo, Belarus and Albania in the years 2001 through 2004.
Raiffeisen's biggest acquisition to date came in 2005, when 93.5 percent of Bank Aval, the largest retail bank in the Ukraine, was purchased at a price of EUR 850 million.
The takeover of Impexbank at the beginning of last year made Raiffeisen International the largest Western bank in Russia and the Commonwealth of the Independent States (CIS). Moreover, the group's market position in the Czech Republic was strengthened with the acquisition of eBanka.
Altogether, the institution acquired ten banks within less than six years, paying up a net amount of about EUR 2 billion, not including follow-up investments. The bank now boasts the biggest geographical coverage among all international banks in CEE.
Raiffeisen International, which has a balance-sheet total of more than EUR 50 billion, operates on 16 markets of the region with subsidiary banks and leasing companies. On eight markets, the respective lender is among the three largest in the country, including Romania,where it comes right after BCR-Erste Bank and BRD-Societe Generale in asset rankings. Raiffeisen's expansion tactic requires all subsidiary banks to act as universal banks on local markets. It also requires that growth trends be followed throughout the region and future high-profit-gainers be identified.
“It was and is our goal to grow faster than the markets. The further we move to the East, the less developed banking markets are. To this very day, the large majority of the people living in the Ukraine or Russia do not have any bank connection at all. These are our future markets, on which we are well positioned today, like no other Western bank,” said Stepic.

SocGen – most dynamic in Romania and the Czech Republic
The French have a multifold approach toward expansion, targeting the CEE but also the Mediterranean basin, Africa and the French overseas territories.
SocGen's retail arm outside France covers 26 countries and reaches approximately 6.5 million customers, according to group officials. Its specialized financial service activities have also seen substantial development over the last years, covering 34 countries worldwide.
The plan generally employed is to take the universal banking model and adapt it to the specific features of each market. So far, it has proved successful, producing a four-time multiplication of the group's particular customers from 1999-2005.
SocGen is currently operating on 10 CEE markets including the Czech Republic, Slovakia, Croatia, Romania and through the latest addition to the group, Moldova.
“After the acquisition of Mobiasbanca in the Republic of Moldova, Societe Generale consolidated its position as a major player in CEE. The group has more than 1,450 offices in the region and about 4.7 million individual clients,” said Patrick Gelin, CEO of the Romanian SocGen branch Banca Romana de Dezvoltare (BRD).
“In the CEE region, the branches in Romania – BRD – and the Czech Republic – KB – are considered to be the most dynamic,” said Gelin.
The group has not moved into Hungary yet, but does have a decisive presence in Romania, where majority-owned BRD holds the second position in the system, with little chance of losing it in the foreseeable future.
“We already brought several specialized activities to Romania: leasing, consumer credits, car park administration and asset management. New activities will follow in the months and years to come, depending on how mature the market grows. I am especially thinking of business lines related to investment banking – such as structured finance – and market operations such as derivate products,” said Gelin.
Of the total 4.7 million SocGen individual clients, BRD now accounts for 45 percent, namely 2 million customers. BRD-SocGen is also second bank on the local market in central bank rankings by assets.
“Our long-term objective is to maintain the steady and lasting profitability of the bank and keep BRD among the top financial groups in Romania,” said Gelin.

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ING makes Romania fourth home market
The Dutch ING Group operates in 30 European countries including Bulgaria, Slovenia, Romania and the potential future sources for large gains, Ukraine and Russia.
“In recent years, ING's growth strategy was to enter a small number of markets that have a high growth potential. ING preferred to extend its operations organically and use its banking know-how on those markets where it was already present. By keeping a small number of markets, the efficiency of operations increases and so does the focus on the organic development of the bank,” said ING Bank Romania's general manager, Misu Negritoiu.
He added that four of the thirty ING markets are viewed as home markets, which means that the respective branches provide all the group's products worldwide.
“Due to remarkable results obtained by ING Romania divisions and to the development potential of the local market, ING Group made the strategic decision to make Romania its fourth home market, with Holland, Belgium and Poland,” said Negritoiu. ING's strong presence on the Romanian and Polish markets gives it access to a significant number of clients in the CEE region, he said.
ING Bank Romania, the first foreign bank to operate in Romania after the 1989 Revolution, now occupies the seventh position in central bank rankings and is fully packed with divisions covering multiple financial and insurance services.
More specifically, ING Bank Romania has two main divisions: ING wholesale banking, which targets companies and is active in 40 countries worldwide, and ING retail banking. The latter focuses on individual clients and operates in Holland, Belgium, Poland and India. ING It provides private banking services, too, but only on selected markets: Romania, Belgium, Holland, Luxembourg, Switzerland and a few Asian countries.
Aside from the aforementioned divisions, ING Asigurari de Viata offers life insurance in Belgium, Greece, Spain and a few other CEE countries. In Romania, the insurer is the market leader.
Additionally, three other divisions have been set up for full-range products: ING lease offers financial leasing services to companies, ING commercial finance handles factoring, while ING real estate investment management is part of ING Real Estate, one of the biggest companies in the field worldwide. “One division that is not functional in Romania is ING direct, which tackles direct retail banking activities online, by phone or by e-mail. ING direct is successful in mature markets such as Australia, the United States and in some European countries,” said Negritoiu.
However, there is one aspect in which Romania has surpassed other ING markets.
“The Self'Bank concept is known as the ‘Romania concept' within ING Group. It was inspired by a Belgian model, but was adapted to the needs of the local market. As a confirmation of its success, Self'Bank was exported to India and might be transported to other markets in CEE also,” said Negritoiu.
He added that according to ING Romania's growth plans, the bank will increase its current five percent share to eight-ten percent in the next three to five years.
“The financial intermediation in Romania is still very low – under 30 percent – compared to the European average of 50-55 percent. This creates strong development opportunities,” said Negritoiu.

700 European banks to vanish in 3 years
The CEE and the CIS regions have been very dynamic in the last years as far as mergers and acquisitions go and the trend will continue in the years to come, said Dragos Neacsu, Director of the Financial Advisory Service