There are multiple aspects to be considered when deciding a bank's growth parameters. Central locations are scarce, rents are high and trained personnel are scant or expensive. Still, high profits drive banks to take the plunge. Bankers employ alternative solutions when their absence from one location is not an option. For example, Banca Transilvania founded Academia BT to make up for staff shortages, said general manager Robert C. Rekkers. Academia trains and integrates less experienced staff. Such tactics are necessary, as banks' territorial presence has proven to be irreplaceable by other means.
“Nowhere in the world has e-banking managed to replace or compensate for the absence of the conventional bank branch. Online banks created during the internet's heyday have now been closed almost entirely. Therefore, I do not think e-banking is an alternative capable of compensating for ‘brick and mortar' branches,” said Patrick Gelin, president and general manager of BRD-SocGen.
Consequently, banks have started an animated race to gain in-land presence and increased their total number of offices by 25 percent last year, reaching a cumulated 4,401 branches, said Banca Comerciala Romana CEO Nicolae Danila. He added that the number is estimated to grow steadily in years to come as the financial intermediation in Romania is still very low compared to the rest of Europe.
Few are the banks that have not announced big plans to open tens of new branches this year. Among those sticking to their current networks is market leader Savings Bank (CEC), which already has some 1,400 branches, of which more than 800 are in rural areas.
The bank has been in operation since 1864, and has therefore had plenty of time to develop its national outreach.
“We are the only bank that is present everywhere in the country. When you have almost 1,400 branches, you don't need to think about opening new ones,” said CEC spokesperson Georgia Radu.
“CEC might open new offices only if real opportunities arise,” said Radu, without giving details as to what kind of opportunities would be considered. Organic expansion has been traded off for a series of makeovers in CEC's case and some changes will appear in its territorial presence. “In the second half of the year it will become more evident that the appearance of our units will not be as ‘dusty' as it is at this moment in time,” CEC president Eugen Radulescu told Business Review.
With organic development completed, internet banking is the other way to grow that CEC needs to learn. E-banking will be in place in the first half of 2007, said Radulescu. “There are only a few more small adjustments that need to be made,” he said.
CEC's 1,400-branch network will remain unparalleled for some time to come, but contenders are fighting to reduce the gap.
BRD-SocGen opened 274 new offices in 2006, and now has a total of 600 branches.
“We will continue our expansion in 2007 and 2008. Our approach will be extremely pragmatic and we will consider business opportunities,” said Gelin of BRD, without specifying the exact number of offices to be opened this year. The average cost to open a new branch is under EUR 100,000, he said.
Gelin added that the bank's growth is far from complete. “The bank's organic expansion will probably be completed when the Romanian market is fully banked. It is difficult to give an exact date for that because the process depends on factors such as the economic growth and the evolution of living standards, which are difficult to predict right now,” said the GM.
Following closely behind BRD-SocGen in branch-network rankings, Banca Comerciala Romana comes in third with 478 offices around the country. The figure will not stand for long, as BCR will put EUR 200 million into an Integration and Development Program that will consolidate its leading position on the market and help it reach 700 offices or more by 2009. Additionally, it will open 52 new business centers to consolidate business with small and medium enterprises, said the bank's executive president Nicolae Danila.
Lenders ponder virtual and physical expansion
Banca Transilvania (BT) comes fourth in the growth race, with 343 offices at the end of 2006 and serious plans to open 80 new ones this year with many of them located in Bucharest. The bank has recently celebrated its 50th office in the city and announced plans to consolidate its presence there. BT will thus open at least 10 new branches in Bucharest this year.
The bank's steady growth is occurring in more gradual steps at present. Compared to the 80 offices waiting to be opened in 2007, last year BT opened 125 branches and another 100 branches in 2005.
Expansion costs are noteworthy. “We have proposed EUR 30 million for investments this year, but the sum is to be approved by the Shareholders' General Assembly at the end of April. The money is meant to increase the quality of our banking services, to perfect our IT and card systems, to train our staff and, of course, to expand our office network,” said general manager Robert C. Rekkers.
Usually, a new office breaks even approximately one year after its opening, but that depends heavily on the potential of the area or city where it is located, said Rekkers. Theoretically, internet banking should provide a solution for penetrating those areas where conventional banking presence cannot be offered.
“Unfortunately, the Romanian reality is not favorable to this kind of growth. There are few computers in rural areas and internet access is problematic in many villages and small cities in Romania. IT culture is also very poor in rural areas,” said Rekkers.
BT launched BT 24, which provides home banking through BT Ultra, in the second half of 2005. Last year, the bank continued its online development with BT Trade, a service dedicated to stock trading via the internet.
“Now that Romania has become part of the European Union, we hope that the multiple influences on the market will enhance people's access to modern technologies in rural areas,” said Rekkers.
Like BT, Raiffeisen Bank is preparing to open quite a few branches this year. “A very significant part of our investments will go into the expansion of our network. We want to open 100 branches this year,” said bank CEO Steven van Groningen. He did not disclose the specific amount allotted to the organic expansion.
“I can tell you that this year's investments are in line with what we have done in previous years. We have done quite a bit of investing in advance; we have invested more than EUR 14 million and I don't think we will exceed this level for this year,” said van Groningen.
The UniCredit Group – made up of banks HVB-Tiriac and UniCredit – is a close competitor of Raiffeisen in terms of assets and market share, but has an in-land presence that is significantly more limited than Raiffeisen's.
In 2007, the group plans to have a total of 144 offices in Romania, said Robert Serbanescu, head of business services with UniCredit Romania. That basically means that HVB-Tiriac and UniCredit will both open ten new branches this year. At present, they have a cumulated figure of 134 offices in 37 key cities.
“By the middle of the year, the group will be present in every Romanian county,” said Serbanescu. He added that generally it takes 18 months for a new office to start making a profit. In comparison, electronic banking and mobile banking are less expensive to start.
“In 2006, we invested EUR 100,000 in e-banking. This year we are planning to develop this method of distribution more,” said Razvan Lintaru, head of e-banking with HVB-Tiriac. Still, e-banking and mobile banking are far from a viable alternative to conventional bank offices.
“Due to international and national regulations regarding financial banking felony, these new channels cannot be viewed as alternatives to regular branches 100 percent. For example, each time clients use external money orders through e-banking, afterwards they must go to the bank office and submit the necessary documentation,” said Lintaru.
ING Bank has a twofold approach to expansion. On the corporate side, the bank plans to have 35 to 40 dedicated offices in the next two or three years. The bank currently has 23 wholesale branches. “Last year, our geographical expansion on the corporate segment was the most accelerated since ING entered the market. We have launched eight corporate banking offices in 2006,” said general manager Misu Negritoiu.
On the retail side, ING at present has 110 offices and is planning on opening 70 more ING outlets. “Our plan is to reach a total of 280-300 by the end of 2008,” said Negritoiu. The cost of the growth is “not huge,” he added. “We have to take into consideration that our retail network is only partly funded by ING and is partly the contribution of franchisors. We have estimated the total costs of development at around a couple of million euros every year,” said Negritoiu.
On the other side of the spending curve is Greek-owned Bancpost. The bank missed its profit target last year due to an accelerated growth which cost EUR 170 million. Bancpost opened 38 branches last year and now has a total of 190. It also launched 10 business centers meant to service the bank's corporate clients.
Another Greek player on the market is Alpha Bank. The lender opened 40 outlets last year, reaching a total of 70. The average investment per unit was quite high compared to other lenders at EUR 250,000. Alpha Bank will continue to expand this year and 2008. The bank announced plans to more than double its number of offices by 2008 to reach 150 branches.
Small banks come up with big plans
Smaller banks in the system have expansion plans proportionately comparable to those of established lenders. Banca Carpatica and Volksbank are among last year's champions in the growth race.
Carpatica has a market share below one percent but still opened 114 new offices last year and has big plans for 2007 too.
The bank will focus on clients in the capital city for whom it will open 10 more branches by year-end. It now has a total of 217 offices, which means that last year's growth rate exceeded 100 percent.
Volksbank, ranked 11th in the banking sector, maintained the same pace. The bank opened a total of 104 new offices in 2006, reaching a total of 142 branches. One third of them are franchises, as the Austrians have taken ING Bank's example and used this system to increase their territorial presence. Franchises reduce the cost of expansion and get the bank into areas that are not always on another lender's map. This year, the bank plans to open 50 more franchise units and just as many on its own.
OTP Bank intends to open almost 40 new agencies by year-end and thus pass the 100-office milestone. It had 66 branches at the end of 2006, which means that the lender wants an increase of more than 60 percent in its territorial presence in 2007.