‘Nichers’ move from exception to rule

This year, approximately 50 foreign lenders have told the Central Bank of their intentions to start operations in Romania at some point in the future. Not all of them will, and definitely not all of them – if any – will go against the big guys in universal banking. Niches will become the new playground, first because they are greatly under tapped – as are most local business segments – and secondly because their current incipient state spells out big gains to knowledgeable and interested onlookers.
There are five local niche banks, with market shares that barely ever make it over the 1 percent threshold. The niches they tap are basic and rather secure. The complexity of niche banking is still primary in Romania, therefore none of the lenders has ventured into the sinking sands of agriculture financing or private banking, for example. More exactly, the five “nichers” are into housing loans, exports, small and medium enterprises and car financing.
Their number has gone up from merely two in 2005, which is a sign of further growth, but not nearly an indication that all existing niches have been exhausted, said Ionut Costea, president of Raiffeisen Banca pentru Locuinte (RBL), one of the niche players in the system.
“Compared to 2005, the niche banking market is continuously expanding, but there is not yet intense competition. Consequently, in the next few years we will notice a significant increase in the number of specialized banks on the already existing niches as well as on new ones,” said Costea.
The local development of bank niches is irreversible and will tag on regional trends.
“The Romanian financial market will integrate in the international circuit with increased speed now that European accession has taken place. We should look at Poland, the Czech Republic and Hungary – countries that joined the Union long before us. Their experience and results are standards that help set medium-term objectives for the Romanian market,” said Costea.
The development is apparent on the housing-loans segment, for instance. The market is now disputed by two players: veteran Raiffeisen Banca pentru Locuinte (RBL) and HVB Banca pentru Locuinte (HVB BpL). However, growing interest in housing loans had made two other banks in the system contemplate the sector. Market leader BCR and state-owned CEC have both announced plans to set up housing banks as early as this year.
Interest and good prospects have turned the niche into a trend.
“In Romania, there are 374 houses to 1,000 inhabitants compared to the EU, where the ratio is 468 to 1,000,” said Costea, which shows how imperative is the need for new houses. “Moreover, more than 6 million Romanians are interested in improving their housing situation in the near future,” he added.
Consequently, the growth rate of housing banks this year is expected to exceed last year's and maintain a clear rising trend in coming years, said Petre Tulin, president of HVB BpL.
“In developed countries, where the Bauspar system has been around for at least 10 years, this type of contract accounts for at least 30 percent of the total housing financing. Following European accession, we estimate that Bauspar contracts will reach comparable levels in Romania as well, provided that the legislation is stable,” said Tulin.
The housing niche has proven to be most interesting so far, especially since specialized banks have doubled their assets and deposit volumes in 2006.
“There is similar potential of niches such as investment loans, mortgages, agriculture loans, loans for local public administrations and small and medium enterprises (SMEs), as well as on derivatives,” said Costea.

SMEs dangle between focal point and safety net
SMEs seem to have been somewhat of a focal point for the whole banking industry last year and continue to be central to most bankers' interests. Big players in the system have stated that they would increasingly cater for such enterprises, while Banca Transilvania, number five on the market, has built its entire image around SMEs and their special needs.
The movement is reversed in the case of some niche banks as regards this category of clients: instead of focusing on their traditional SME customers, they are tending to expand their business and capitalize on the high waves of retail crediting.
ATEbank Romania, formerly known as MindBank, has 97 percent of its operations so far connected to small and medium enterprises, said general manager Sergiu Manea. Things will change as, “Starting this year the bank will extend its operations for individuals. As soon as possible we want them to represent about 50 percent of our total operations,” said Manea.
He added that the bank aims to turn its 0.2 percent market share into a 1 percent share by the end of the year. The bank will increase its social capital, add new branches to its existing network and diversify its product and service portfolio. It is also considering moving into agricultural financing somewhere down the line, following in the footsteps of its parent-bank.
Manea added that agriculture will soon gain the “it” factor it seems to lack now.
“One of the most profitable of the untouched niches is connected to getting the agricultural exploitation operating at European standards,” said Manea.
For now, ATEbank is estimating a gross profit of almost EUR 2.5 million for the end of the year. Part of this sum will come from the bank's territorial growth. ATEbank will open four more operational units in Bucharest and new branches in Arad, Bacau, Piatra Neamt, Ploiesti, Sibiu and Suceava this year.
Another niche player, ProCredit Bank, is also compensating for the narrowness of its niche through in-field expansion. It has already opened two more branches this year, thus getting to a 32-unit network. By yearend it plans to reach 38.
“Our intention is to be present wherever there is high business potential and consolidate our presence in those places where ProCredit already operates,” said general manager Michael Kowalski. One third of the bank's offices are Bucharest-based.
The bank specializes in financing micro-enterprises, but unlike ATEbank it does not plan to stray away from its traditional customers.
While there is immense interest in micro-enterprises and SMEs, as well as in the housing market, there is still one niche lender that managed to remain the sole bank on its turf. Porsche Bank, part of the Porsche Group, is the only player on the Romanian banking market specializing in the funding of cars.
The bank saw a 44 percent increase in its total assets in 2006, reaching EUR 56.6 million. The loan volume went up to EUR 30.2 million last year, with the help of more than 1,000 credit contracts in the bank's portfolio.
Funding for the dealer network of Porsche Bank stood at EUR 17.7 million, most of which were investment credits.

Doctors and Romanians in Italy targeted by small banks
Aside from the true blue niche players, there are small lenders on the market that are gradually shifting toward narrower business lines in search of a clientele of their own. The fight for market share that is taking place between top lenders is gradually turning into a fight for survival toward the lower end of the charts. Stakes are high, which is why small banks are trying hard to outline a market of their own.
Banca Italo-Romena and Libra bank offer two examples of such endurance strategies.
Banca Italo-Romena launched Creditul fara Frontiere (Trans-border Loan) in May last year for approximately 300,000 Romanians working legally in Italy, who want to acquire a house in Romania. The bank is using the connections it has in Italy via parent-bank, Veneto Banca group.
Libra Bank has also found a way to pump up its profits by turning to the liberal professions. The bank is already known as “doctors' bank” and has stated that it plans to increase its focus on such professions even more.
This year, the bank will try to identify the specific needs of niche segments in order to offer them the best financing solutions, said Libra Bank officials. It will also cater to SMEs, which seem to be every bank's main or back-up clients lately. The lender ended 2006 with assets worth EUR 150 million and a market share below 0.3 percent, but other lenders, some in the top ten, employ similar strategies.
ABN AMRO announced plans to put on the coat of a niche bank catering to micro and medium enterprises, as well as big corporates in the coming years. As the number of universal banks in the system is expected to drop, the Dutch have decided to migrate into safer lands, where the potential for gains is greater considering the roughly 400,000 local SMEs active at this point.
The market now seems to be split right down the middle – between the few but all-mighty players fighting for market share and the remaining 30 banks striving to pass the 1 percent milestone. This is a difficult project in the absence of a critical mass: it will be harder for small banks to boost their market shares by 0.5 percent than it will be for bigger lenders to up theirs by a few percentage points, said HVB-Tiriac chairman Dan Pascariu. Tough times ahead will lead to consolidation.
“I think that we will witness at a certain point in time some consolidation in the banking sector which will not necessarily be driven by international consolidation. Rather, there will still be banks which will find it very hard to get over 1 or 2 percent. And studies show that if one wants to be sustainable and profitable, one needs a critical mass, which means about a 5 percent market share or a very lucrative and narrow niche,” said Pascariu. The Central Bank has also voiced its belief that the number of niche players will go up steadily with the development of the banking sector and the boost in competition.
“The increase in competition will lead to changes in the strategies of small and medium banks. There will be numerous mergers and acquisitions, as their ability to finance themselves on the long-term is considerably lower than bigger players on the market. Small and medium banks could make their mark by focusing on specialized products or certain client segments,” found a Central Bank study.

Ana-Maria David

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