The discreet charms of the bourgeoisie
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"If people believe the best opportunities in the Russian banking market are already over, they are kidding themselves; they haven’t even begun yet"
Andreas Treichl, Erste Bank |
In the light of the problems in the sub-prime mortgage market in the US and the associated credit crunch, is old-fashioned retail banking the new business model to follow?
Over the past few years, people have come to realize that retail banking is a very attractive business and that banks without a retail banking component tend to have much more volatile revenues. Now one additional feature and one of the results of the problems in the US and the credit crunch is the ability to self-fund, which as a retail bank we are able to do through our retail customer deposits.
Would you agree that corporate Austria has been more successful than other countries at taking advantage of the business opportunities available in central and eastern Europe, and why do you think that is?
Yes, Austria has definitely been a lot more successful in central and eastern Europe than Germany, despite Germany being so much bigger than Austria. The cultural similarities between Austrians and Hungarians, Czechs and Croats, for example, are much greater than between Austrians and Germans, despite us sharing a common language. Austrians have a lot more affinity and closer human relations with central and eastern Europeans. The Germans are different and find it more difficult to adapt to the business culture in central and eastern Europe. They still tend to have a rather condescending attitude to the region.
What do you see as the main difference between your approach to central and eastern Europe and that of your principal Austrian competitors, RZB and Bank Austria Creditanstalt?
Both RZB and BA-CA were strong in the region 10 years before we even entered into central and eastern Europe and both have strong platforms there. We came with a different strategy though – transferring our middle-class banking model into the region where we ideally want a 20%-plus market share in each country, which is key to being a successful retail bank. Both are more corporate and investment banking driven and are doing a very good job in the region, but we think that for the long term we have a strategy that is better than either of them.
What is the basic philosophy of Erste Bank?
Our bank’s present and future success is based on the development of the middle classes in central and eastern Europe – we are the bank for the middle class in the region – and the spreading of wealth there gives us the confidence that the banking markets in the countries in the region will develop along the lines we saw in Spain where there was mind-boggling growth in the 1990s on the back of retail banking. We believe that market segments such as wealth management, for example, will take off dramatically in the next couple of years. As a result, we will look to double our net profit every three years, which will effectively mean that our market capitalization will double at the same time.
Have you ever missed out on an opportunity?
Yes, we missed out on buying DSK in Bulgaria, which went to OTP. OTP is a good bank in Hungary, but we think it would have been better for DSK and better for Bulgaria if we had taken over the bank, as we are better for the local economies as we’ve already proved in the likes of the Czech Republic, Slovakia and Croatia.
Why aren’t you present in Poland?
Poland lacks one prerequisite – the biggest bank in the country (PKO BP) is still majority state owned. State-owned institutions in retail banking can be detrimental to the other players in the market in terms of profitability. We’re happy to compete against other private sector players, but not against state companies.
You’re something of an agnostic when it comes to Russia. Why is that?
Russia is the focal point of investors’ interest right now because of the wealth of investment opportunities in commodities, raw materials and manufacturing. At Erste we are extremely careful about creating a product where the whole is more valuable than the parts. That needs a disciplined approach that means our product is not always appropriate for every country.
Russia’s not necessarily right for Erste, as wherever we go we ideally like to have a major market share. To control 30% of the market as we do in the Czech Republic and Slovakia, for example, would cost a lot more in Russia than we have at our disposal. So Russia is not really compatible with our overall strategy. That’s not to say we wouldn’t ever go there, but our extended home market in central and eastern Europe is as big as Russia population-wise, but has the advantage of consisting of democracies with little political risk, already or soon to be members of the European Union with still high-growth economies.
So you don’t think that Erste has missed out on Russia?
If people believe the best opportunities in the Russian banking market are already over, they are kidding themselves; they haven’t even begun yet.
What role does Austria play for Erste Bank?
If we sold our Austrian business it would create a lot of value as we would be seen as a pure emerging markets play and our valuation multiples would reflect that fact. But Austria has been the basis of our success and is still 20 years ahead of the rest of central and eastern Europe in terms of banking development. Austria is a research and development centre on which we can still make an attractive return. Some 10 years ago our return on equity in Austria was 6%. Now it’s 18%, so it’s still profitable for us to be in Austria.