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Given the dynamism of the Portuguese banking market, outside observers are sometimes surprised to find out that Caixa Geral de Depósitos, the number two bank in the market – which often trades places with Millennium BCP for first place – is still wholly owned by the state. Although the bank is not now explicitly supported by the state, its ownership does give it an implicit guarantee – the government would be unlikely to allow the bank to collapse – that undoubtedly helps its rating and lowers its borrowing costs.
As sole shareholder, the government appoints CGD’s board of directors, chairman and statutory audit. But, as José Ramalho, the bank’s CFO, points out CGD is managed autonomously, with no obligation to lend to certain sectors and no day-to-day interference from the state. “It is subject to the same banking rules, regulation and supervision that apply to the rest of the financial system in Portugal,” he says. “We are a player in a competitive market.”
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There appears to be no likelihood of disruption to the status quo: the government has given no indication that it intends to sell a stake in CGD and – unusually – rival banks appear to have no objection to competition with a state-owned bank. “There’s no lobbying by the other banks to reduce the state’s role,” says Philip Smith, senior director in the financial institutions group at Fitch Ratings in London. “It’s simply not perceived to be a problem.” Although CGD does have a small international operation, focusing mainly on markets with significant cultural and commercial ties with Portugal, such as Brazil, Cape Verde and Mozambique, its state ownership means that it operations are concentrated largely on Portugal, where it has a market share of 34% in mortgage lending and 30% in retail savings.
Since CGD already has 4 million customers out of Portugal’s total population of 10.5 million – a population in which 89.3% of those aged over 15 have bank accounts – its ability to expand depends on deepening its customer relationships. “We have to increase our share of wallet of our existing customers, through a better response to their needs and an improvement in our offering,” says Ramalho.
The main opportunities for CGD lie in its domestic franchise in the banking and insurance business in Portugal and in its soundness and solid reputation, according to Ramalho. In order to capitalize on this franchise, CGD has been reinforcing its customer orientation, through technology and marketing techniques.
“Customer segmentation is being reviewed and refined, supported by a customer relationship management platform, in order to better adapt CGD’s products to the needs of each segment,” explains Ramalho. He says that the variety of products on offer has also been increased, particularly what might be described as higher-value products. “The scope of electronic channels has been broadened and its use has been encouraged. All this aims at increasing simultaneously customers’ satisfaction and CGD’s share of wallet of its customers,” says Ramalho.
