Awards for Excellence 2019
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It is hard to believe now that four years ago the winner of this year’s best bank for central and eastern Europe, Raiffeisen Bank International (RBI), was on the brink of disaster and facing calls to dismantle its regional network.
Over the past 18 months, under new chief executive Johann Strobl, the Austrian group has gone from strength to strength. In April 2018, RBI finally managed to exit its Polish operation, drawing a line under three years of restructuring and boosting its common equity tier-1 ratio to 13.4%.
Non-performing loans fell again to 3.8% of the group total by the end of December – from 5.7% a year earlier – while consolidated net profit for the year jumped by 14% to €1.27 billion, giving a return on equity of 12.6%.
This impressive result was buoyed by rising interest rates in key markets such as the Czech Republic and Romania. However, RBI also reaped the rewards of an aggressive growth strategy. Last year, the group took advantage of benign economic conditions and rising consumer confidence across the region to step up the pace of lending, with a focus on the lucrative retail and small and medium-sized enterprise segments.
Target markets for the year were Bulgaria, the Czech Republic, Romania and Slovakia, all of which recorded double-digit loan growth. Romania was the standout among RBI’s European Union units, expanding its loan book by 19% and posting a pre-tax return on equity of 31.9%.
Bulgaria was close behind with 14.6% loan growth – well above the sector average of 8.6% – and a return on equity of 15.8%, while Czech Republic and Slovakia notched ROEs of 14.5% and 11.6% respectively.
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| Johann Strobl |
RBI’s refusal to follow the lead of other regional banking groups in pulling back from smaller and frontier markets in central and eastern Europe also looks increasingly farsighted. Some of the group’s best results last year came from its subsidiaries in the Balkans and eastern Europe.
At Raiffeisen Bank Aval in Ukraine, pre-tax return on equity topped 75% on the back of released provisions and 30% growth in high-quality loans, while in Belarus, Priorbank jumped two places to number five by total assets thanks to balance sheet expansion of 21.7%.
The group’s subsidiaries in Bosnia and Kosovo also outperformed local peers, recording rapid growth and posting pre-tax ROEs of around 20%. Indeed, the only weak spot in RBI’s CEE network in terms of profitability last year was Croatia, which still managed a pre-tax ROE of 9.1%.
Comprising 13 countries in total, RBI’s CEE network is now the largest in the region following market exits by Société Générale and UniCredit. Strobl believes this gives the group a competitive advantage, as well as providing valuable diversification.
“These markets offer an attractive risk-return profile, and the size of our network sets us apart from our competitors, who operate in fewer markets,” he says. “We are a one-stop shop for large corporates that are active in the entire CEE region.”
Where RBI does still have concentration risk is Russia. Even after restructuring, the group’s largest market remains its main profit driver, accounting for more than a third of net income last year.
Concerns about this have receded, however, as the Russian operation has repeatedly demonstrated its ability to withstand even the most severe market shocks. The bank remained profitable through the global financial crisis and Russia’s home-grown banking and economic crisis of 2013 and 2014.
This resilience has encouraged RBI to embark on a return to cautious growth in Russia, where risk-weighted assets were slashed by 20% after 2015. Last year, Raiffeisenbank expanded its corporate and retail customer bases by 35.4% and 20.1% respectively. Loan growth was more modest at 7.1%, but balance-sheet expansion of 33.6% put the bank in the top 10 in Russia by total assets.
Strobl is confident that a healthy pace of growth can be maintained across RBI’s network, despite a deteriorating economic outlook across much of CEE.
“We will pursue loan growth with an average yearly percentage increase in the mid-single digit area in the coming years,” he says.
RBI is also keen to make use of its increased profits and new-found capital strength to expand inorganically. Strobl has indicated an interest in acquisition opportunities in markets including the Czech Republic, Slovakia, Bulgaria, Romania and Serbia.
Innovation
The emergence from restructuring has also freed up funds for a renewed focus on innovation. Unlike Austrian rival Erste, RBI has eschewed the idea of a pan-regional platform. Instead, the group has devised a five-pillar strategy that emphasizes collaboration within the group and with external partners.
The group has rolled out its fintech accelerator Elevator Lab, originally launched in Vienna in 2017, across its CEE network.
“Our goal is to become a bank that makes life easier for its customers through continuous innovation,” says Strobl.
The benefits of this innovation drive are already feeding through to RBI’s clients. Last year saw the launch in Slovakia, where group member Tatra Banka has long been a technology leader, of facial biometrics onboarding, which has reduced account opening time to just five minutes.
In Russia, Raiffeisenbank extended its reach into the small business segment through the introduction of remote banking for entrepreneurs, as well as piloting a hugely popular one-click digital lending model for retail clients.
The bank also became the first in Russia to issue an electronic blockchain-based mortgage certificate and the first international guarantee on blockchain. RBI has also emerged as a digital leader in smaller markets, pioneering the use of cloud-based services in Albania, QR code payments in Belarus, mobile payments in Bosnia and e-commerce solutions in Serbia.
Combined with an unswerving commitment to CEE, this consistency across markets – in innovation, profitability and growth – is what sets RBI apart from its competitors during the awards period.
