Herbert Stepic: a rare breed of banker
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Herbert Stepic: a rare breed of banker

When Herbert Stepic bought his first bank in central Europe in 1987, hardly anyone noticed. Now competitors closely follow his every move. On the following pages, he tells Sudip Roy how Raiffeisen’s strategy has developed over the past 20 years and how he intends to stay ahead of the game.


Stepic refines his recipe for emerging Europe

Herbert Stepic is one of a rare breed of bankers whose name is synonymous with the institution he works at. When one thinks of RZB, one thinks of Stepic.

A cheerful, witty and charismatic man, Stepic is chief executive of Raiffeisen International and deputy chairman of the managing board at group level.

He has designed and driven the bank’s strategy for central and eastern Europe since 1986. The following year it opened its first bank in the region in Hungary – a move that Stepic says went almost unnoticed by competitors and press alike. At the time, eastern Europe was still under communist rule and considered to be a financial backwater. It was only in 1989, amid the revolutions taking place in the region, that Stepic drew up a blueprint for expanding the bank’s business there.

Herbert Stepic, RZB

"We are a hot selling organisation – I’m sorry to use that expression, as a banker I shouldn’t, but I love selling, so I have to"

He was at an economic and political gathering in the Austrian ski resort of Alpbach in late summer. One day, while sitting on his hotel balcony, he started making notes on how Raiffeisen could become a dominant force in eastern Europe. "I started making notes in the afternoon and was still at it by 9pm," he recalled in an interview. The document was later presented to the board and was subsequently adopted. Since then Raiffeisen International has built an empire in the region that very few institutions can match. The Austrian bank’s network now encompasses 16 countries (including a leasing venture in Kazakhstan), with 12.1 million customers and 2,848 branches. Last year it made a consolidated profit of €594 million (excluding one-off sales), up 55% on 2005.

After taking a degree in economics and business, Stepic joined RZB in 1973. At the time the bank was called Genossenschaftliche Zentralbank (GZB). He started in the bank’s foreign trade department, highlighting his interest in international affairs. Five years later he helped develop GZB’s correspondent banking network, contributing significantly to the bank’s international outlook. In 1987 he was appointed member of the managing board of GZB, which was renamed Raiffeisen Zentralbank Osterreich (RZB) in 1989. From that moment he was primarily focused on building the group’s central and eastern Europe network. Stepic was appointed deputy CEO of RZB in 1995 and CEO of Raiffeisen International, the subsidiary that is the central and eastern European business, in 2001.

Clearly he is much admired by his colleagues. How many financial institutions put out a press release to celebrate one of their senior manager’s 60th birthdays, as RZB did last December for Stepic? One colleague says: "It’s a pleasure to work for him. I wouldn’t want to work for anyone else." However, Stepic can be a difficult man to please. "He’s very demanding. He’s not very good at giving his staff a tap on the shoulder and saying: ‘Well done guys.’" The source adds: "He’s very sharp and expects the same [standards that he sets] from people who work for him."

Still, he’s a man who inspires loyalty and one of his best management traits, according to colleagues, is that once he makes a decision he sticks by it. He’s also someone with boundless energy. "Whatever he does, he does it to the fullest extent, whether that is work or partying," adds the colleague. "Whenever we have a company get together, he enjoys himself fully."

Interview with Herbert Stepic

How has your strategy for central and eastern Europe evolved over the years?

That is an interesting question, given that we are running a universal banking concept in 15 different countries. It all started after the fall of the Berlin Wall, when I saw a unique opportunity for our banking group, Raiffeisen Austria, which had limited growth possibilities in Austria.

I made a proposal to the board, which they accepted straightaway. Our ultimate goal was to offer a universal banking concept in central and eastern Europe – the same services that Raiffeisen offered in Austria. This meant corporate banking, servicing large corporates, the middle market and private individuals.

How did we achieve it? We started in the surrounding countries servicing primarily corporates. It was very difficult because we had companies without balance sheets, there was no banking supervision, or it was just beginning, so it was like a wild West situation.

Unlike other western banks that arrived much later and concentrated on western companies, we serviced both companies of western ownership and companies of local origin and ownership. That was a distinction from the beginning.

And then we said, we have developed this market; we will grow with it. Next was to grow, slowly but steadily, the middle market, because it was not serviced at all. We began in Slovakia in 1996; now we are strong in the middle market in all countries.

In 1999 we started our retail concept, where we clearly declared we wanted to go into the provinces and service whole territories and not just the capitals and the large towns. We want to be a bank for everybody, everywhere in the countries where we are operating.

Parallel to the commercial banking effort, we were running a somewhat diminished investment banking business out of Vienna through a specialized company called Raiffeisen Investment, which focused on privatization and M&A business.

In commercial banking, over time we developed other products, such as leasing, factoring, and selling insurance through our huge distribution network. We now have 2,848 branches, and are definitely the most widely spread banking group in central and eastern Europe, with the best name.

So we are a hot selling organization – I’m sorry to use that expression, as a banker I shouldn’t, but I love selling, so I have to.

We have also done asset management since the early 1990s. Wherever we have a leading position, for example, in Croatia, we have a market share in asset management of 38%. In other countries, where we have just started, we have offered this product from the beginning. Take Bulgaria – we started the asset management business last year and it is now easily the number one bank in asset management, with very good performance, and customers satisfied. Everybody is crying out for a Raiffeisen fund.

So if you do something early and if you do it professionally, the market cries out for it; that is my experience and this is what we have been doing. My aim is not only to show higher profits year over year, but also to invest a considerable amount of money to build the future of this organization.

Is the rationale for investing in CEE today the same as it was when you first entered the region?

Are you asking me: is this still an attractive area? My answer is absolutely yes, very attractive, because the ground features are the same – emerging markets, over 300 million people, in the middle of Europe. I don’t have to travel 6,000 kilometres to another emerging market. I can travel in my car – one hour to Bratislava, two-and-a-half hours to Budapest, two-and-a-half hours to the Czech Republic. Everywhere is accessible from Vienna. For business it’s wonderful.

In addition, it is a market where the people are highly educated. What is the reason for the car industry flocking to Slovakia and the Czech Republic? Highly trained labour.

When you first opened a bank in the region in 1987, what was the reaction?

Frankly speaking, it went largely unnoticed. We were a non-event, a very small bank, nobody knew about us. And when we got our first Euromoney award for being the best bank in central and eastern Europe in 1992, there were not many contenders.

That year I went to the awards ceremony in London. At the time there was an IRA bombing and I couldn’t reach the venue – the buses had stopped, the underground had stopped, and then it started to rain cats and dogs. When I arrived I was totally soaked and freezing. After the ceremony, everyone was talking to each other, and I was standing behind someone and he said to another: "Interesting guy, but who the hell is RZB?"

Only gradually, as information started to spill out of eastern Europe and combined with our very rapid growth, did the markets start to recognize us.

But to suddenly go from safe Austria to exciting but potentially dangerous eastern Europe was surely a big risk?

Of course. And not many established banks, actually none, were prepared to take that risk.

When you decided in April 2005 to float part of Raiffeisen International, was it designed to give you more diversity in your shareholder base, and thereby more freedom in terms of your strategy?

No, it was simply that we needed a wider scope of shareholders in order to capitalize on the very dramatic growth that we still have ahead of us.

We have grown our assets by 40% each year for the past 10 years. Before 1990, the group balance sheet of RZB was €7 billion. In Austria, we were number nine. Now RZB is number three and Raiffeisen has become by far the largest banking group in the country, so we have overtaken the savings banking group [Erste Bank] and Bank Austria. This growth was fuelled by our decision to go into central and eastern Europe, and then by the dramatic growth that has taken place in the region itself. We are producing profits in growth markets that are far above average and we do that year in year out. That’s why the market likes us.

Are you too highly exposed to the region in the event that there is an economic downturn?

I don’t see that. If you take the entire Raiffeisen group then we have still huge exposure in Austria, where Raiffeisen Austria is producing the best figures in the country. If you take only central and eastern Europe, then we are very much comparable with our branch network of 2,848.

Do you fear UniCredit as a more dangerous competitor following its acquisition of HVB?

Not at all. The markets are so big and we are so well established that we enjoy benevolence from the local business community as well as private investors.

Our management style is also an advantage. We have a very decentralized management style and a strong local flavour. I have very good local staff driving the business. We also have an advantage because our name recognition is extremely high. And with UniCredit that’s still not the case. They have gone through so many mergers. At first it was Creditanstalt, then they changed to Bank Austria. Nobody knew Bank Austria at that time. Then they changed to HVB. Nobody knew HVB. Now the same bank is called UniCredit. That gives us a certain advantage, let’s put it that way.

People at UniCredit say that, unlike Raiffeisen, which likes to come in and impose its Austrian identify on local banks, they keep the local name and are more locally sensitive. How would you react to that?

We follow the universal branding concept, because in a relatively small territory it does not make sense to create three Coca-Colas. And we make one or two few exceptions to our rule. I have a bank in Slovakia still called Tatra Bank, a member of Raiffeisen International. I have still a bank in Slovenia called Raiffeisen Krekova Banka, and Priorbank in Belarus.

And with Aval in Ukraine?

Yes, because Aval is the number one recognized brand in the country. Why should I give that up?

In other words you’re doubling up?

I’m doubling up. I try to optimize the situation. But the brand that we have in Vienna is phenomenal. Recently, I was in L’viv in Ukraine, which is in the most western part, bordering Poland. In this area, everybody knows Raiffeisen. I found an original book at the counter of the local Raiffeisen bank from the year 1903, where in a long article it mentioned a certain Mr Raiffeisen and stated that there were about 800 Raiffeisen banks in the area at that time. It’s the same in the Czech Republic and the same in parts of Romania. Raiffeisen has been in these regions for a hundred years.

Across the different countries you’re in, do you share infrastructure and distribution channels?

We centralize whatever makes sense economically. We have call centres, we centralize the credit process, and we have a payments project in the pipeline. Mind you there are also legal obstacles, so even if I want to do it, I may not be allowed to do it yet. We have decided to go for a united payments centre in Romania. We are unifying the Swift messages group-wide. We have two card centres for credit cards, where we do all the back-office work, one for central Europe and southeastern Europe and one for the CIS countries with Aval Bank.

What’s the percentage of local management for your subsidiaries?

The majority is local.

What, 85% roughly, something like that?

I would say 65%, because lately I have had to bring in western expertise, because the further east you go the less expertise you find.

And do you tend to train them in Vienna first or locally?

No, we are a training factory. We have a modular training system that goes into the banks, into the provinces, into the capitals, into the regions. Then we train them in Vienna, special training on credits, on documentation, on cash management, on asset management, whatever, in a modular fashion. And independently from that we have management training, so we have assessments to find out where the good guys are, who the guys with prospects are, and these we put on a special track and give them fast-track training. And some we send even to Fontainebleau or to the US. So we give them really hands-on tailor-made training.

But with your operations in the Ukraine or Belarus, for instance, you’ve had to import in more western management.

If you have a country like Ukraine, which is larger than France and the bank has 1,300 branches, you need other means and ways. Or in Russia, where you have more than 10 or 11 time zones. So we have implemented training modules via the internet, which means that people can take it home and really train themselves.

The majority of your growth initially was through organic means.

Yes, absolutely.

But there seems to now be a strategy of growth by acquisition – in Belarus, in Russia, in Ukraine. Why the change?

The main reason why initially we did not buy but built was that I had an enormous fear: how would it be possible for these guys that had been working under a communist regime to be able to change rapidly from one day to the other and to adopt a totally free enterprise system? That is the reason why the average age of the staff is around 30 years. We take the best brains from university and we train them.

Having said that, after the Russian crisis [in 1998], we suddenly saw an increase in appetite for eastern Europe from other large western banks. We had to really speed up our growth, even though we were building a bank, sometimes two, every year. And that was the reason we started to buy.

The first bank that we bought was in Bosnia in 2000. And then we bought one bank after the other. And in the meantime we have built only one bank, in 2001 in Serbia, because even though we checked out several banks that were available, the quality of those banks was so poor that it made no sense to buy.

There are always specific reasons behind an acquisition. When we first went to Romania, for example, nobody believed in the country. We were buying a bankrupt bank [Banco Agricola] for nothing because the World Bank wanted the Romanian government to close it. The central bank refused and sold us the bank. I told them: "You can’t close a bank with 230 branches at a time when the country’s under-banked."

What about elsewhere?

In Kosovo, the American Enterprise Fund came to us and said "We have a bank in Kosovo, politically it’s very sensitive", and I said "What do I do in Kosovo? It’s a very small country". It has a population of less than a million. If I buy a bank it’s the same work, whether it is for 1 million people or 20 million. But the Americans said "We’ll give it to you at a very attractive price because we need a very good strategic partner." So we said: "OK".

I also have a duty to bring know-how to the areas where other people might not go. And that was an underlying rationale for us, because we won’t get rich out of Kosovo.

Is this strategy of growth by acquisition going to continue?

Now it is by acquisition, because it simply takes too long to build in most countries.

What was the process of acquisition for Priorbank in Belarus, which is not an obvious country for anyone to enter?

Priorbank was in 2003. Our aim was to play the pioneer role that we played before in southeastern Europe and also in the CIS countries. I always wanted to become the biggest foreign player in the CIS. And of course Belarus is an important country – you have Russia, you have Belarus and you have Ukraine as the three largest.

The bank’s management approached me. Priorbank already had the European Bank for Reconstruction and Development as a shareholder. The EBRD advised Priorbank to get a strategic shareholder. The present CEO of the bank, Sergey Kostyuchenko, talked to several banks – something that I found out only later.

We showed the most interest. He found us to be the most suitable bank. We know how to run banks in difficult environments, and Belarus is difficult. It was very much driven by the Belarusians’ initiative, because they wanted to have a western-run bank with western know-how in the country, and also a bank that would be competitive against the state’s banks.

So often people come to you as much as you scanning around for opportunities yourself?

I received many letters of invitations from presidents of national banks, from governors of national banks, asking whether we would be prepared to open a Raiffeisen Bank or to buy a local bank in order to start a Raiffeisen system in their country. We have a long-term vision, so we don’t rush in, try to make a lot of money and then sell.

Would you consider buying specialist organizations, such as mortgage providers?

Definitely. We are constantly negotiating in the field of mortgage banks, real estate or leasing companies.

What’s the common denominator among all of your acquisitions?

When we started to buy, which was after we started our retail banking concept, we looked to see if the banks qualified as a retail outlet. Banks with a mere corporate focus would be uninteresting for us for that reason.

The second factor is the quality of the people, irrespective of whether it is already a privately owned bank, as with Aval Bank, or it is a state-owned bank. Of course we check each bank. And I never buy a bank against the will of the management.

No hostile takeovers?

No hostile takeovers, no, because I need to work with the people. We are not an investment fund.

In Ukraine you already had a presence. So why buy Aval and then sell your original business, rather than try to merge your operations together?

We had a commercial bank with 37 branches and now we have a universal bank with a very strong retail focus and 1,300 branches. Now we have a total presence in the country and we are the number one player. It’s not possible to build 1,000 branches any more. It took Aval 13 or 14 years.

And the sale of the original business to OTP Bank?

We sold at a very good price [€650 million] to the Hungarians.

Were you looking to sell the business?

They came and asked us, and after we heard the price, then we could not say no to such an offer.

Were you considering merging the two initially?

Yes, that was our initial thought, but after evaluating all the pros and cons, selling was by far the better option. And it also accelerates the transformation process.

Does that mean that you might consider selling, for instance, your organic presence in Russia now you’ve got Impexbank too?

No, that’s a totally different story, because there we have almost a perfect match. I have Raiffeisen, which is primarily a corporate bank. Raiffeisen Bank only has branches in Moscow and St Petersburg and I think five or six other provincial capitals, whereas Impexbank is almost a pure retail bank, so that is a perfect match with more than 200 branches and 400 sales agents.

Are there any regrets of missed opportunities? Would it be Kazakhstan and Bank TuranAlem?

The Kazaks were never prepared to give us 51%, so there was no choice.

So you don’t necessarily see that as a lost opportunity?

We even took a stake in order to signal we would be prepared. We had an agreement with Yerzhan Tatishev, who was the former chairman and a majority owner, but he died in a hunting accident [in 2004], and the new owners had a different opinion about the future of the bank. It’s as simple as that.

What was your share in the bank?


You sold that to a group of investors, including East Capital didn’t you?

Yes, East Capital.

For how much?

We made a profit of €103 million out of that participation alone. But you asked whether we regretted anything that we didn’t buy. I don’t know of a single case, because every opportunity that we have found has materialized.

Is there any one bank that UniCredit has bought that you wish you had?


So when you’ve gone down the acquisition route, you’ve always bought the best available at the time?

In Bosnia, we were the largest bank through Market Banka and now after the many mergers, UniCredit is somewhat bigger than we are. So I am top two. With Banco Agricola, we bought a very interesting bank for a very low price. We have put in all of our know-how and strengths, and now it’s the third-largest bank in Romania. But remember what we paid for it and that it was a bank that nobody wanted to buy.

Then we have Bank Aval. We were the first ones opening the trail. Unfortunately we had to publish our interest because of our IPO otherwise we would have probably got it for even less than we paid for it. But still at a multiple of 3.7 times book value, it was a very good purchase.

Priorbank is unique, the best bank in the country. It was the only bank prepared for a western type of management, there was no other one. So it was a very good investment and a very reasonable price.

Impexbank [bought in February 2006] was also unnoticed by the market. In January we sent in our feasibility team. No one else can make a feasibility study of a bank within a month in Russia because no one else has as many Russian experts as Raiffeisen. We sent 37 Russian-speaking experts in every field, including personnel, to this bank. And we bought 200 branches in a country where we know that it takes an enormously long time to build.

In total we have bought 10 banks for €2 billion in total. That is a lot of banks for a very reasonable amount of money, if you compare it against all the other prices and acquisitions by our contenders. And that was only possible because we were so early into these markets.

Presumably it’s becoming harder to find cheap banks?

Of course. It will get more expensive because of supply and demand.

How do you value a bank?

The most important thing is the price versus earnings potential. Price to book is of much less relevance in reality. Take the acquisition of Impexbank. I didn’t talk about price to book. I bought a structure because I know it would take me five to six, seven months to build a branch in Russia, and now I’ve bought 200. Effectively I bought time. Everything else we already have – the best people, the best know-how and how to work in different environments.

Two prominent banks missing to a large extent from the region are Citi and HSBC. Do you fear that one day a major global bank will come up to you and say: "Dr Stepic, we’d like to buy RZB’s portfolio of banks, here’s $40 billion"?

I believe that is possible with any of our contenders, but not with Raiffeisen. Raiffeisen has a long-term view. RZB owns 70% of its shares. There is not a single person or group that wants to get rich very quickly to induce such a decision. The management thinks in decades, if not in centuries, and they know how important Raiffeisen International has become for the whole group. You can do your own maths. If you see what profits we have been generating this year for the group, you know that this is almost an indispensable asset.

What about an individual subsidiary? Would you consider selling any of those?

Oh yes, definitely.

Would you consider selling Impex or Aval?

No, because they are too important.

So what subsidiaries would you consider selling?

I would only sell a subsidiary where it makes little sense economically [to keep it]. It costs me management time, it doesn’t produce the right profits, so it is substantially below the average returns that I want to achieve, and I don’t see an improvement for the foreseeable future. Then I say, okay, go to heaven.

Do you think you’ve got any of those in your portfolio at the moment?

Not yet, not yet, thanks to God.

There are some geographical gaps in your portfolio. Have you ever looked at the Caucasus, for example, Georgia?

No. I don’t see many prospects in Georgia. It doesn’t have anything. Why? Because it was the wine province of the Soviet Union, that’s it. And what else is in Georgia? Traders. So there is very little. I would say in the Caucasus, there is little.

The only area is central Asia, although there are only a few countries where it makes sense. However, they are politically at a stage where you have to think twice before you take the step.

Uzbekistan, for example?

Yes. That is only possible with the consent and the will of the leader. If that doesn’t exist, then it doesn’t make sense.

You’ve got rep offices in parts of Asia. There’s growing trade links between central and eastern Europe and the Middle East. Are you looking at other emerging regions?

Not as Raiffeisen International. Raiffeisen International will stay purely as an eastern European play. That’s also the reason why we will not go to Turkey, although I am asked every week three times whether we will. I believe we should stick to ex-communist countries, because that’s a different feature of the bank.

Could you not add value in Turkey?

No, I cannot. The Turks are very good bankers, they don’t need us. They only need our money, and for that I’m not going there.

You don’t want to pay a privilege – it’s as simple as that? And you don’t see the potential for building an organic operation because you’d start so small, it would take you so long, yes?

It makes no sense. The Turks are much better than I can be in Turkey. Whereas every ex-communist country has the same features: no orderly banking system during the past 50, 60 years and therefore a huge demand for banking services.

But, at group level, are you are looking at Asia?

At the RZB group level, yes. East Asia is a most interesting battlefield. We are the only Austrian bank in Beijing. We are also doing very well in Singapore. And we have rep offices in all the surrounding countries, in Hong Kong, in Seoul, in Ho Chi Minh City, in Mumbai and in Tehran.

When people think of RZB, they think of Herbert Stepic. How much longer will you do this?

I have just accepted another five-year term, and after that, I don’t know yet. I love my work, I’m physically okay. I might be a bit overweight, but I’ve been overweight all my life, so not much difference there!

But is there a succession plan?

Oh yes, of course.

What is it?

That I cannot talk about.

But it’s known internally who would replace you?


The person who would succeed you doesn’t know?


Is there a risk that if someone new came in five years they might decide to take a different approach?

I don’t think so. I am pretty sure that after five years I will continue to play a certain role in this organization and I doubt very much that there will be an earthquake-type change of direction, but of course that’s always in the hands of the shareholders. I guess they will continue to listen to what I’m voicing, let’s put it that way.

Finally, what drives you? What gets you excited about this business that you run?

What makes me excited? I am excited every day. I feel excited when the alarm bell rings. I am up. I am longing to come to the office. I always say I want to change the world.

Is your internationally minded view of things a result of your upbringing?

Yes, other people, races, countries, religions, economy, lifestyle have always fascinated me.

For example, I loved England when I was a boy. I was sent over and then visited the country later on as a hitchhiker to learn the language. So it was very fascinating. I was drinking my first Coca-Cola in Hyde Park talking to a lovely English girl. So wonderful – that’s life, isn’t it? And what drives me? I want to create a huge empire. That is what drives me. And as long as God is willing and gives me strength and I am healthy, I will do that.

RZB gets better every year

Financial highlights of the full year 2006 
* excluding one-off effects

Source: Raiffeisen International

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