SocGen scales back ambitions in CEE
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SocGen scales back ambitions in CEE

While others race for scale in the region, Société Générale has become the first of the big regional groups to dismantle its network voluntarily.


Six years ago, Société Générale’s ambition was to be the third-largest banking group in central and eastern Europe. Today, the French house is rapidly breaking up what used to be one of the most extensive networks in the region

The disposals started with the sale of SocGen’s Georgian and Croatian subsidiaries – to TBC Bank and OTP respectively – in late 2016. In August, the group announced that OTP had snapped up two more of its operations, in Bulgaria and Albania. And in November, Bank Millennium, a subsidiary of Portugal’s BCP, won the bidding for SocGen’s Polish retail arm, Eurobank. 

The group’s four remaining subsidiaries in the Balkans and its Moldovan operation are also widely rumoured to be up for sale.

What has changed since 2012? The obvious answer is SocGen’s appetite for scaling up in the region. Unlike regional rivals such as Raiffeisen and Erste, the French group opted to enter most of its CEE markets via the purchase of second- or even third-tier banks, rather than waiting for larger targets. 

This strategy has been successful in that nearly all its subsidiaries in the region have shown solid growth and profitability. Since the financial crisis, however, it has become increasingly clear that long-term sustainability in smaller markets requires scale and that this cannot be achieved through organic growth alone.  

The choice of countries to exit is also based on the extent of synergies generated with the rest of the group and the potential for growth - Giovanni-Luca Soma, Société Générale

Banks with sub-scale operations have had to decide whether to participate in the wave of consolidation that has gathered pace in emerging Europe over the last three years as buyers or sellers. 

OTP’s ample capital base has allowed the Hungarian group to go on the offensive, acquiring multiple targets in southeastern Europe. In Romania, Banca Transilvania has also transformed itself from a tiny regional lender to a rival to market leader BCR through a series of acquisitions.

In 2012, SocGen’s deputy chief executive, Bernardo Sanchez Incera, told Euromoney that the French group would consider looking at M&A opportunities in CEE once the economic outlook in the region improved. 

Unfortunately, by the time that happened, SocGen was facing problems in its home market and capital constraints at group level, and had neither the will nor the wherewithal to go on a buying spree. Instead, it became the first of the big western European banks to voluntarily clean house in CEE.

(Other groups that have made multiple disposals in the region, such as KBC and the Greek banks, did so at the behest of European authorities following bailouts.)


Officially, the driver for SocGen’s most recent exits was the announcement by chief executive Frédéric Oudéa November 2017 of a plan to reduce group risk-weighted assets by 5% through the sale or closure of sub-scale businesses.

Exits from Georgia and Croatia a year earlier, however, suggest that the decision to retreat from CEE had been mooted well before Oudéa’s announcement. Georgia may have been a geographical outlier, but Croatia, where SocGen was number five in the market, was at the heart of the group’s Balkan network. 

Reports of planned sales in markets including Montenegro and Moldova also predate the strategy update.

SocGen has consistently declined to confirm the rumours. At the same time, Giovanni-Luca Soma, head of Europe in the group’s international banking and financial services division, confirms that its aim is to be first, second “or a strong number three” in all its CEE markets. 


SocGen’s Giovanni-Luca Soma 

That rules out the former Yugoslav Republic of Macedonia, Serbia, Slovenia and Montenegro, in all of which SocGen is number four, behind strong incumbents. 

In Moldova, the group’s subsidiary has recently risen to number three after the convulsions that have shaken the local banking sector in the last four years. As Soma notes, however, market share is not SocGen’s only consideration.

“The choice of countries to exit is also based on the extent of synergies generated with the rest of the group and the potential for growth,” he says. “We either need an opportunity to leverage the full platform that SocGen can offer or we need good demographics – or, ideally, both.”

In central and southeastern Europe, the two markets that meet at least one of these criteria are the Czech Republic and Romania. SocGen ranks third in both, with a market share well into double digits. 

For most of the last decade, the regional outperformer has been Komercni Banka, the group’s Czech subsidiary. Indeed, during the dark days of the eurozone crisis, the Czech lender was generating more than 25% of group profit for SocGen. Its consistent profitability has been partly due to the resilience of the local economy and partly to the maturity of the Czech market, which allows SocGen to deploy its full banking and ancillary platform. 

Komercni has a strong franchise among the Czech Republic’s sophisticated corporates, which provide a market for SocGen’s global transaction banking, investment banking and structured finance offerings. The lender’s Slovak branch is also focused on the high-end corporate market.

On the retail side, Komercni’s strength in the mass-affluent segment has put it in pole position to benefit from the recent boom in mortgage demand. It has also seen steadily increasing interest from retail clients in asset management, private banking and insurance products.  

We felt that the cost of organic transformation into a full-service bank was too high to go this route - Giovanni-Luca Soma

Soma says Komercni’s focus on higher-income customers should help shield the bank from the effects of new measures designed to prevent overheating in the Czech mortgage market. Following a 16% increase in mortgage lending in 2017, the Czech National Bank capped home loans at nine times borrowers’ salaries in October. 

“We could see some impact from these restrictions on debt-to-income ratios, but it will likely affect us less than other banks because of our focus on affluent and mass-affluent retail customers,” says Soma. 

He notes that the central bank’s previous attempt to curb mortgage lending through restrictions on loan-to-value were absorbed by both Komercni and the rest of the Czech banking market. 

“We saw some short-term slowdown in production, but demand restabilized,” he says. “Our internal rules on loan-to-value were already sustainable.” 

Banks are also optimistic that the effects of new regulation will be offset by rising interest rates, which have climbed steadily since August 2017 to 1.5% after five years at zero. 

“Interest rates in the Czech Republic have come back from the lows, which were not sustainable,” says Soma. “Already they are rising more than we expected, and that is being reflected in some margin improvement.”

The only cloud on the horizon for banks in the Czech Republic is that the maturity and size of the market – the country has a population of just 10.6 million – limit opportunities for future expansion. 

By contrast, Romania’s appeal is nearly all about growth potential. The largest market in southeastern Europe, with a population of 20 million, it has the lowest banking penetration in the European Union. 

The latest Global Findex survey showed that just 58% of Romanian adults have a bank account. At the end of last year, total bank lending amounted to 27.4% of GDP, according to Raiffeisen researchers, compared with 61% in the Czech Republic. 

Mixed blessing

To date, Romania has been a mixed blessing for SocGen. Its subsidiary, BRD, suffered severe portfolio deterioration after the financial crisis and posted heavy losses in 2012 and 2013. In the process it also lost its status as number two in the market to local rival Banca Transilvania.

After extensive restructuring, however, it was back to pre-crisis profit levels last year, allowing for a return to a more growth-oriented strategy. Soma says one of the first tasks will be working out how to make better use of BRD’s 2.2 million retail customers. 

“We need to improve our segmentation in order to better target affluent and mass-affluent customers, who probably make up around 20% of BRD’s retail base,” he says. “That is where we want to focus and increase our offering.”

He sees this segment as a fruitful target for products including mobile banking, credit cards – an area where BRD was once strong but has lost its edge – and asset management.

BRD also plans to resume coverage of Romania’s small and medium-sized enterprises, a market it all but abandoned following a surge in the cost of risk after the financial crisis and a series of frauds. 

“This is a segment with strong potential,” says Soma. “We have put in place a new integrated risk platform and are now looking to gradually restart lending.” 

On the corporate side, BRD has traditionally had a solid franchise in Romania – particularly among multinationals – and is seeing increasing demand for more complex products as the segment matures. 

SocGen is also keen to continue offering corporate and investment banking services across the rest of southeastern Europe, either directly from its cross-border platform or potentially in partnership with OTP, which lacks the French group’s expertise and global transaction banking capabilities. 

“We don’t want to lose the foot in the door that we have created over the past years across the region,” says Soma. 

In central Europe, meanwhile, SocGen’s other main market for corporate services is Poland. The group has a corporate and investment banking centre in Warsaw focusing on the country’s top 500 firms. Also based in the Polish capital are a small insurance business, a leasing operation and a branch of ALD Automotive, SocGen’s leasing and fleet management business.

These have always been separate from Eurobank, the group’s Polish banking subsidiary. Based in Wroclaw, Eurobank was a pure consumer-finance lender when it was acquired by SocGen in 2005. It has since broadened the scope of its operations to include a wider range of banking services, but remains retail-focused.

“We felt that the cost of organic transformation into a full-service bank was too high to go this route,” says Soma. “At the same time, we either needed to grow and stay in the big league, or close to it, or examine alternative solutions.”

The Polish government’s decision to introduce hefty taxes on bank assets in February 2016 helped push SocGen towards the latter option. By June of this year, it was widely reported that Eurobank was up for sale. State-controlled local lender Alior Bank and Crédit Agricole, which has a small Polish operation, were among those looking at the lender, but it was Bank Millennium that emerged as the buyer.

The purchase price of Z1.83 billion ($481 million) will boost SocGen’s common equity tier-1 ratio by eight basis points and reduce risk-weighted assets by €2 billion. The group will retain exposure to nearly SFr300 million ($298 million) of Swiss franc mortgages issued before the financial crisis. 

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