Few individuals have left a greater mark on banking in emerging Europe than Herbert Stepic. From small beginnings in Hungary in 1987, the founder of Raiffeisen Bank International built up a regional empire that today spans 13 countries from Russia to Albania.
“When we opened our first bank in Hungary, it was literally the Wild East,” remembers Stepic. “There were no banking laws, no bankers, no credit bureau and no systems.”
He says his previous experience in emerging markets stood him in good stead. The famously convivial banker began his career at Raiffeisen Zentralbank Österreich (RZB) in 1973, when he was headhunted to set up the group’s foreign trade division.
He was reportedly the first foreign banker into Iran after the 1979 revolution and one of the first to establish a foothold in China.
Then in 1986 RZB was invited to start the first foreign commercial bank in Budapest by János Fekete, the reformist head of the central bank. Despite the challenges of working behind the Iron Curtain, the new venture turned a profit in its second year. “That made me so confident,” says Stepic.
By the following year, as change began to sweep through central and eastern Europe, Stepic decided he wanted to go further. He came up with the idea for RZB’s eastern expansion during a conference in the summer of 1989.
“I thought my shareholders would say: ‘Herbert, you’re crazy!’” he says. “But they told me to go ahead.”
A period of rapid organic expansion followed. By the end of the 1990s, RZB had operations in nine countries. Unlike other western banks in the region, Stepic opted to set up greenfield operations in that period.
“We didn’t want to be infiltrated by the communist way of thinking,” says Stepic. “If we had bought a bank with employees that had been working there for decades, with an average age of 45, it would have been close to impossible to change their mentality.”
Instead, Stepic went looking for ambitious young graduates in emerging Europe and trained them up – in the local capitals, in Vienna and even at Harvard and Fontainebleau. At one point in the mid 1990s, the average age of Raiffeisen’s staff was under 30.
When we opened our first bank in Hungary it was literally the Wild East- Herbert Stepic
Stepic is particularly proud of the fact that managers belonging to the generation of CEE bankers he trained are now migrating the other way and even sit on the Raiffeisen board in Vienna.
“I always dreamed of the day when we would see this,” he says. “I’m extremely happy to have made it possible.”
One of the first two CEE members to make the move to Austria was Andrii Stepanenko, former head of retail at Raiffeisenbank in Russia.
The most consistently profitable part of the group for the last two decades, the Russian operation got off to a shaky start. It opened in Moscow in 1996, but getting the necessary permissions was a protracted process.
“There were hardly any foreign banks in Moscow at that time and there was a lot of red tape,” Stepic says. “We had to get licences from two central banks, the Russian one and one for the region of Moscow.”
To obtain its Moscow licence, RZB had to deposit the minimum capital requirement in roubles in Russian banks. Unfortunately, no sooner had this been done in August 1998 than the Russian government devalued the rouble and defaulted on its debt.
“The banks we’d done the forward transactions with couldn’t fulfil them, so we lost the $150 million we had transferred after just a few months of operative business,” says Stepic.
“When that happened, I was absolutely sure my shareholders would fire me. I came back from Moscow and told the board: ‘Gentlemen you have two options, you can fire me and forget about Russia. Or you can give me another $120 million, I will recapitalize the bank, and I promise that within two years we will make back all the money we lost. If we don’t, you can fire me then.’”
The board duly backed him and reaped the rewards.
“All the promising Russian companies were waiting at the front door to open an account to do international business with us, because we were practically the only foreign bank left in Moscow,” says Stepic. “Within three months we had 3,000 accounts of top corporates in Russia, and ever since this bank has been the major profit contributor of RBI.”
Stepic’s qualities as a trouble shooter came in handy 10 years later when the repercussions of the US sub-prime crisis hit Europe. As interbank markets seized up, Stepic managed to persuade the large regional banking groups in CEE to maintain their refinancing lines in the region and at the same time motivate local central banks to provide their markets with sufficient liquidity.
“These steps ultimately led to the establishment of the Vienna Initiative, an informal platform that still serves today to exchange information between the regulators in east and west, a distinction that fortunately no longer applies today,” says Stepic.