Raiffeisen CEO Herbert Stepic tells Duygu Tavan why the bank was so keen to snap up Polish-based Polbank and how the deal will enable the Austria-based lender to grow its retail banking operations in the CEE’s largest market. That deal coincides with ambitious expansion plans for online banking unit, Zuno.
With GDP growth forecast to reach 4% in 2011, declining unemployment and relatively low banking penetration, Poland’s banking sector provides a fertile market for banks’ retail banking units.
So when Greece’s debt-ridden EFG Eurobank opted to sell its 70% stake in Polish subsidiary Polbank, there was no shortage of interest.
On 3 February, Central and Eastern Europe’s (CEE) third-largest bank by assets, Raiffeisen, emerged as the winning bidder, seeing off rival bids from BNP Paribas and Intesa SanPaolo.
Herbert Stepic, CEO of Raiffeisen Bank International, told RBI why the bank bid exhaustively to beat competing offers and agreed to pay €490m ($668m) for a controlling stake in loss-making Polbank.
“Unlike the top positions we hold in our other networks, we were niche-players in Poland until now and chiefly focused on corporate banking,” Stepic said.
“Poland was one of the few countries, where we, in terms of pursuing our general corporate strategy of offering universal banking services across CEE, saw a catch-up potential in the retail banking sector.
“Our ambition is to establish a universal bank in all our networks to cater for all customer segments. This wasn’t our strategy in Poland in the past.”
Retail lending, for example, currently constitutes only 16% of Raifeissen’s existing Polish unit’s loan book.
“The purchase of Polbank allows us to pursue our strategy,” Stepic said. “That is why the acquisition is a perfect strategic fit and that is why we intensively bid for Polbank.”
Stepic said that Raiffeisen would be competing with all major players in the banking sector in Poland.
For Stepic, the timing is opportune:
- The National Bank of Poland forecasts unemployment to fall to 10.9% from 12.1% in 2011 and decline further to 9.4% in 2012;
- GDP growth is estimated to exceed the European average. Raiffeisen estimated 3.4% growth in Poland against 3.2% for CEE, versus 1.2% in the Euro-zone;
- Average gross monthly wages increased by 6% year-on-year in the fourth quarter of 2010.
“Poland is an incredibly interesting country and one has to be present in Poland,” Stepic said.
In addition to the economic metrics of the country, Polbank’s retail customer base and branch network were particularly appealing to Raiffeisen, according to Stepic.
He added that there were very few overlaps between the Polbank and Raiffeisen branch networks, but was unable to estimate the number of branches that would have to close as a result of the deal.
The Raiffeisen-Polbank merger will create Poland’s seventh-largest bank by branches (see ‘Liabilities’ bar chart above), the sixth-largest by assets and the fourth-largest by retail lending.
As part of its strategy to cater to all business and customer segments, Raiffeisen will continue to offer the same product lines that Polbank has offered, Stepic emphasised.
Mortgages, which account for 66% of Polbank’s asset base, and consumer loans, which account for 19% of Polbank’s total assets, will continue to be the two main product lines, complemented by credit cards.
“In addition to the synergy potential, there are annual savings of about €60m, because we can merge several organisational segments such as the legal and accounting departments and the head office.”
Looking outside of Poland, Stepic’s stance on Raiffeisen’s CEE network is less cheery: he said he expected non-performing loans (NPL) to peak this year. Such an outlook is markedly less optimistic than two of Raiffeisen’s biggest rivals in CEE, Erste and UniCredit, both of whom declared that the worst was over in terms of NPL ratios.
“I have not made that comment yesterday, or even last year. I said it at the beginning of the financial crisis, after it became clear just how big the crisis was going to be,” Stepic said.
“I stand by that comment. I predict NPLs to peak by the middle of the year and then expect them to fall immediately. The markets will prove whether I am right or wrong – I hope I will be right and there will be no more peaks.”
Once the NPL ratios start to decline, Stepic said he expects profits from Raiffeisein’s business in Ukraine – during the financial crisis he described it as a ‘problem child’ as it has the group’s highest NPL ratio of 32.9% – and Hungary to pick up again.
He added: “I see potential in all our networks.”
As for the possibility of another deal this year, Stepic was blunt.
“No. We have finished our expansion for now,” he said. “We will grow through our existing network, not through further acquisitions.”
That includes Turkey, a market which has been notable for Raiffeisen limiting its presence to a representative office.
“The Turks don’t need us, they are very good bankers by themselves,” Stepic added.
“We would not offer any added value [with an acquisition in Turkey]. The know-how transfer, which we have in CEE, is limited in Turkey. Thus, we will continue to operate our representative office in Turkey.”