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October 31, 2008updated 04 Apr 2017 1:14pm

The backbone of financial services

In the toughest banking conditions for 70 years, the worlds top retail bankers have faced a tumultuous 12 months William Cain and Dan Jones spoke to some of the industrys most celebrated retail bankers about how they are negotiating the extraordinary financial chaos. In common with current trends within the industry, Retail Banker Internationals top 10 list of retail bankers has benefited from something of a flight to quality this year.

By William Cain

In the toughest banking conditions for 70 years, the world’s top retail bankers have faced a tumultuous 12 months. William Cain and Dan Jones spoke to some of the industry’s most celebrated retail bankers about how they are negotiating the extraordinary financial chaos.


In common with current trends within the industry, Retail Banker International’s top 10 list of retail bankers has benefited from something of a flight to quality this year.

The events of 2008 have shredded the reputations of some of the world’s highest profile bankers – so picking a top 10 proved no easy task. The list includes established names like ANZ’s Brian Hartzer, Santander’s Alfredo Sáenz, Wells Fargo’s Carrie Toldstedt and ING’s Eli Leenars, who have consistently delivered solid results year after year. All of the top 10, along with a host of others from across the global industry, will undoubtedly be in the running for the Retail Banker of the Year Award, at RBI’s annual awards ceremony and conference on 27-28 April 2009.

Retail Banker SuperleagueLast year’s winner, Standard Chartered’s Mike DeNoma, said on picking up his award in April that the industry faced its stiffest challenge since the Great Depression in the next three years. His words have proved chillingly accurate. But he added that consumer bankers made up “the backbone of the financial services industry” – and that good retail banking would be the key to ride out the financial storm.

That is a sentiment echoed by a number of RBI’s selection of top bankers – and there are few banks which pride themselves on their conservative business model as much as ING, the Dutch bancassurer. Eli Leenars, head of retail banking at ING, said it was hard to say which retail banking products would be the most profitable in the current environment, but that there was a demand for simplicity from customers. He said banks that offer excellent service, help clients achieve their goals and win their trust would be successful.

Leenars told RBI: “Customers demand more and increasingly want both simpler products as well as access to the best professional advice. In addition, the market has changed immensely due to the popularity of internet banking. Moreover, in mature markets, like the Benelux, operational efficiency, cost control and economies of scale have become important conditions for banks to operate successfully.”

“For ING this means that to maintain our strong position in the future it is of great importance to continue to invest in meeting the needs of the modern-day consumer: doing banking business directly if possible but with advice if needed.”

It says something about the current financial circumstances that a bank as traditionally cautious as ING has accepted €10 billion ($12.4 billion) of the Dutch government’s money to shore up its capital base. It was in part a victim of US policy, which meant its direct business had to acquire mortgages more quickly than it could issue them in order to operate in the US – hence that now notorious portfolio of Alt-A mortgages on its books.

Increased role of public sector

This highlights one of the key current issues in retail banking – the increased role governments are now taking in the operation of the industry. While regulation and politics have always had a big impact on retail banking, few could have imagined a time when many of the world’s largest banks would be forced to accept government help.

Leenars said: “There have been increased calls for tighter regulation, especially because of the ongoing credit and liquidity crisis. In that respect, ING feels that the focus should be ‘better’ rather than more regulation.

He added: “Although ING agrees that regulations should address some dysfunctional excesses of the recent past we have to be careful that we don’t impose additional rules or capital requirements that would exacerbate the deleveraging of the economy and hamper banks to play their traditional role.”

The situation is a little different in the Asia-Pacific region, where banks are only just starting to feel the pinch. There is a growing acceptance that the decoupling of Asian and US economies has been overstated and recent news-flow suggests there will be a significant contraction in growth in these economies too. Brian Hartzer, head of retail banking at ANZ, and chief executive of its Australian business, nevertheless remains upbeat about his bank’s prospects. Hartzer, who has been with ANZ for over 10 years and has held positions in the bank’s consumer finance and cards divisions, again emphasised the importance of relationships with existing clients.

He has played a big role in the bank’s expansion in to overseas markets, with ANZ the most Asia-focused of all of its peers.

He said: “Our top focus at ANZ is to deepen our relationship with customers, having significantly increased our customer base over the last several years. With the recent turbulence in the financial markets, it is even more important for banks to establish stable and trustworthy relationships with customers.

“While banks are typically good at understanding a customer’s immediate product needs, they have to improve their ability to anticipate the customer’s future needs and appropriate financial solutions.”

He added that it will be increasingly important for banks to develop cost-effective relationship-based models as customers, especially in the mass affluent segment, demand simpler interactions with banks.

Up and coming bankers

As well as the familiar faces in RBI’s list of top retail bankers, there is one up-and-coming player named in the selection – although Aris Bogdaneris’s pedigree proves he is not out of place among this company. The former ABN Amro, Citi and GE banker helped build Raiffeisen International’s primarily corporate bank into a full service retail bank in just four years, with retail profit moving from a loss in 2003 to a full-year 2007 profit of €487 million, making up 40 percent of the bank’s earnings.

Bogdaneris believes that the current financial situation places an even greater importance on having outward facing staff to reassure customers.

He said: “In light of the prevailing global financial crisis, preserving consumer confidence in the banking system is of utmost importance. It is a top priority to enhance our communication efforts with our customers in order to secure the stability and security of the banking system.

“Our frontline branch advisers have a key role to play in this regard. In terms of products, collecting term deposits will take on a greater emphasis in order to lessen our dependence on wholesale funding.”

He said banks, particularly in the CEE region, would revisit the wisdom of foreign exchange lending, and customer affordability calculations on loan underwriting would likely be tightened. He also predicted an acceleration in the process of consolidating the banking sector.

He added: “We will see banks becoming much more cautious in their risk approach – particularly in terms of FX lending, underwriting criteria and pricing. Moreover, as funding becomes scarcer or more expensive, I expect a general slowdown in lending from the levels we have experienced – especially in mortgage lending.

“Additionally, consumer finance monolines, or pure mortgage banks, which rely on wholesale funding will be challenged to grow while banks with large networks and a solid primary deposit base will be best placed to increase market share. In the CIS countries, I also expect an acceleration of the consolidation of the banking sector.”

Survey: ICICI’s Vaidyanathan says leaner times ahead are focusing bankers’ minds

V Vaidyanathan, head of retail and executive director at ICICI, has helped the bank become India’s largest commercial bank – from 60 employees in 2000 to 26,000 today.

Vaidyanathan, another former Citibank banker, started out in ICICI’s consumer finance arm, ICICI Personal Financial Services, in 2000. He is now in charge of the bank’s overall retail franchise, following the move by Chanda Kochar – herself a highly respected retail banker – to the post of chief financial officer.

Having witnessed the full extent of the boom years with ICICI, Vaidyanathan admits retail bankers had a field day between 2000 and 2006. He said ICICI had been preparing itself in recent years for a possible downturn but there were still other areas where the bank was looking to streamline its business.

Vaidyanathan believes there are five key areas which retail bankers are focusing on currently. They are the moderation of asset growth, stocking up on low-cost liabilities, “taking a scalpel to expenses”, cutting losses and taking a cautious view of credit.

On specific products, Vaidyanathan said they each became viable or unviable depending on how they are managed. He added there would have to be a sense of urgency on eliminating verticals by cutting “every running operating cost”.

Vaidyanathan told RBI: “We have to eliminate a number of variants that were set up in the boom days. If we take this effort, then auto loans, home loans, personal loans, wealth management and liabilities will continue to be more profitable.”

He added: “Of course, boring as it may sound, the liabilities business will make the most money in the next couple of years. This is because the benchmark for risk-free rate of return has moved up sharply, and therefore the liabilities business, with a large and ready stock of low-cost money, definitely becomes more profitable. In our case, the liabilities business is 60 percent more profitable than last year.”

Vaidyanathan said cost cutting required setting up an expense control team whose only KPI is to cut waste, with a senior person reporting directly to board level. He said the team had already merged many divisions within the bank and closed high-cost origination structures.

The pressure on the financial markets and economy are also driving noticeable change within the banking industry. Customers are more wary of making greater expenditure and are more interested in receiving advice and financial education, according to Vaidyanathan. Bankers have adapted to the crisis by becoming less liberal with borderline ideas, particularly on new products.

“Now, each feature given to customers will be measured more than ever before,” he said. “We have to be sure features are adding value to the customer, are appreciated by the customer and the customer is willing to pay a price for it.”

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