Douglas Blakey talks to Manfred
Wimmer, CEO of Banca Comercială Română, Romania’s largest retail
banking group, about completion of its transformation process
following its acquisition by Austria’s Erste Group and the
strategies the bank is implementing to maintain its spectacular
growth in earnings.

Boasting a market share by assets of more than 24 percent and on
target to achieve 40 percent CAGR in net profit for the period 2006
to 2009, Banca Comercială Română (BCR) is by some distance the
largest bank in Romania and a significant part of parent group
Erste’s Central and Eastern European (CEE) franchise.

On 29 February, BCR announced a 42 percent rise in adjusted net
profit for 2007 to a record €362.1 million ($549.9 million).

BCR is ahead of schedule to complete a three-year transformation
programme following its acquisition by Erste in 2006. It is on
target to boost profitability through a cost-cutting programme,
which involves reductions in staff numbers, and has set a
cost-income ratio target of about 40 percent by 2009, compared with
over 55 percent in 2006. The targeted ROE by 2009 is above 35
percent, up from 20 percent in 2006.

“The first priority is to complete the transformation process. What
remains to be done on the transformation is mainly completion of
the centralisation of the bank’s back office functions and this
will be completed in the middle of the year,” said the bank’s CEO,
Manfred Wimmer, in an interview with RBI. “Then the main
objective is to direct the organisation into a sales offensive and
bring to people’s attention they are now relieved from
administrative work and can and should fully focus on the client
and on selling the business.”

While BCR is the dominant force in Romanian banking – “the leading
bank in each and every customer segment from large corporate down
to micro corporations and all parts of the retail business,”
according to Wimmer – it faces a growing competitive threat from
the country’s second-largest bank by assets, Société Générale
(SocGen) subsidiary BRD (market share 15.8 percent by assets, up
from 13.5 percent in 2005).

According to a February research note by Erste analysts, BRD – in
which SocGen first invested in 1998, subsequently increasing its
stake to 58.32 percent in 2004 – is the most profitable and
efficient bank in Romania, having reported loan growth CAGR of 53
percent for the period 2003 to 2006, an ROE of 34 percent in 2006,
and a cost-income ratio below 40 percent in the second half of 2007
compared with 51 percent in early 2006.

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Wimmer said: “BRD is doing an excellent job but it has had more
time to get prepared and has been ready to focus on sales since
2006. What we are seeing with BRD is a sales phenomenon. They
finished their transformation two years earlier than us and their
sales process is at full-swing. In the course of this year we will
start to catch up.”

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The fastest-growing CEE market

For 2008, Wimmer is bullish about the Romanian banking sector in
general – the biggest banking market in South Eastern Europe and
one of the fastest-growing markets in all of CEE with 48 percent
annual growth in 2007 – and BCR’s prospects in particular. “We are
optimistic and have not revised our medium-term plan nor revised
our plans for 2008 because we are convinced Romania will not face a
hard landing.

“We do not feel threatened but 2008 will be a little bit different…
Some of the small banks – Alpha and Piraeus, would be an example of
this – have been extremely aggressive on the lending side and on
the deposit side but in 2008 tighter funding for some competitors
may result in more benign conditions for us.”

Part of BCR’s strategy to fend off BRD and smaller rivals involves
investment in product development and its distribution strategy,
with a relaunch of its online channel scheduled for April as well
as further investment in its branch and ATM network. “The market at
the moment is driven by lending products and that is typical for
this stage of the country’s development. In the last two years we
have had the boom of consumer lending which was the fastest growing
part of the business but now consumer lending is flattening out a
little. Mortgage lending is catching up tremendously and is
becoming the fastest growing part of the business and this will
continue for the next two to three years,” said Wimmer.

In an attempt to exploit the country’s potential housing growth,
BCR opened 22 specialised mortgage centres, which were rolled out
over a two-month period towards the end of last year. “The new
centres will take charge of our relationship with residential
property developers because we want to capture that value chain,
from financing residential property projects through the developers
and then transferring them to a portfolio of retail
mortgages.”

The bank’s relaunch of its online
channel

One of the biggest developments is the bank’s relaunch of its
online channel in April. “Customer convenience levels will be much
higher and we will implement the [Erste] group application. At this
stage the emphasis will not be on, say, selling loans online. The
Romanian economy is still very much driven by cash transactions. By
offering a convenient online platform, we will aim to get clients
to work with their current account on a daily basis and this should
result in an increase in overnight balances held by the bank and so
improve our funding structure and move people from cash to
non-cash.”

In October last year BCR rolled out the first of a planned series
of new products – a packaged account called the BCR Current Account
Bundle – which the bank claims is the first packaged account in the
Romanian market (see RBI 580). “The packaged current
account is going reasonably well in the sense that we are in line
with volume but we are not in line with numbers in terms of
products sold. We are continuously refining the product and what we
have seen in recent weeks is a very substantial rise in the weekly
sales. Often it is small things that decide about the initial sales
impact whether it is good or bad,” said Wimmer.

The next stage of the bank’s product innovation relates to
investment products. “We have launched five new investment products
which have had good initial sales results but from a very low base.
The total volume of investment products across all Romanian banks
is only around €800 million [$1.2 billion].”

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Scope for investment sales

Wimmer argues that there is tremendous scope for an increase in
investment sales in Romania. “Assuming that people’s disposable
incomes continue to increase for the next two to three years then
we will get into broader opportunities for investment products. I
think one also has to consider the way in which Romania dealt with
pension issues. [The government] introduced a voluntary pension
fund early in 2007 and introduced a mandatory pension scheme
towards the end of last year. Such products have captured a
proportion of disposable income which would otherwise be invested
into, say, life insurance policies or into investment funds.”

Romania has the lowest card penetration in the whole of the CEE
region, according to recent research by London-based consultancy
Retail Banking Research (see bar chart below). BCR has
targeted an ambitious increase in its cards portfolio by the end of
2009 and expects the number of its debit cards and credit cards in
circulation to increase by 59 percent and 40 percent,
respectively.

According to Wimmer, the cards market will be a tough nut to crack,
however. “[Growth] will be harder to achieve on the credit card
side. A substantial number of cards are sold as co-branded cards
with retail partners and so much depends on your choice of
partners.”

In September, BCR rebranded and incorporated the distinctive font
and typography of the Erste Group into a new, bolder logo (see
RBI 580
). “I am extremely happy with the rebranding,” said
Wimmer. “While it does not create immediate sales it does increase
visibility. It is very strong and enhances the impression that you
have nationwide coverage.”

A carefully defined segmentation strategy is not, however, yet part
of BCR’s marketing armoury. “At this time the only segment we
segment out is private banking. A distinct segmentation approach
for, say the professions, the young, the elderly, unmarried single
parents and so on will come in the future.”

Once a client’s bank assets exceed around €150,000, BCR will look
to move the customer to its private banking arm. “There are a
surprisingly large number of people in Romania who have a few
million euros, many of whom have accumulated wealth from property
transactions and this is one of the things that distinguishes
Romania from other countries in the region. For the economy going
forward this will be quite important,” added the CEO.

k

20m new clients and beyond

While Wimmer does not rule out the possibility of further
acquisitions by Erste, he said: “For the first time in our business
lives we do not need to look for other markets. [Erste] operates in
a market of 120 million people and we now have 16 million clients
in the region and it will be possible to build to 20 million and
beyond by organic means.

“If there is a really convincing and tempting opportunity we always
find it difficult not to look into it and we have always been
successful in communicating to the market the merits of an
acquisition. I am sure that if there is a good proposal our
investors will again back us.”

As regards to Wimmer’s personal position, there has been press
comment in Romania about a possible change at the head of BCR; when
appointed in December 2007, Erste reported that Wimmer would serve
as interim CEO. “When I took over I made it quite clear that my
primary objective was to complete the transformation. There is no
time frame in place and it depends on the right kind of person
being found. Unless and until this person is found to my and my
parent bank’s satisfaction, I will head BCR. Many people in the
investment community and analysts know me and have a positive
perception about me so it was fair to communicate to them that I
will not be there for, say, the next 20 years,” Wimmer said.