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.

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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.”