Austria’s Erste Bank is clear about its target market in the fast-expanding countries of central and eastern Europe. CEO Andreas Treichl explains why to Stephen Timewell.
A decade ago, Austria’s banks were not foreseen as the future dominant force in the development of banking in central and eastern Europe (CEE).
But today, Erste Bank and its competitors Raiffeisen Zentralbank (RZB) and Bank Austria Creditanstalt (part of Italy’s UniCredit) account for the lion’s share of banking in the expanding CEE market.
And the second largest, Erste Bank, is now in the process of finalising its acquisition last December of 62% of Romania’s biggest bank, Banca Comerciala Romana (BCR) for €3.75bn.
For Andreas Treichl, Erste’s chief executive, the bank now has a very large coherent market that covers 110 million people in the region. In talking to The Banker, he is clear about Erste’s focus: retail banking. “We want to be the leading bank for the middle class in the region and we will continue to focus on retail, mortgage lending and wealth management for the emerging middle class,” he says.
At present, Erste is well on target, with more than 15 million clients, including BCR and the recent acquisition in Ukraine of start-up Bank Prestige, and an overall network now covering 2657 branches in eight countries.
Expanding market share
Erste bank holds the number one position in the Czech Republic, Slovakia and now Romania, with around 33% of retail deposits in each, while it is in the top three in Austria, Hungary and Croatia, and has a presence in Serbia and Ukraine. Mr Treichl believes his bank has a current market share of 15% in the region, which he would like to expand to 20% in the years ahead.
But he is adamant that the current “coherent market” is enough for the moment. “No major acquisitions are planned in the coming years,” he says. Unlike RZB, Erste is neither considering expansion into Russia nor looking for further growth in the Balkans, besides its existing operations in Croatia and Serbia. Mr Treichl believes other markets in the Balkans are just too small and are unlikely to qualify for EU membership in the near future. He is optimistic, however, about Ukraine and the greenfield site offered by Bank Prestige; his goal in the large, new Ukraine market is to obtain a 5% market share in the medium term.
Mortgage lending growth
From a retail perspective, where is Erste’s growth potential? About 82% of its customers live in fast-growing countries with gross domestic product (GDP) growth in excess of 4% and that expansion is likely to continue. Also, Mr Treichl says, a major growth factor in retail is in mortgage lending, which at Erste is growing on average at 30% a year in the CEE region and is expected to continue at that rate in the future.
According to Mr Treichl, the strong expansion in mortgage lending is being reflected in the wholesale market and growth in the commercial real estate area, especially in shopping centres. Also, with customer loans per capita at €800 in Romania and €4700 in Croatia compared with €30,600 in Austria, Erste is confident that product penetration is still low in the transforming economies and has huge potential as economic growth kicks in there, along with increasing demand for consumer and mortgage finance.
On the BCR deal, which was due to be completed in September, Mr Treichl is looking for big things from the three million new customers and the bank’s 30% retail market share. “We believe the bank and Romania are developing better than expected and the country has a great chance of achieving 6% GDP growth. There will be ups and downs of course, but we have the leading position in every product segment,” he says. Expectations are high: Mr Treichl believes that BCR’s performance in 2009 will reach that achieved by Erste Bank Group in 2005, which posted net pre-tax profits of $1433m.
Besides Romania, wealth management is seen as a huge opportunity with strong growth potential. In 2005, the best of the transforming economies, the Czech Republic, had just €800 in funds under management per capita, compared with Austria’s €18,900 in FUM/capita. Although it is coming from a low base, growth in wealth management is developing quickly and Mr Treichl says that if the bank maintains its 24% market share in central Europe, it will bring tremendous expansion in the medium term.
Erste has set out its retail stall in its eight selected CEE markets. With no new large retail banks expected to enter the region, Mr Treichl is optimistic that organic growth in these largely under-banked banking markets will prove a significant winner.
