Few might suspect that BCR, in fact, stands out as the fourth largest bank in The Banker’s central and eastern Europe (CEE) rankings, up from eighth place in 2002.
As BCR awakens, the environment it faces is full of opportunities, but also full of threats. While in recent years it has successfully leveraged its size into substantial profits, as the market grows and becomes more competitive and sophisticated, BCR will have to rise to the challenge by showing that it can keep up the pace. Aggressively launching and distributing new products while maintaining a strong grasp over risk management will play a key role in maintaining BCR’s market dominance in the years to come.
Founded in 1990 by the Romanian state and merged with the remnants of the near bankrupt Bancorex bank in 1999, BCR was saddled with an aged and conservative management structure, little experience in retail banking, as well as a stodgy image. Traditionally used by the Romanian government to finance parts of the inefficient state-owned industrial sector, BCR has in the past few years transformed itself, aiming to become a one-stop shop for retail customers, or in its own words a “financial supermarket”.
Universal mandate
In an effort to take full advantage of its universal banking mandate, BCR has set up several separate and distinct entities focused on various non-banking activities, including bancassurance. BCR Leasing, BCR Securities, BCR Asset Management and BCR Asigurari (insurance) are all making important headway in their respective markets.
Its leasing unit will, in 2004, add to the nascent corporate bond market with an issue, placed through BCR’s securities arm, aimed at increasing its available funding resources. This will come in handy as in 2003 it saw growth of nearly 60% over 2002, reaching E86m in new leasing contracts.
BCR Securities has also been busy spearheading the municipal bond market, thus attracting much-needed funds into local infrastructure projects. To this, is added the asset management unit, which presently administers two mutual funds, setting it up as a serious potential participant in the long-awaited opportunities brought about by future reforms in the pension system.
Its insurance arm has seen strong performance, leveraging the bank’s distribution capacity via bancassurance products, but also cooperating with its leasing arm to sell automotive insurance, while attracting assets to its asset management arm in the form of life insurance products.
BCR now has the products base and the associated know-how, as well as a comprehensive 300-strong branch and agency network spanning the country, making it well-placed to distribute its products and services. If it is to maintain its healthy string of profits, BCR must now focus on efficiently cross selling and maximising the group’s synergies. In the face of growing competition and increasingly complex management challenges, it will not be easy to manage this process.
The retail challenge
BCR presently claims the top spot in terms of overall market share, by a wide margin, with around 30%. Traditionally, much of its market share derived from its strong corporate banking division and its long-running ties to Romania’s industrial sector. Yet, all this has been changing in the past year.
For example, BCR has started to play an increasingly important role in the burgeoning consumer finance sector, using its size and competitive low rates to tie up large retail chains desperate to offer consumers the borrowing power they need in order to purchase large-ticket items. The ability to place relatively large volumes into consumer and mortgage lending also bodes well for future securitisation opportunities, which will become a necessity once the market sufficiently matures.
With over 700 ATMs and over 1.3 million active cards, BCR has also managed to secure a leading position in the card market. This is becoming increasingly important in the battle for the retail sector as well as for BCR’s push into commission and fee driven revenue streams, as a means to diversify its business model.
Road to privatisation
After an initial unsuccessful attempt to privatise BCR to a large strategic investor, the Romanian government decided on a more conservative divestment strategy scheduled for completion in 2006. As an interim step, the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) each purchased a 12.5% plus one share stake in exchange for a total reported sum of $222m. There is also a buy-back option should the government wish to reconstitute a majority stake prior to the final privatisation.
As part of the investment, the IFC and the EBRD will also gain board representation as well as the commitment of the government to improve corporate governance and further develop the bank’s risk management profile in preparation for a final sale. As part of this transaction, the balance sheet was also tidied up, as a further E35m in loans were provisioned and E50m of fixed assets were deemed to have been initially overvalued by BCR.
“The objective is to make BCR a better and more attractive bank,” says Noreen Doyle, first vice-president with the EBRD.
In the coming months, a second step in BCR’s privatisation will be completed through the sale of a further 8% stake to the bank’s employee association, which would not be permitted to sell their shares prior to the completion of the privatisation process.
Slated for 2006, the final privatisation of BCR will be a closely watched affair, as it will radically alter the balance of power in Romania’s banking sector. While a sale to a strategic investor is most likely, in the tradition of Hungary’s OTP, a stock market listing has also been mentioned as a possible course of action. Nevertheless, previous contender and now cash-rich HVB, as well as banks with a traditional presence in the CEE region but without a presence in the Romanian market, are likely to begin voicing their interest in the second half of 2005.
Syndication growth
After initially announcing a $100m syndicated loan in January, BCR decided to double the offering to $200m as a result of oversubscriptions. This is a significant development not only for BCR, but also for the entire Romanian banking sector, as it is the first syndicated loan launched on the international market by a Romanian financial institution. Nicolae Danila, BCR’s president claims, “This accounts for a necessary diversification of our portfolio of attracted sources, in terms of origin and maturity, at convenient costs. We intend to actively support the growth of our clients and to team up with them in order to seize the medium and long-term business opportunities provided by the Romanian economy.”
Used mainly to support the bank’s lending efforts, it will mature in five years and carry a four-year grace period. With a rate of LIBOR plus 2%, it was placed by a consortium comprising of Bank Austria Creditanstalt, Citibank, Erste Bank and Raiffeisen Bank.
The way ahead
Between 2000 and 2003 BCR’s private sector lending leaped five times, growing by 60% last year to around E2bn. At the same time, deposits grew four times between 2000 and 2003, rising 20% in 2003. Yet, it is likely that – as much as BCR may have already changed in the past years – it will change further still.
More competition and an increasingly saturated market will not make it easy for BCR to maintain its growth rate or its profit margins, but its size and recent successes have bought it some time, which if put to good use, will see it through this next period in its history.
The challenge of rebalancing its focus towards the retail sector, while at the same time managing to successfully cross-sell its many products will be facilitated by the implementation of an improved IT system. This will give the bank valuable information concerning its profitability on both a per-client and per-product basis. As well, risk management operations will be separated from the credit department, allowing for a more independent and efficient control of risk.
In terms of corporate governance, as previously mentioned, the position of chairman will be separated from that of chief executive and an independent Compensation Committee will be formed to oversee the bank’s payroll-related policies.
All in all, BCR has been endowed with the advantages of an early start, imposing size, a booming economy and strong shareholders/partners. It will have only itself to blame if it does not maintain its position at the top of the market.
In association with Banca Comerciala Romana
