Parveen Bansal talks to Mr Andreas Treichl, CEO of Erste Bank, to learn how and why the bank spread its wings across central Europe.
Founded in Austria in 1819 by a Catholic priest to help devout people save money for difficult times, Erste Bank today is home to the savings of around 12 million customers across central Europe.
“When we went public in 1997, we set several targets, one of which was to become the leading retail banking service provider in the region,” says CEO Andreas Treichl.
The bank is already benefiting from the unusual decision in 1990 to focus on retail banking in central Europe.
Mr Treichl says: “It is our main differentiator because we chose to focus on retail banking at a time when retail banking was not sexy, and no other bank considered it to be a real market opportunity.”
Another market differentiator Erste introduced was their focus on small businesses. “We were the first and only retail bank to concentrate on small and medium-sized business in central Europe. Everyone else was focused on corporate and investment banking.”
Different direction
Erste also took a different direction to most other central European banks by embarking upon an extensive acquisition strategy, which doubled its market capitalisation over the last five years.
More than 54% of its net profits are from central Europe. The bank has observed 13-fold growth in the past 10 years in this region. With the EU accession of all the countries where Erste Bank is active (except Croatia which will possibly join in 2007), the risk profile of the bank has completely changed. Before enlargement, 80% of Erste’s clients were outside EU-borders – now 95% are within the EU.
In just over six years, Erste Bank has established significant operations in the neighbouring markets. Erste’s shopping spree started with the acquisition of Mezöbank in Hungary in 1997, then a year later it acquired Cakovecka Banka, Bjelovarska Banka and Trgovacka Banka in Croatia. In 2000, it acquired Czech bank Ceská sporitelna, and in 2001 the Slovenska sporitelna – both are also savings banks like Erste itself. In May 2002, Erste added Croatia’s Rijecka Banka to its books, and the most recent acquisition was that of the Hungarian Postabank in December 2003.
Erste is now the largest bank in Slovakia, by assets and customer numbers, and in the Czech Republic it is the largest in terms of market share and second in terms of assets. It is the third largest in Croatia, and second in Hungary.
Client base
Mr Treichl says: “For a retail bank it is important to have a large number of clients and it was with this objective in mind that we set out to acquire in central Europe. We would like to become like Tesco (a large European supermarket chain successful at selling insurance and other banking services via its network of stores) in our region, where other financial services producers like insurance companies or investment funds can use our extensive distribution network to sell their products,” says Mr Treichl.
However, contrary to expectations, and unlike Tesco, the bank has not rebranded its acquisitions to Erste Bank. Mr Treichl says this is because “some of the acquired brands are so strong. For example, in the Czech Republic Ceská sporitelna has better brand recognition than Coca-Cola.”
Franchise model
Instead, Erste Bank is using a franchise model. The products are centrally developed (in Austria, because it is the most advanced market of the region) but distributed across the region under the brand names of the acquired banks. Mr Treichl notes that it is important for people to recognise a brand locally and to trust that decisions are taken locally. The only consistency of brand across the group is in the use of the blue and red colours of the Erste Bank logo and red ‘S’ for savings bank.
“Within Austria, we distribute our products to 60 different savings banks – because there is no difference in the savings products from one bank or another in any country. The only thing that can differ is the interest rate and that is locally determined,” he says, noting that 75% of retail banking is the same globally and only 25% needs to be tailored to fit local market and regulatory requirements.
Driver of modernisation
Erste Bank has been instrumental in driving change in the local banking sectors of the countries where it has representation. It has invested much in bringing its acquired banks up to speed. For example, in the Czech Republic it transformed Ceská Sporitelna by implementing a completely new banking system and retraining staff to focus on the client.
Mr Treichl explains: “We want to create a single common market for our clients and employees in central Europe. There is an active network of trade between the countries, and travel within the region has increased. Austria is an important winter destination, whereas Croatia is a popular summer destination and Slovakia is popular for its 24/7 hypermarkets. There is therefore demand and need for a regional network.”
The Czech carpenter who buys wood in Slovakia, produces furniture in Moravia (Czech Republic) and sells it in lower Austria can have access to banking facilities in all three regions via the network of Erste Bank and its subsidiaries.
Ensuring an efficient and effective distribution network has been of great importance to the bank. In the Czech Republic, the bank reduced the number of branches from 1000 to 670. In Slovakia, where it has 340 branches, it has adapted the opening hours of some of its branches to suit the needs of their clients using the 24/7 hypermarkets.
Erste set about encouraging cross-border use of its banks by charging customers only the local fee for ATM usage. Customers can do their basic banking from any country using the ATM network, which is integrated to ensure consistent information wherever it is accessed. The ATM interfaces also have the same look and feel. “We are currently working to implement a single common IT platform to support the ATMs for the whole region. We are also trying out new, cashless self-services.”
“By investing in technology, we have leapfrogged the old EU-country banks. For example, we never introduced cheques,” says Mr Treichl.
Internet banking
Erste also introduced internet banking in the Czech Republic, Slovakia and Hungary, where “consumers were waiting for internet banking services”. It now has over 800,000 active users in the Czech Republic and 300,000 in Slovakia, and the figures are growing fast. “We decided it was necessary to have these additional distribution channels but it is not a replacement channel,” says Mr Treichl.
The internet channel introduces the challenge of maintaining personal contact with its customers. He says: “We are working to try and complement the services of the two channels by developing the role of branches as an advisory channel, while at the same time encouraging use of the internet channel.”
Erste’s reign in the region is not without its challenges, says Mr Treichl. “We have to invest a lot in training the staff and educating customers in the younger countries.”
The cultural differences, as well as the fact that they are all at a different level of development, means that each country needs to be addressed singly. He says: “We have to be clever in anticipating the changes happening in the local regulations so that we can offer the right product at the right time.”
Mr Treichl highlights the growth potential and difference between the countries: “In Austria, we earn most in the area of wealth management, while in the Czech Republic, the group of target clients for these services is growing quite slowly.”
Growth potential
But he expects this area to have great potential in the future: “The difference between the Czech Republic and Austria is now one in eight, in terms of the amount of income. If we take the difference in the return on investment of other products or life assurance, it is several times higher than the difference in income.
“People under-estimate incredibly the growth potential in the region. With nine million clients in the Czech Republic, we have a market capitalisation of e6bn. Banks with the same number of clients in France or Spain have a capitalisation of around e20bn. We are currently in a perfect position, even if we just did an average job. It is enough to wait and watch the customers’ income grow, having a positive effect on our business. But you can be sure that we will do an excellent job”
As a bank with the highest exposure in the region, Mr Treichl accepts that if there were an economic recession in the region, “it would definitely hurt us.”
However, he is optimistic. “All the countries in the region of central Europe are performing between five to six percentage points better than the old EU countries.” He expects growth to remain strong, as “it will take 20 years before central Europe catches up with the standards of the western European countries”.
