Bank Austria Creditanstalt is no longer a competitor but a subsidiary of UniCredit in central and southern Europe.Stephen Timewell considers the Austrian bank’s retail prospects.

The €15.4bn acquisition of Germany’s HVB Group by Italy’s UniCredit last month changes the retail landscape of central and eastern Europe (CEE) and south-east Europe (SEE), making UniCredit-HVB the dominant franchise in Poland, Croatia and Bulgaria.

HVB’s total assets in CEE/SEE at the end of 2004 stood at €35.5bn, held predominantly through its Bank Austria Creditanstalt subsidiary, with €32.2bn. UniCredit has assets in the region (excluding Turkey) of €30.1bn. The combined assets are more than double those of Austria’s Erste bank, Belgium’s KBC and Austria’s Raiffeisen (RZB).

UniCredit’s CEE division will be based in Vienna and Bank Austria Creditanstalt (BA-CA) will retain its brand alongside the UniCredit logo. Meanwhile, the fierce battle for market share in the highly profitable CEE/SEE region has commenced and BA-CA will have an important role to play.

According to BA-CA economist Stefan Bruckbauer, the combined region is the most dynamic emerging market in the world in terms of GDP per capita, well ahead of China. He adds that between 2000 and 2004, real GDP in the eight new member states (NMS) of the EU grew by 15.5%, while the seven countries of SEE did even better at 23.1%. With high growth of 5% in NMS8 and 6.5% in SEE7 in 2004, the platform for economic expansion has been laid and banks are keen for more opportunities.

Target area

For Bank Austria Creditanstalt the clear focus is on Austria and central and eastern Europe. In 2004, pre-tax profits rose 29% to €836m, with CEE making a particularly strong contribution to profits. The CEE profits more than doubled from €151m to €362m, accounting for 43% of the bank’s overall profits and providing the most important contributor to performance. Given that CEE assets account for only 24% of the bank’s book, BA-CA is making the most of its regional expansion.

Like other banks, it is not standing still. In 2004 it enlarged its network by acquiring Hebros Bank in Bulgaria and Eksimbanka in Serbia. But the growth strategy, according to board member Regina Prehofer, is both organic and through selective acquisitions. Last year BA-CA added some 100 branches to the CEE network, bringing the regional offices total to 1026 and regional assets to €32.2bn, 40% up on the previous year. With 4.6 million customers and 17,860 employees across 11 countries in CEE/SEE, the Austrian bank has a formidable presence. Also, with Hypovereinsbank’s €3.3bn in assets in Russia, Ukraine and the Baltics, the combined assets of the group in the entire region reach €35.5bn.

At present five banking groups lead a highly competitive CEE/SEE banking market. In 2004 asset terms, Erste (€33.3bn) is just ahead of BA-CA and closely followed by KBC (€31.1bn), UniCredit (€30.1bn) and Raiffeisen (€28.9bn). Other foreign players, such as Italy’s Intesa and the US’ Citigroup, have sizeable networks. Foreign banks have a 73% market share in the NMS and 61% in the seven SEE states but, for all players, the key attraction is the retail growth potential.

According to BA-CA research, retail loans in 2004 represent between 32% and 34% of GDP in the CEE/SEE region, less than one-third of the eurozone equivalent of 103% of GDP. Huge loan and deposit growth is expected over the next decade. For example, loan growth in the SEE states is expected to reach 304% over the period. While the BA-CA network has no market leaders in particular countries, it is strong in the large Polish market (ranked number three) and has a significant market share across a broad range of countries. Unlike Erste or KBC, BA-CA has a more diverse regional structure.

Ground covered

Critical to achieving strong growth is the need for a large network. BA-CA’s general manager CEE, Helmut Bernkopf, is very clear: “You need to have a 8%-10% market share to create a viable business and have the critical mass to do retail.” While definitions of market share can vary, Mr Bernkopf believes that – whether in terms of customers, assets or deposits – the 8%-10% share is essential if you want to offer a universal banking service and achieve the necessary economies of scale.

BA-CA’s strategy is to achieve the 8%-10% market share in all the markets it operates in over the medium term. According to Mr Bernkopf, the bank wants to apply the same universal banking model in the CEE/SEE that it uses in Austria, where it has a 20% market share and provides a full range of products. But while BA-CA has achieved the 10% mark in Poland and Bulgaria it is well below this in a number of countries.

Although foreign banks have picked over most of the banks in the region and most of the major players are now in foreign hands, BA-CA is anxious to strengthen its position in any way possible. In May, the bank reached a pre-agreement with Romanian entrepreneur and former tennis champion, Ion Tiriac, to merge HVB Bank Romania, the seventh largest, with Banca Tiriac, the 11th largest, to create HVB Tiriac. The newly created bank will be Romania’s fourth largest bank with 72 offices and nearly 720,000 customers; market share in Romania will increase to 7.5% and provide a strong platform for higher revenues and more growth.

Meanwhile, Romania’s largest bank, BCR, with a 26.1% market share, is up for sale and bankers expect it to be sold by year end. Does the purchase of Banca Tiriac rule BA-CA out of going for BCR? The Austrian bank would not rule out the possibility of buying BCR but bankers say it would be a huge acquisition for BA-CA to digest and suggest that Deutsche Bank may be the likely buyer.

Expansion plans

What are BA-CA’s immediate targets? Expanding the customer base to five million by 2006, integrating its acquisitions in Serbia and Bulgaria and beefing up its relatively flat return on equity before tax of 13.4% in 2004 are all on the list. Organic expansion is also critical, with 20 new branches planned in Hungary this year and a further 40 by 2007, along with 80 new branches planned in Poland by 2007. In Croatia the integration of 32 new branches is being finalised.

The large Polish market has proved to be an attractive investment. Bank BPH, BA-CA’s Polish subsidiary, produced a 68% increase in pre-tax profits, rising to €216.6m, almost 60% of the region’s total profits. Poland represents BA-CA’s largest retail operation in the region with three million customers. While BPH has reached an overall 11% market share, its president Joseph Wancer explains that, in housing loans, his bank has increased its market share to 24% this year, the second largest.

Mr Wancer notes that mortgage loans did not exist until recently and only account for 5% of lending at present, compared to 32% in western Europe. “Poles have always been dreaming of owning their own house but for the last 50 years it was not possible; now it is, the potential is huge.” Another factor in BPH’s success has been the introduction of a single IT platform and the streamlining of the bank’s product range. “We had 120 retail products and it was confusing for customers. So now we focus on selling seven to 10 products only.”

BPH has also revolutionised its sales approach and compensation philosophy. Mr Wancer explains that BPH decided that all 500 branches had to be sales points for customers and so much of the back office administration was stripped out and relationship managers were given sales targets and quarterly bonuses. This sales philosophy and bonuses of more than 50% of annual salary in 2004 have been critical to BPH’s success, he stresses.

New trends

In addition, BPH has seen strong growth in credit cards where it has expanded tenfold to 100,000 customers and a growing 8% share of the market. The bank hopes, through the use of affinity groups, to achieve a 25% market share in three years. Also, internet banking has expanded dramatically; a new platform, a one-window entrance introduced at the end of 2004, has helped boost the number of customers to 400,000 by the end of May and Mr Wancer expects the number of internet banking customers to reach one million by the end of 2006.

In 2005, BA-CA expects pre-tax profits to exceed €1bn, again driven mainly by profits from its CEE/SEE retail network. The bank’s long-term strategy of developing its CEE/SEE network, which began with a Budapest representative office in 1975, is now beginning to pay off. The CEE/SEE region of 117 million people is rapidly expanding its economic and banking potential and the BA-CA network across 11 countries, whether it is part of UniCredit or not, is well placed to profit from this growth.


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