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The heady bouquet of transformation

Sándor Csányi, chairman and chief executive of OTP Bank, tells Karina Robinson that the bank’s new acquisitions will bring a wealth of opportunities.
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Wearing brown corduroys with a tweed jacket and his heart on his sleeve, Sándor Csányi, chairman and chief executive of OTP Bank, admitted his vineyards were the only part of his private business interests that he had put the family name on and which his heirs would not be able to sell.

During a tour of the 400 hectares of Csányi Pincészet Villány in the south of Hungary, on the sunny last day of an Indian summer, the 53-year-old wild-boar hunter says that reliability and quality are what he wants to produce in his wine. He has produced that in the bank he leads, which is listed on the Budapest stock market with a 93% free float.

OTP is the only significant, independent local bank in central and eastern Europe (CEE), where 80% of the banking assets are in the hands of foreigners, and it is a regular winner of The Banker’s Bank of the Year award in Hungary. Its recent aggressive expansion – it is now in eight foreign countries – means that it will in future be a contender for the regional award in CEE. It is the seventh largest bank in terms of revenues and assets in the region, according to competitor UniCredit.

Integration risk to face

There is, however, the integration risk of a buying spree – in OTP’s case, a considerable trail of acquisitions. In 2006 alone, it bought CKB in Montenegro, giving it a 44% market share, Raiffeisen Ukraine, the seventh largest bank in Ukraine, Investsberbank in Russia and three banks in Serbia.

“Altogether, I think everything is in hand,” says Mr Csányi, the father of what he smilingly refers to as a “portfolio” of five children. “I think the analysts for the time being can’t see the possibilities that the new banks give us,” he says, forecasting bravely that in eight years OTP will be among the biggest banks in Europe by market capitalisation. OTP, also known as the National Savings and Commercial Bank, currently has an €8bn market capitalisation.

There are two other major risks to the group’s heretofore admirable performance (it posted a 25% rise in 2005 pre-tax profits to $962m and an annual return on average equity of more than 30% in the past nine years). The first risk is the dire state of the Hungarian economy, to which OTP is still heavily exposed with a market share of more than 25% of total deposits in the country. In 2006, 11.5% of profits will come from abroad, rising to an estimated 17% in 2007 and 25% over the longer term.

And second, a top IMF official interviewed by The Banker (see page 87), in cautious international organisation mode and without mentioning the country by name, pinpoints rapid credit growth accompanied by a risky exposure to foreign exchange risk as the elements that could increase the non-performing loans of banks and elevate risk to the banking sector in some countries. Hungary fulfils those criteria. Its 2006 budget deficit is estimated at a hefty 10.4% in 2006 and its current account deficit at 7.9%, while a third of all Hungarians with a mortgage hold one in a foreign currency, mainly Swiss francs and euros – a ratio that is due to increase as two-thirds of all new mortgages in 2006 were in a foreign currency. Gross loans for OTP have been growing at 24%, while one-fifth of its housing loan book is in foreign currency.

Confident in government

Mr Csányi professes himself unworried by the economy, saying: “The situation is not the best but not the worst. In the next two years I am sure we will overcome the difficulties. It seems the government after the election is very determined.”

The government of Prime Minister Ferenc Gyurcsány has put in place an austerity package, albeit a much criticised one because it relies almost entirely on tax increases rather than on much-needed expenditure cuts, say economists. Mr Gyurcsany’s leaked admission to party members that he lied to the voters about what was necessary to deal with the economy resulted in demonstrations and calls for him to quit last month.

Mr Csányi is rather more sanguine about events and certainly more amusing: “People are not surprised at politicians’ lies anymore. Perhaps it is not accidental when one says that he made the same mistakes as the man who cheated on his wife and admitted it.”

The other main risk to OTP is its reliance on Mr Csányi, an economist and chartered accountant, whose first job was at the ministry of finance. Mr Csányi is revered by his staff. Péter Braun, his senior adviser and a member of the OTP board, says: “In short, he is a genius. He began with zero, he was a poor man. He has a fantastic aura and a fantastic communication skill: he can talk to the poorest man and the king of Romania at the same time.”

Mr Csányi is the architect of OTP’s strategy, which has moved the bank into providing, for instance, advanced internet banking and mobile banking before some of its foreign competitors despite their superior means, plus products such as insurance and pensions through other companies in the group, thus increasing fee income.

In 1992, Mr Csányi assumed management control of an inefficient state bank, transformed it by focusing on retail banking, cutting staffing levels and coming up with innovative products, and steered it through privatisation via an initial public offering. Foreign institutional investors are such fans that they hold 75% of the shares.

Foreign fans seek way in

Foreign banks are also fans, as shown by their interest in buying OTP. “Nowadays, every three weeks I get asked whether we will keep our independence or if we would like a partner. I always tell them that I would rather like to acquire than be acquired,” says Mr Csányi.

Having said that, he does not envisage further acquisitions in the short term, except perhaps for a couple of small Russian regional banks. He walked away from bidding for troubled Austrian bank Bawag, and he does not believe that OTP’s being on the short list to buy the Romanian Savings Bank or CEC will prove successful. There are political issues between the Hungarian and Romanian governments over the treatment of the Hungarian minority in Romania. And Mr Csányi believes that OTP’s organic growth there is satisfactory, although its unit is loss-making. It has more than 80 branches in Romania and by the end of 2007 plans to have 150.

There is, though, a possible threat to OTP from Russian-born Medget Rahimkulov, who has been living in Hungary since 1994 and is a majority owner of Hungary’s AEB Bank. In the past few months, he and various family trusts bought a 5.3% stake in OTP. They have said it is a financial investment.

Mr Csányi says that when he was younger and relatively poor, a fortune-teller told him that he would do well but would have to struggle. He learned English, which is far from easy at any age, at 40 and is planning to revive his rusty schoolboy Russian through lessons next year to take advantage of opportunities in Ukraine and in Russia itself. His deputy honorary chairmanship of the European Judo Association, where avid judo black belt President Vladimir Putin of Russia is the honorary chairman, cannot but help on the Russian front. Not that Mr Csányi has ever practiced judo, he admits; rather he admires the discipline of it and advocates it for young people.

In 2005, Mr Csányi set up a $5m foundation to help clever children from disadvantaged backgrounds to achieve their potential through education. He managed his own ascent without help and is the third richest man in Hungary, according to a local wealth list.

Business successes

His private businesses have a turnover of about $1bn a year. They are in food and wine, which he ascribes to having been born in the country. He has a 40% market share of the meat and milk market in Hungary and is the “very proud owner” of Pick salami, one of the oldest and most trusted brand names in Hungary.

Mr Csányi’s expert wine-maker, who spent most of his 40-year professional life under the Communist regime producing lakes of cheap alcohol for the Russian market, is now the enthusiastic missionary, on behalf of his boss, charged with the production of wines of reliability and quality. He is also the recipient of capital investment, a sunny, even microclimate and the sort of soil that the Romans thought worth planting with vines 2000 years ago. The transformation may just have started; but what can be done with a bank can surely be done with a vineyard.

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Read more about:  Central & Eastern Europe , Hungary