Jiri Smejc, chief executive of Czech lender Home Credit, tells Stefanie Linhardt why China represents a vital step outside its central European comfort zone.

Jiri Smejc

Established 20 years ago in the Czech Republic, Home Credit has gone through quite a transformation. Growing from a small non-banking lender in 1997 to a leading provider of point-of-sale (POS) loans for durable goods in Russia and some Asian countries, Home Credit now serves 23.5 million customers worldwide.

A portfolio business of Czech businessman Petr Kellner’s PPF Group, Home Credit expanded first into Slovakia and in 2002 expanded into the large Russian market. Jiri Smejc, now Home Credit’s chairman of the board of directors and chief executive, took a 5% stake in PPF in 2005 (which he has since sold) and then joined to run Home Credit’s Russian operations.

“We are from the small Czech Republic with 10 million people, so when we went to Russia, which has a population of 135 million, we were amazed at the opportunities this brings to you because, especially when you work with mass products, you need a sizeable population,” says Mr Smejc. “In Russia, we now have the biggest network of POSs – we are pretty much everywhere where you can shop – but we are seeking to further enlarge our position and to develop a new project.”

From creditor to client

Home Credit’s strategy is clear. Its strength lies in its POS business: in Russia alone, it has some 90,000 POSs. This means a customer’s first interaction would naturally be through taking out a loan at a POS, but the group’s business goes further.

A large proportion of Home Credit’s clients are in unbanked communities and previously underserved groups of the population, putting the bank in the unusual position of being a regulated lender without needing collateral or a developed credit history to offer a loan.

“Our customers’ first loan is typically for instantly buying consumer durables, but our goal is to have a long-lasting and loyal relationship with them that far exceeds the rather short maturity of that first small loan,” says Mr Smejc. “So once they have paid it back and we have assessed their credit capacity, we may offer them further financial services to suit their needs, for example, cards or revolving loans.”

Home Credit has a banking licence in two countries, where it can, for example, take deposits, with which it is fully funding its operations in the Czech Republic, Kazakhstan and Russia.

Another product area identified for expansion is cards. While in countries such as the Czech Republic, Slovakia and Russia, as well as in its operations in Kazakhstan (which commenced in 2005), Home Credit already operates card businesses, in others this is still at the planning stage. Local regulations can cause problems, for example in China, where Home Credit first set foot in 2004.

To remain compliant with its licence in China, Home Credit cannot offer physical cards or virtual card emulation “but we are looking to go through online distribution by setting some instant limits with some retailers”, says Mr Smejc.

Asian growth

Home Credit’s parent company, PPF, opened an office in Beijing in 2004, and a year later in Ho Chi Minh City, Vietnam. Home Credit China formally launched in 2007, offering consumer lending based on a guarantee model.

“In China, when we first arrived, consumer finance in the regulated sense understood in Europe just wasn’t there. The legislative framework didn’t exist yet. But we were able to share our experience from Europe with the regulator, and it was eager to build a robust consumer finance sector and make use of some of that input,” says Mr Smejc.

In 2010, Chinese regulators introduced consumer finance legislation on which Home Credit has since based its consumer loan business.

The bank’s Chinese operations are growing fast, with an average of 5000 employees added every month and expectations for some 100,000 employees by the end of 2017 (compared with about 77,000 at the end of March 2017).

Home Credit’s penetration rate in China is about 5%, compared with 15% to 20% in more mature markets, according to Mr Smejc, “so we still have the ability to go deeper”.

“We are now covering more than 300 cities in China – not only tier-one and tier-two cities but even tier-three and tier-four cities in some cases,” says Mr Smejc. “We are expecting that by the end of this year we will have between 200,000 and 250,000 POSs in China.”

Flexing its muscles

But growth potential is not just constrained to China. Home Credit expects all its Asian operations to be growth opportunities going forward.

“Going to Asia was – at least in the very beginning – an idea motivated purely by business diversification,” says Mr Smejc. “But in truth, it has become a game-changer for the value of the entire group. The sheer size of any single Asian market is so substantial that developing even just one of them successfully would significantly elevate us. Now just imagine that we are in five of them. That’s the scale of the benefit to our business.”

In 2016, the company recorded profits in China (€196m) and Vietnam (€46.3m). Mr Smejc expects to break even in the Philippines (where Home Credit launched POS loans in 2013) at the end of this year, and in 2018 in India and Indonesia (where POS loans have been offered since 2012 and 2013, respectively).

Home Credit also commenced a joint venture with telecoms provider Sprint in the US in 2015 and sees scope there to extend its financing options for smartphones.

Home Credit is not actively looking to expand into other countries, although Mr Smejc admits that Bangladesh could be interesting “but not for this year or next”.

Fast-moving China is keeping the lender on its toes, as are plans for further customer education and retention. And it is the Czech clients who will see innovation first, as the bank tends to “test new business models” there, proving the beauty of operating in a smaller market.


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