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The COVID-19 health crisis will serve as an accelerator and added catalyst for transformational change within retail banking, writes Anas Abuzaakouk, CEO of BAWAG Group.

Anas Abuzaakouk

Anas Abuzaakouk, CEO of BAWAG Group

We are living in one of the most dynamic and transformative periods of banking. These developments have been at work for some time. The COVID-19 health crisis will serve as an accelerator and added catalyst for this transformational change. If we turn our attention to focus on the DACH region (made up of Germany, Austria and Switzerland) within core Europe, the situation for banks looks particularly interesting. The region is at times mischaracterised as being structurally unprofitable for retail banking. A good deal of the below-average profitability of banks in the region can be attributed to cost challenges, a legacy approach to technology, overly complex business models, and, to a certain degree, a fragmented banking market.

We see both as opportunities, in terms of applying an industrialised approach to banking as well as presenting ample opportunities for consolidation. More importantly, our view is largely informed by the very strong macroeconomic backdrop of the region. The DACH region is a market with over 100 million people, roughly one-third the size of the United States, with solid underlying macroeconomic fundamentals – i.e. relatively low debt-to-GDP ratios and low levels of both consumer indebtedness and home ownership when compared with Anglo-Saxon countries – and ample fiscal capabilities.

Defining core competencies, being laser-focused on a handful of products and services and continuously simplifying our business over the years allowed us to establish a highly efficient business

Austria (1)

with a cost-income ratio in the low 40’s generating mid-teen returns pre-COVID 19 and healthy pre-provision profits. We are fortunate that BAWAG Group has entered this particular crisis from a position of strength, having transformed the business and keeping its strategy consistent over the years. For the first nine months of 2020, BAWAG Group reported a net profit of € 201 million, a RoTCE of 9.6% and a cost-income ratio of 43%.

With a strong macroeconomic backdrop, a stable regulatory environment and low levels of consumer indebtedness augmented with prudent risk management, conservative underwriting and an industrialised approach to banking, we believe this to be a formula for success in retail banking across the region.

Photographer: Ingo Folie

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