Much has been written about Austria's Heta, the ‘bad bank’ which took on the toxic assets of Hypo Alpe Adria. But what of Addiko, which was created from the good parts of its south-eastern European network? Stefanie Linhardt investigates.

Ulrich Kissing embedded

Everyone in banking knows the story of Hypo Alpe Adria’s demise in Austria following the global financial crisis. A lot has been written about the successor ‘bad bank’ Heta Asset Resolution, especially about the discussions with bondholders. What is missing from the picture is the fate of Addiko Bank, Hypo Alpe Adria’s successor bank holding the ‘good’ parts of the defunct Carinthian bank’s south-eastern European (SEE) operations.

Since Addiko Bank’s creation in mid-2015 a lot has changed. The lender, which only changed its name from Hypo Group Alpe Adria to Addiko in July 2016, has moved its headquarters from Klagenfurt in the southern state of Carinthia to Austria’s capital Vienna, started cleaning up its balance sheet and making structural changes.

Under the ownership of private equity firm Advent International, which purchased 80% of the lender in July 2015, and the European Bank for Reconstruction and Development, Addiko is emphasising good management, corporate governance and the highest credit standards, says chief executive Ulrich Kissing.

The turnaround of the business is a work in progress, and while fiscal 2015’s results were still weighed down in part by the working out of legacy assets and unfavourable legislation which resulted in losses of €675m after tax, Mr Kissing is optimistic about returning to profitability by 2018.

“This year we plan to report a loss below €50m, which is mainly related to further investments, our rebranding and the financing of the turnaround. But by 2017, we will reach break-even,” he says.

Getting the financials right

From a financial perspective, the bank has already made some progress. By not baulking at unpopular measures including a reduction of branches and staff, Addiko will cut its cost base by more than €20m in 2016 and 2017, while more than €10m is likely to be shaved off the banks’ administrative cost base in the same period.

“With our 2015 results, the portfolio clean-up and the aligned strategy in all our markets, we have essentially left our legacy behind us,” says Mr Kissing.

After indemnity settlements with Heta in the first quarter of 2016, Addiko received a €265m capital increase and a €60m Tier 2 instrument, and concluded a transfer of €223m of non-performing assets back to Heta, which put the bank’s pro forma common equity Tier 1 ratio at 21%, while the non-performing loan ratio fell from 12.2% to 11% at a coverage ratio of 67.2%.

“We are back in business,” says Mr Kissing, adding that customers across the region are now seeing the adjustments made through significant growth in the loan disbursements.

At the group level, Addiko’s loan disbursements overall are almost 100% higher than in 2015. Retail business has shown an increase in new disbursements of more than 160%, and corporate and small and medium-sized enterprise (SME) disbursements are more than 40% higher “with a strong and developing pipeline”.

"We offer straightforward banking, by focusing on essential core products in the retail and SME segment where we see the best growth potential in the region, by delivering on efficiency through improvement of our processes and procedures and by communicating simplicity in the manner that is universally understood to all,” adds Mr Kissing. “We have invested heavily, especially in the consumer credit area, to speed up our ‘time to yes’ and ‘time to cash’ and to reach European standard.”

New plans for a new bank

The new bank is seeking to make more efficient use of synergies between its five SEE operations and has implemented a plan to give the regions “more engagement possibilities and more responsibilities”. Addiko is relying on a model of centres of competencies, whereby different tasks within the group are performed by entities located in the bank’s countries of operation.

The central human resources office, for example, is located in Zagreb, reflecting the fact that Croatia is Addiko’s largest market. Other tasks are further afield – such as the digital centre in Belgrade and compliance operations in Slovenia – and some areas such as card processing are being outsourced.

The bank has hired a new executive team to give the institution “unencumbered” leadership and – as contracted – has changed its brand. The new Addiko Bank brand will also “underpin that we are a bank that has significantly changed”, says Mr Kissing.

Addiko still operates in the same SEE countries as the former Hypo Alpe Adria  Bosnia-Herzegovina, Croatia, Montenegro, Serbia and Slovenia but only has its headquarters in Austria – which means it can focus on the region rather than having to also look after domestic business.

“We are on a good path,” says Mr Kissing. “In general, the growth prospects [in the SEE region] are not as dynamic as hoped eight or nine years ago, because of the financial crisis and all related ramifications.” He adds that he expects growth to be stable in the long term. “In that case, the region has the growth and prosperity opportunities it deserves,” he says.


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