Andreas Treichl, head of Erste, is willing to even pay him a special bonus if he manages to hit this target after the bank’s losses deepened to EUR172 million after the first nine months of the year.
So the largest bank in Romania is going through a new profound restructuring at present – the second one since the bank was privatized by the Austrian group seven years ago. As it accounted for about a quarter of corporate lending, BCR was significantly affected by the effects of recession, with the cost of risk ending up offsetting the operating profit. However extensive his expertise in cost cutting may be, Spurny cannot make miracles, especially in the short term and with such a complex structure.
In parallel he is looking to make changes to the management structures and give a new direction to the business. Up to now he has preferred to keep secret his plan for restructuring the bank, leaving Erste to reveal directions. Controlling the cost of risk is crucial, but network and personnel cost cuts are easier to make. BCR will also take advantage of its strong position on the deposit segment to force an increase in the interest rate margin, but the results of BCR dropping its retail loans in euros remain to be seen. Another area where BCR is acting is the execution of guarantees for non-performing loans. The fourth quarter of this year could bring a new rise for provisions, but over the course of 2013 Spurny will have to show a gradual improvement in results from one quarter to the next in order to prove that he deserves the special bonus and his fame as restructuring expert.
• Increasing amounts generated by corporate client fees
Andreas Treichl, head of Erste Group, had been complaining for a long time that amounts collected by BCR from corporate client fees do not reflect the bank’s market share on lending to this client segment. He says the bank has been intensely working on this and it can significantly improve the balance between assets and fee generation.
As part of this plan, BCR is to create a division dedicated to financial transactions sealed for corporate clients – “corporate transaction banking,” under which a corporate client with a loan from the BCR should also end up channeling as many payments as possible through the BCR.
• Forcing a rise of the interest rate margin after giving up retail loans in euros
The BCR’s interest rate margin has fallen steadily in the past few years after in the first years of crisis it sought to encourage savings. In the last two quarters the margin has stabilized at 4.5%, almost one percent lower than a year ago. A rising trend for the margin is crucial for offsetting the cost of risk, which continues to climb and is set to peak as late as next year. Erste officials stated clearly they expected a margin increase in the next quarters, as BCR will only grant retail loans in the Romanian currency.
• Cutting personnel and the branch network
One of the solutions considered for cutting operating costs is the reevaluation of the branch and agency network, as well as of personnel. BCR had been one of the major banks that stuck to their territorial networks during the crisis years, awaiting an economic rebound to relaunch their banking business. But the new management is firm in its new approach, with the units considered unsustainable to be closed down. In the past year the bank’s network lost 45 units and has been left with 622, while personnel has been cut by over 700 people to 8,537. The process is set to continue, especially since the bank’s executive committee will be able to decide the closure of branches and agencies without needing confirmation from the supervisory board.
• Provisions hitting an absolute peak
The cost of risk ended up offsetting BCR’s operating profit in the past year, causing the bank to make losses. If an improvement is not seen in this area, the target of returning to profit as early as next year can prove to be extremely difficult to attain only through cuts on the operating side. BCR continued to set up massive provisions in the third quarter, increasing coverage of non-performing loans towards 57%. The bank is like to continue to set up massive provisions in the fourth quarter in a bid to cover as many high-risk loans as possible and to reach an absolute peak at the end of the year.
Speeding up foreclosure sales
While in the first years of crisis BCR clients who had trouble repaying their loans, especially corporate clients, had become used to a rather flexible approach, the situation has changed dramatically in the past few months. Clients with overdue payments found themselves under increasing pressure to pay their debts and foreclosure sales have become an increasingly frequent outcome. BCR has come to have over 1,000 foreclosed homes for sale on the individual client segment, with Erste expecting more and a steady flow.
(English version by Daniela Stoican)