“We are now concentrating our efforts on structural improvements, such as rethinking the lending process, upgrading infrastructure and computer networks, operational and analytic customer relationship management, training, testing and licensing of our staff,” Treichl told ZF in an e-mail interview.
The corporate segment seems to be the main sore point for BCR at the moment as the bank lost customers during the crisis due to the lending process becoming difficult and bureaucratic, completely different from the boom days.
This turned out to destroy value in places and especially on the corporate lending segment, Treichl said. When excess cash and cheap foreign currency were faced with the financing needs of this region (retooling, real estate, infrastructure development, working capital required to fulfil orders from Western Europe), the main weakness of the model was revealed. That weakness was the excessive importance attached to asset-based funding and fragile capitalization of corporate customers right when the economic cycle reached its peak, Treichl added. “We are extremely careful not to repeat those mistakes.”
Consumer sentiment seems to have improved and the increase in consumer spending has the potential to change the business sector attitude and level. As for retail lending, psychologically speaking, consumers have learned the crisis lesson and are now much more cautious, the Erste CEO said.
Crisis hit BCR hard, with one third of its loan portfolio going sour. Three years ago, in an attempt to steer BCR back on course, Treichl put Czech-American banker Tomas Spurny in charge to restructure the bank and clean up fast, considering non-performing loans were rising on a monthly basis. Spurny is now selling almost EUR4 billion worth of NPLs in one year, giving the bank room to breathe and focus on resuming lending, where rivals ate into its market share.
“The restructuring process helped improve BCR’s efficiency by more than 20% and thoroughly transformed it.”
Spurny’s term has been a success so far. His key objectives in the past three years have been to eliminate risks and boost efficiency. Eliminating risks came with a high cost for shareholders and taught the lender how important sustainability is, Treichl said. The lenders’ steady efforts to improve loan portfolio quality paid off and are now driving it towards a new beginning and sustainable growth, he added.
BCR lost about three percent of its market share during the crisis, so it now accounts for 17% of the total banking assets in Romania, on a market where the number of competitors is in decline.
The takeover of Volksbank’s Romanian operations enabled Banca Transilvania, the third leading lender before that, to overtake BRD and come close to challenging the top position BCR has been impossible to dislodge from for 15 years.
Treichl says the strategic decision BCR made two years ago to push leu loans to customers over those in foreign currency turned out to be a winning one, especially considering the significant decline in leu loan interests (the ROBOR index dropped from 5% to 6% in 2013 to 1.3% at the moment).
BCR sees the potential in leu lending, be it mortgage loans, where it is the market leader and accounts for one quarter of the new contracts for such loans, consumer loans, where improvement of risk assessment tools helped such loans return to growth or medium-term corporate lending, Treichl said.
The Erste group official says BCR has to finance its loan portfolio from the locally attracted resources, a radical change from the boom days when loans were funded by lines of credit from Vienna or other financial centers.
If demand for loans and major projects that require long-term funding (something that the Romanian market is lacking at the moment) is high, “our level of exposure will increase.”
BCR, for which Erste paid EUR3.75 billion in 2005, when it bought 60% in it, thus valuing the bank at EUR6 billion, remains Treichl’s bet for the future, even though it failed to produce the yield expected at the time of the acquisition and even shook the entire Erste group during the crisis.
BCR posted record losses of 2.8 billion lei (EUR630 million) in 2014. Results improved in the first quarter of 2015 because of the retail business, where lending saw double-digit growth.
“Our bet on Romania and the Central and Eastern Europe is based on two things: the European Union project will continue and the Central and Eastern European countries will continue to develop into societies with a thriving middle class.”
Historically speaking, twenty-five years from the fall of communism these countries still have not shown Europe everything they are capable of, because the middle class is just forming, Treichl added, saying that is only logical and his confidence in BCR and Romania remains as strong now as it was ten years ago.
(English version by Loredana Fratila-Cristescu)