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Corporate Banking Corporate Banking in Romania and in in Romania and in New EuropeNew Europe
Murat MentesMurat Mentes, Head of Corporate Marketing, Head of Corporate Marketing
Romania Top 100, 3. EditionRomania Top 100, 3. EditionBucharestBucharest, November 18, 2003, November 18, 2003
2
EXECUTIVE SUMMARY
Countries in New Europe, with a vast market growing at a significantly higher pace than the average of EU, are moving from transition to EU convergence
This means new challenges for companies, of course including banks, in terms of optimal positioning in the market, new segments and products exploitation, new competitive pressure and search for efficiency
Important market opportunities are also matched by decreasing risk
In the corporate segment customers’ demand and behaviour are changing in a sophisticated way, even though changes are less evident than those experienced by the retail segment
Changes partly depend on financial markets’ evolution, through employing different investment allocations for higher returns, using risk hedging instruments, etc, but the main driver for the change is still continuous financing needs of corporate segment for both investment and working capital purposes
The role of foreign banks has already proven to be very significant to bring capital and know-how that are fundamental at this stage of development of the corporate segment in NE countries to support the expected growth
Challenges are still ahead of us waiting for EU/ EMU convergence, legal and regulatory advancements, as well as Basle II implementation
3
AGENDA
What is “New Europe”?
Romanian Economic Landscape
Corporate Segment Landscape
Corporate Banking in Romania and in New Europe
Steps Ahead
4
WHAT is “NEW EUROPE” ?
(*) NE(12): CEE candidates for enlargement, plus Croatia and Turkey, excluding Cyprus and Malta
2004 ENTRANTS
LITHUANIA
CYPRUS*
HUNGARY
ESTONIA
LATVIA
POLAND
SLOVAKIA
MALTA*
SLOVENIA
2007 ENTRANTS
BULGARIA
ROMANIA
OTHER ASPIRANTS
CROATIA
TURKEY
CZECH REP.
5
AGENDA
What is “New Europe”
Romanian Economic Landscape
Corporate Segment Landscape
Corporate Banking in Romania and in New Europe
Steps Ahead
6
ROMANIAN ECONOMIC LANDSCAPE
Slow restructuring efforts along with slow foreign demand shall contribute to expected slowdown of economic growth in 2003
Structural reforms have progressed, although slower than recommended by IMF due to prolonged global recession as well as some political hindrances
Disinflation still remains the main target for Central Bank. Inflation has remained on a downward trend this year, but a single digit inflation still requires a considerable effort
International rating agency Standard & Poor’s has improved Romania’s assessment for LT
Banking system has continued to reinforce, through better intermediation of banking products, and continuous branch network development, steps towards structural changes
Corporate Segment lending is growing, faster than nominal GDP, but more slowly than retail. Retail Segment remains still a major objective for banks
The new credit quality regulation increased the total stock of NPL
Central Bank's decision to increase its reference interest rate was a result of talks with IMF to have a better control on non-governmental lending and to encourage savings
Growing trend in the unemployment rate
Service sector contribution to GDP is expected higher than the more traditional sectors in MT
7
AGENDA
What is “New Europe”
Romanian Economic Landscape
Corporate Segment Landscape
Corporate Banking in Romania and in New Europe
Steps Ahead
8
COMPONENTS of DEMAND for FINANCIAL SERVICES
Globalization, EU convergence Low-cost delocalization inflow Industry restructuring process Role of FDI Implementation of Market Economy principals Up-grade of country ratings
Transition from State to Private Growth of Private sector both domestic and international Lack of managerial skills required to grow Development of Private Entrepreneurship
Investment diversification, Increasing in-flow for private equity funds Local and international lending, non-reimbursable funds
DEMAND of CORPORATE SEGMENT
for FINANCIAL SERVICES
Transition from State to Private Acquisitions Specialization of networks, products and services Growing impact of technology Better intermediation
OWNERSHIP MODEL
FINANCIAL MARKETS
BANKING SECTORCOMPETITIVE FORCES
9
PRODUCTS and SERVICES
Credit Facility, mainly cash, is still the key relationship building factor Developing market forces have great impact on the appetite for new products and services Improving business environment forces banks to provide diversified products, more flexibility, etc Market evolution forces relationships based on quality, confidence, transparency, and mutual gain
DOMESTIC AND CROSS BORDER M&A
CORPORATE REORGANIZATION
DYNAMIC HEDGING OF FINANCIAL RISKS
NEW SOURCES OF FINANCING
NEW EQUITY, NEW INVESTORS
ADVISORY SERVICES
ADVISORY SERVICES
CAPITAL MARKETS (corporate bonds, securitization, project finance)
DERIVATIVES (forward, swap for both interest and FX rate)
INTERMEDIATION (private equity, venture capital)
NEW NEEDSNEW NEEDS PRODUCTS AND SERVICESPRODUCTS AND SERVICES
10
CORPORATE SEGMENT GROWTH
COMPONENTS of LONG TERM GROWTH
DEMAND
Internal demand growth Gap in life-style FDI and Investment EU structural Funds Increase in disposable income
Export growth Selected comparative advantage Cost of labour Full market liberalisation
SUPPLYCapital FDI EU structural funds Domestic investment / saving
Productivity gains Privatisation and restructuring FDI Skilled work force Competitive challenge of EU market
Labour Unemployment Low cost of labour Limited wage pressures
11
AGENDA
What is “New Europe”
Romanian Economic Landscape
Corporate Segment Landscape
Corporate Banking in Romania and in New Europe
Steps Ahead
12
SIZE AND DEPTH – COUNTRY BREAKDOWN
Corporate lending is still the main lending activity, mainly working capital and investment Foreign ownership is largely dominant in all markets, but Turkey, Slovenia, and Romania Foreign currency activity is strong in Croatia, Bulgaria, Romania, and Turkey Banking penetration in terms of network is still possible in Romania, Bulgaria, and Turkey NPL is still an important quality problem, Romania, Croatia, Slovakia, and Bulgaria had substantial improvements, Poland and Turkey are recovering last economic crisis Market structure, concentration, and public sector dominance are heavily effecting loan pricing Different level of capital markets development leads to competition from other financial products, but deposit is still the main investment product
bln Euro 2002 PL TK CZ HU SK HR SL RO BG NE(12) EU
Market sizeGDP 199 192 74 70 25 24 23 48 17 702 9,161Population (mln) 38.6 70.2 10.3 10.1 5.4 4.4 2 21.7 7.9 178 377per capita GDP 5,167 2,731 7,173 6,884 4,673 5,411 11,717 2,232 2,098 3,950 24,300
Banking sectorTotal Assets 138.5 106 81.7 49.1 24.5 22.1 20 13.6 7.9 481 24,702
Total Loans 60.8 18.1 28.3 22.5 8.5 13 12 5.1 3.3 181 9,331Share of Corporate Loans % 53 73 52 73 68 55 74 80 76 71 48
Total Deposits 69.1 72.1 49.7 27.5 18.6 14.2 9.2 9.3 5.3 283 4,137Share of Corporate Deposits % 20 30 26 32 23 27 19 52 36 36 23
Tot Assets /GDP % 72 67 113 68 95 94 87 32 48 68 270Tot Loans/GDP % 32 12 39 31 33 55 52 12 20 26 102Tot Deposits/GDP % 36 45 69 38 72 60 40 22 32 40 122
Branches per million inhabitants 108 86 167 285 190 208 354 57 81 234 513Market share (asset) of foreign banks % 68 7 95 61 96 90 33 56 86 60 -
13
ATTRACTIVE INVESTMENT PROSPECTS
Low Risk Moody’s Sovereign Rating/Country Risk High Risk
Ban
kin
g sy
stem
ris
k b
ase
d
on
Mood
y’s
BS
O
Romania
Bulgaria
Turkey
Brasil
Colombia
Peru
Argentina
EcuadorVenezuela
Uruguay
Indonesia
Bolivia
Russia
India
Philippines
Croatia
Slovakia
Korea Tailand
China
Estonia
Slovenia
Hungary
Mexico
Panama
Malaysia
Poland
Czeck Rep.Latvia
New Europe
Asia
Latin America
Source: Moody’s Investor Service Global Research, Rating List Ceilings for Foreign Currency, Bank Deposits, Long Term
Low Risk
High Risk
14
BANKS’ – CORPORATE SEGMENT INTERACTION
GDP
growth
Banks’
Performance
and
Behaviour
Impact
on
Corporate
Segment
New product and services
Credit risk management upgrade
Support infrastructure development
Intermediation of FDI entry
Short term vs. long term behaviour
Corporate Social Responsibility
Inflow of capital, know-how, and new market behaviour
New segment and product development
Experience transfer, new practices and competencies (i.e. market segmentation, risk management)
IT and Human Resources enhancement
Support of growth and internationalisation development of local economy
Banks’ Performance and Behaviour Impact on Corporate Segment
15
UNICREDITO ITALIANO
2002 KEY FIGURES
MKT CAP. - largest
Euro 23.4 bn
NET INCOME
Euro 1.801 mln
C/I RATIO
54.3%
PRE-TAX ROE
28.6%
ROE
17.2%
BRANCH NETWORK
4,176
Currently n. 10 European Bank by
market cap, n. 5 in the Eurozone
16
Warsaw
Bratislava
Sofia
Zagreb
Bulbank – Bulgaria(1)
85.2% acquired in October 2000
Bucharest
Group Pekao – Poland(1)
53.2% acquired in May 1999
UniCredit – Romania(1)
99.8% acquired in May 2002Zagrebacka Group-Croatia Bosnia-Herzegovina(1) 81.9% acquired in March 2002
UniBanka – Slovakia(1)
76.3% acquired in October 2000
Pioneer
Koç Fin. Serv. – Turkey(2)
50% acquired in October 2002
Prague
Istanbul
Zivnostenka Banka Czech Rep.(1)
95.04%. Acquired in February 2003
UCI PRESENCE IN NEW EUROPE
17
TODAY - 24 Branches, 8 in Bucharest and 16 in the major cities
END of 2003 - 32 Branches, 12 in Bucharest and 20 in the major cities
UNICREDIT ROMANIA NETWORK
18
AGENDA
What is “New Europe”
Romanian Economic Landscape
Corporate Segment Landscape
Corporate Banking in Romania and in New Europe
Steps Ahead
19
STEPS AHEAD
Privatisation
Restructuring
Portfolio clean-up
Foreign banks entry
M&A increase
TRANSITION MARKET ECONOMY NEXT STEPS
Positioning in the market
New market development
New product development
Competition
Efficiency
EU / EMU
BASLE II
20
CORPORATE SEGMENT SUMMARY
Corporate customers behaviour is quite rational and little emotional. Their expectation on banking services’ quality is high, growing and long in excess of the average offer
They prefer standardized products and services for convenience, but they high appetite for customized solutions based on their needs
Corporate Banking business models and organizations adopted by many commercial banks have yet to meet these expectations, due to lack of customer focus
Overall service quality drives rational customers to choose top-tier relationships, in an over-banked market
Price is critical, but seldom the key factor
21
UCR STRATEGY
Strategy of UCR is reinforced by consistent customer focus and by the synergies with the main share holder UCI. New Europe Banks are also essential for this purpose, given their distinctive role in the internationalisation process.
UCR, with it’s growing organizational structure, is targeting to become one of top banks in Romania. The key pillars of this strategy is build on four main success factors;
SPECIALIZED SALESFORCEFocused on customer needs……intensively trained
SMART CLIENT-CLUSTERINGTo target pool of high-value clients with more RMs’ time……and serve low-value clients with cost-effective models
CUSTOMER SATISFACTION-DRIVEN PROCESSES
To be the best in class when Quality is the selection criteria
INTEGRATED PRODUCT RANGEBlending product shelve and service quality…… supporting the relationship-building efforts through a wide range of solutions