European banks are scrambling to benefit from rapidly changing consumer habits, notably the switch to Internet and mobile banking. New technologies such as biometrics and voice recognition are now central to raising the customer experience to a new level, and most leading banks are developing multichannel relationships with their customers. This also allows for branch closures and other long-term cost efficiencies.
At the same time, more banks have moved from deleveraging and shrinking their balance sheets toward expanding the loan book. After five years of strengthening their capital buffers—there was a rash of share issues and capital raising ahead of the ECB’s stress tests—they are now in a more confident, expansionist mood. And while previously customer demand has been weak, Europeans’ appetite for loans seems to be strengthening, thanks to the central banks’ adopting an ultra-loose monetary policy.
Geopolitical risks remain, as banks with exposures to Greece, Russia and Ukraine know only too well. But across most of Europe business conditions are improving.
CENTRAL & EASTERN EUROPE
Regional Winner | Raiffeisen Bank International
CEO Karl Sevelda notes that “RBI operates a strong business model and franchise in the CEE and in 2014 operated profitable banks in 12 of 15 CEE markets. It also sets the bar in many of its markets for standards of service and innovation, most notably in Slovakia. But the geopolitical crisis in Ukraine called for an increase of about €412 million in provisioning for impairment losses, accounting for most of the €567 increased provisioning across the group. Net interest income rose by 2%. Sevelda points out that “the bank kept its earnings at a high level while reducing costs by 10%.” After more than €1.7 billion of provisions (a 49% increase) and an €251 million one-off legislative charge in Hungary, RBI remained profitable—although the pretax result dropped from €835 million to €23 million. The bank’s common equity Tier I capital ratio rose by 0.2% to 10.9%. RBI’s adapted strategy will, says Sevelda, “further strengthen its capital position, improve its risk profile, and reduce complexity as well as costs.”
Karl Sevelda, CEO
Albania | Banka Kombëtare Tregtare
The country’s oldest financial institution enjoyed a good year in 2014, with net profits rising to just about $44 million, compared with $39.3 million the previous year. The bank also strengthened it’s capital buffers, the key capital adequacy ratio improving from 14.5% to 15.6%. Recently declared the largest player in the Albanian banking sector, with a market share of 23%, BKT continues to expand its branch network, now totaling 88 branches.
Seyhan Pencabligil, CEO
Belarus | Belarusbank
Majority-state-owned Belarusbank is the country’s leading bank in terms of both assets ($16.7 billion) and loans ($12 billion). Despite extremely difficult trading conditions, Belarusbank’s net profits dipped only slightly last year to just over $140 million. The Belarusian bank was the first to enter the syndicated loan market in 2012. Chairman Siarhei Pisaryk commented that “the bank’s transparent and comprehensive policy on the international markets enables the successful implementation of large scale projects, regardless of the market situation.” The bank’s capital adequacy ratio currently stands at 19.6%.
Siarhei Pisaryk, chairman
Bosnia & Herzegovina | Raiffeisen Bank dd Bosna i Hercegovina
CEO Karlheinz Dobnigg notes that “despite very challenging market conditions, especially taking into account devastating floods that affected this region, we kept our business stability and market position.” While lending activity was constrained, the bank’s equity base was reinforced. Fee and commission income was up by 5.9%, partly balancing a 6.3% drop in net interest income. Raiffeisen was the first bank in Bosnia to introduce contactless cards and Point Of Sale devices, and it recorded another market first with its factoring product for corporates.
Karlheinz Dobnigg, CEO
Bulgaria | UniCredit Bulbank
Bulgaria suffered a banking crisis in 2014. But UniCredit Bulbank, the country’s leading bank in terms of assets, loans and deposits, outperformed the market, achieving a 1.76% return on assets as net profits jumped by 68% to 242 million Bulgarian leva ($140 million). The country’s second-largest retail bank, it has continued to develop its network with the new, state-of-the-art “branch of the future” model, where the visit rate increased by over 60%. New deposits grew by about 24%—the largest rise across the retail-banking sector. Its market share also rose in the corporate and investment banking sector, and in 2014 it opened the UniCredit International Center—the first facility specifically designed to assist the expansion of enterprises from Italy and other countries into Bulgaria and the rest of the Balkan marketplace.
Levon Hampartzoumian, CEO and chairman
Croatia | Privredna banka Zagreb
The best-capitalized bank in Croatia, PBZ is well placed to handle the country’s challenging economic environment. The bank’s total assets reached nearly €9.5 billion, giving it a market share of more than 17%. PBZ is the country’s second-largest banking group by assets. It has the most extensive branch network in the country, with more than 200 branch offices, but it has also seen consistent growth in Internet banking customers (currently standing at 370,000, with 130,000 mobile-banking users). More than 90% of all its payments now take place through electronic channels. PBZ’s share of the country’s credit card operations exceeds 30%, and together with BNP Paribas Card Insurance it has designed a new product, Card Protect, to provide insurance cover against card loss. Its latest financial result was a net profit of €93 million.
Božo Prka, president
Czech Republic | ČSOB
ČSOB reported growth across all core sectors last year, despite conditions of near market saturation. The loan portfolio increased by 9% to 480 billion Czech korunas ($19 billion), with the main growth coming from mortgages (up 8%), corporate loans (up 12%) and leasing (up 17%). The bank retained its number-one position in the core products of mortgages, savings and loans and mutual funds. Deposits grew by 5% year-on-year to 585 billion korunas, and net interest income also grew despite the low-interest-rate environment. CFO Jiří Vévoda comments that “our net fee and commission income has grown on the back of elevated demand for investments, card transactions and bank insurance.” In particular, ČSOB benefits from a high degree of brand recognition and has a successful loyalty scheme. Net profits were flat year-on-year at 13.6 billion Czech korunas, and the core Tier I ratio was 17.2%.
John Hollows, CEO and chairman
Estonia | Swedbank Estonia
Swedbank’s headline profits for 2014 declined slightly, though this was largely owing to lower net recoveries and a higher deferred tax reserve. On the operating level, income rose thanks to higher business activity, and expenses decreased as a result of efficiency improvements. Deposits increased by 7.3% over the year, with more than half of this growth coming in the final quarter, resulting in a market share of 43.7% at year-end. Net interest income increased by 10.9% as a result of a combination of repricing and higher volumes. Rising usage of bank cards and higher asset management volumes and net inflows all helped achieve a 5.8% increase in commission and fee income, while the Estonian pension funds managed by Swedbank recently became the first in the Baltic States to break through the billion-euro barrier.
Robert Kitt, CEO
Hungary | OTP Bank
More-favorable local economic conditions in 2014, combined with improving confidence, resulted in a pickup in lending activity for OTP. The bank’s adjusted net profit for its core business in Hungary increased by 20% year-on-year to 137.4 billion Hungarian forints ($491 million). However, the regulatory environment remains challenging, and anticipated legal changes and rulings related to foreign-exchange mortgage contracts have required significant one-off write-downs across the sector, negatively impacting OTP’s consolidated bottom line. Costs related to risk mitigation efforts and losses declined by 57% over the year, while the bank’s Tier 1 capital ratio improved to 14.5% at the year’s end. OTP remains the market leader in terms of assets, deposits and loans, and continues to gain share in the corporate segment. It is committed to leading-edge technology, including the first digital wallet in Europe to leverage the API (application programming interface) of MasterPass and the introduction of the first contactless payment cards to Hungary.
Sándor Csányi, CEO
Kosovo | Raiffeisen Bank Kosovo
“2014 was an excellent year for the bank,” says its CEO Robert Wright, pointing to “a record net profit of €15.8 million.” Net interest and fee income improved, as did the bank’s cost/income ratio, nonperforming loans and other performance indicators. Prudent asset and liability management helped the bank maintain the lowest cost of funds in the market. This, in turn, enabled it to offer lower lending rates for certain products. It has a strong focus on customer service and offers market leading features and benefits on a wide range of digital banking services. Major upgrades to customer experience were rewarded by a sharp rise in private individuals’ net promoter score.
Robert Wright, CEO
Latvia | SEB Latvia
With its leading market share in lending, SEB benefited from a slight rise in net interest income and stronger growth in fees and commissions. Credit losses were significantly lower than in 2013, while a lid was kept on the cost base. Stated profits were adversely affected by the currency factors relating to Latvia’s joining the eurozone, resulting in a 7% drop in operating profit. Internet banking is increasingly important as a channel for servicing clients, and SEB is investing significantly to broaden its offer and strengthen security.
Ainărs Ozols, chairman
Lithuania | Šiaulių bankas
The largest Lithuanian-owned bank, with 65% of its share capital in local hands, Šiaulių had a successful year in 2014, with net profits more than tripling to just under 37 million Lithuanian litas ($12.6 million). Net interest income rose by 30%, fee and commission income by 23%, and deposits reached 4.9 billion litas—an overall increase of 8%, with private customer deposits and corporate clients’ funds up by 5% and 25%, respectively. The changeover from the national currency to the euro at the beginning of 2015 went smoothly, and prior to that the bank saw its foreign currency transactions increase by 86%. The planned integration of the Finasta banking business will, according to CEO Vytautas Sinius, “strengthen capital markets services, investment and savings products and private banking, providing a wider range of services and adding value to our clients.”
Vytautas Sinius, CEO
Macedonia | Komercijalna Banka AD Skopje
With the country’s largest branch network, and holding a market share of 16.6% and 21.7% in ATMs and point-of-sale networks respectively, Komercijalna continues to strengthen its position as local market leader. It is currently rolling out plans for upgrading the branch network and has introduced new apps such as mBanka for smartphones. As of the end of 2014 its market share in total assets terms stood at 23.3%. The bank expanded its asset base by 6.8% over the year.
Net profits for 2014 reached nearly 100 million Macedonian denars ($1.7 million), which is a rise of 82 million denars over the previous year.
Hari Kostov, CEO
Moldova | Moldindconbank
Despite a year of uncertainty and macroeconomic risk in Moldova, which saw a depreciation of the national currency and a slowing of exports and remittances, Moldindconbank succeeded in growing net profits by $ 6.2 million—significantly more than any other market participant—and achieved the highest return on both assets and equity employed. The bank actively increased its loan portfolio, offering competitive products to both the corporate sector and private individuals, and registered one of the highest growth rates in terms of retail deposits. Card issuance increased by 21%, the overall number of customers by nearly 15%, and plans are in place to upgrade its technological infrastructure and launch mobile apps for Internet banking.
Leonid Talmaci, chairman of the managing board
Poland | mBank
Established in 1986 and having launched its retail operations in 2000 as a fully Internet-based bank, mBank is now the fourth-largest financial services group in Poland and the largest organically developed retail banking franchise in the CEE. Last year’s profit before tax of $527 million represented a year-on-year increase of 9.6%. Net interest income rose by 11.9% on the back of improved margins, while fees and commissions were nearly 12% higher. Combine that with a best-in-class cost/income ratio of 44.8%, and the bank was able to raise net profits by 7.5%, thereby generating a return on equity of 13.2%—despite taking a cautious line on provisions. The bank continues to focus on the most technologically advanced banking solutions and offers Internet— and mobile-based tools such as its corporate banking platform, mBank CompanyNet—the “light” version of which was introduced last year.
Cezary Stypulkowski, CEO
Romania | Banca Transilvania
Last year Banca Transilvania celebrated its 20th anniversary, and chairman Horia Ciorcilă commented, “Continuing our local investment policy, we decided to embrace new challenges, such as the acquisition of Volksbank România.” Total customer deposits increased by 16.4% over the previous period, while gross profit came in at more than 521 million Romanian leus ($126 million), a 7.6% hike. The bank has continued to streamline its activities and pursue cost control initiatives. These measures, combined with overall business growth, have led to an improvement in the cost/ income ratio by more than 14% over the previous year. Card transactions grew by 16.7%, while the number of active clients increased by 7.4%. Nonperforming loans at under 11% of the credit portfolio are below the country’s average, and as of year-end, NPL coverage stood at more than 126.5%, a figure that has been stable over the past two years.
Omer Tetik, CEO
Russia | Sberbank
Faced with economic contraction, curtailed access to international capital markets, a plunging currency, capital flight and high interest rate volatility, Russia’s biggest bank is experiencing challenging times. With its leading market share in terms of assets, loans and deposits—not to mention having a branch network eleven times larger than that of its nearest competitor—Sberbank accounts for roughly a third of Russia’s banking system. Nonetheless, at the operational level, 2014 was a good year. Net interest income rose by 18.3%, fees and commission by 24%, and operating income was nearly 27%, year-on-year. But the provision charge (against bad loans) almost quadrupled, nearly half of this being added in the final quarter. The set-aside resulted in a 14% decrease in pretax profits to 400 billion rubles ($7.7 billion). Sberbank scored high in approval and net promoter score ratings, and during 2014 it launched on social media a lite version of Sberbank Online, its Internet retail bank, which already has more than 17 million regular users. More recently, however, adverse developments in Russia have been taking their toll, and at the end of February, higher funding costs saw net interest income down by nearly a third year-on-year, while operating costs were up.
German Gref, CEO and chairman
Serbia | Banca Intesa Beograd
An active participant in the government-led lending program aimed at stimulating economic recovery, Banca Intesa is Serbia’s largest bank measured by assets, capital, loans and deposits. The bank achieved a net operating margin of 16.5%—well above the 10.9% of its nearest competitor. Customer deposits increased by 10.9% year-on-year, and it is developing plans to launch the private banking concept in the Serbian marketplace. The country’s first bank to offer HCE (host card emulation) for secure mobile near field communication (NFC) payments, it leads the domestic payment cards market and is the only Serbian bank to offer American Express within its payment card portfolio.
Slovakia | Tatra banka
In a country renowned for coming up with innovative banking technologies and solutions, Tatra banka is clearly the leader of the pack. Its clients can now use their smartphones to make cash withdrawals at ATMs as well as pay for goods and place payment orders through its VIAMO system. It has also pioneered voice biometrics as a means of identity verification for telephone banking, and more recently, it prepared the country’s first banking app for Google Glass. This multichannel strategy encompasses all customer communication channels, from its 143-strong branch network to social media. And that feeds through to a growing business, with loans up 9.3% year-on year and customer deposits up by 4.8%, while net interest and fee income rose by 4.5% and 9.6%, respectively. After strengthened provisioning the bank raised pretax profits by 13.8%.
Igor Vida, CEO and chairman
Slovenia | SKB Banka
Last year’s winner, SKB, a subsidiary of Société Générale, improved its performance despite the still challenging economic situation in Slovenia. Operating profits rose to over €50 million, and net profits were over €35 million, owing to a 90% reduction in the provisions and impairments which had led to the previous year’s loss of over €30 million. At year-end the bank’s core Tier 1 capital adequacy ratio stood at a healthy 16.4%. The new product “saving triple plus,” founded on the concept of greater benefits for longer periods of saving, performed exceptionally well, and SKB regards it as symbolizing its strategy of being “simple, safe, and unique in the market.”
François Turcot, CEO
Turkey | Akbank
Despite challenging market conditions, Akbank has performed strongly by shifting its asset mix towards higher-yielding loans and focusing on capital-light fee- and commission-generating businesses. The bank’s loan-to-assets ratio rose to 62% thanks to its expanding overall lending by 15.4%. Corporate loans increased by 18%, while Akbank’s strong focus on SMEs resulted in 30% more lending to this key market segment. Further investment in IT made possible upgrades in customer interface and the launch of innovative services and smartphone apps, including fingerprint approval of transactions such as money transfers via Akbank Direkt and customers’ being able to withdraw money at ATMs by a single keypad stroke using iBeacon technology. Net interest income grew by 13%, and profit was up by 9.8% to 3.8 billion Turkish lira ($1.5 billion), resulting in a 14% boost to return on equity. Effective risk management kept Akbank’s nonperforming loan ratio at 1.7%, well below the sector average. Improved asset quality, stable funding and relatively low leverage contributed to the bank’s capital strengths. Its 13.8% Tier 1 capital ratio remains significantly stronger than the average for its peer group.
Hakan Binbaşgil, CEO
Ukraine | PrivatBank
Amid the very difficult circumstances faced by Ukrainian banks—especially continuing capital outflows, owing to political uncertainty—market leader PrivatBank has retained its strong position and adjusted its retail strategy, offering flexible interest rates and bonus programs to loyal depositors. With a continued emphasis on improving the quality of its loan portfolio, credit-scoring models were further toughened and assets reduced from $13.6 billion to under $13 billion. With total net profits of $43.6 million for 11 months of 2014, PrivatBank exceeded the total net profit of all other Ukrainian banks combined. It has recently adopted a new patriotic image: “PrivatBank—for those who love Ukraine.”
Olexandr Dubilet, chairman