Johann Strobl, CEO of Raiffeisen Bank International (RBI), talks about the positive results from the bank’s digital and structural transformations.
Global Finance (GF): What have been the main benefits from RBI’s transformation program so far, and what is still to come?
Johann Strobl: The program’s objective was to significantly improve our risk profile and capital position. To that end, we implemented a range of measures. For example, we withdrew from selected markets, such as Asia, the US and Slovenia, as well as from certain business areas, such as car financing, in Russia. This also involved repositioning some of our network banks to minimize the effects of political risk for our bank, above all in Eastern Europe.
Moreover, the merger of our parent institution, Raiffeisen Zentralbank, into RBI has enabled us to reduce the complexity of the group. We not only completed the program more than one year ahead of schedule, but also significantly surpassed our capital targets. As a consequence, the fully loaded CET1 ratio of the former RBI increased from 10% at the end of 2014 to 12.7% for the merged entity at the end of the reporting period. For that reason, we were able to turn our attention to our bank’s profitability in 2017, which evidently had a positive effect on the net profit for the year.
GF: RBI more than doubled its profit in 2017. What were the main drivers?
Strobl: With profit before tax of €1.6 billion [$1.9 billion], 2017 was a very good year for RBI. On the one hand, we stabilized our net interest margin, even in Eastern Europe, despite benchmark rates in the region being cut several times. On the other hand, the decline in risk costs had a positive impact, especially in Eastern Europe. This was attributable to sales of nonperforming loans and a marked decrease in new allocations to provisioning for impairment losses. There was also a positive trend in net fee and commission income, which increased year-on-year by around €120 million.
As a result of these developments, we were profitable in all of our markets. We are confident that economic development in Central and Eastern Europe continues to be good. Our customers share our optimism, and many plan to grow. We support them with financing and consulting services. We are working on many digitization projects, because we see digitization as an opportunity to become more efficient and even more customer friendly.
GF: What is RBI’s approach to digitization and harnessing new technologies?
Strobl: We believe digitization offers interesting opportunities for our business processes. We are exploring these and will systematically exploit them if they have a positive effect on efficiency and customer relationships. The latter in particular is a top priority for us, as a relationship bank that places creating value for its customers at the forefront. We already have a digitization pioneer within the group, namely Tatra banka. Our Slovakian subsidiary is one of the first banks in the region to offer innovative digital solutions such as payments by smartphone without those involved having to exchange their account data. Biometric voice recognition in call centers is another example. We are gradually transferring this know-how to other markets, where a largely young population is generally receptive to such innovations.
Our “Elevator Lab” is a further step toward digitization. This is a program in which we are collaborating closely with fintechs, technologically oriented companies with innovative solutions for the financial services industry. We have also joined R3, another example of our digitization activities. This is an international consortium with more than 160 members working on pilot projects for the commercial use of blockchain applications.