Growth strategies in retail banking Study - Roland Berger
Growth strategies in retail banking Study - Roland Berger
Growth strategies in retail banking Study - Roland Berger
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
LJUBLJANA<br />
BELGRADE<br />
PRAGUE<br />
TALLINN<br />
RIGA<br />
VILNIUS<br />
WARSAW<br />
BRATISLAVA<br />
BUDAPEST<br />
ZAGREB<br />
BUCHAREST<br />
SOFIA<br />
<strong>Growth</strong> <strong>strategies</strong> <strong>in</strong> <strong>retail</strong> bank<strong>in</strong>g<br />
<strong>Study</strong><br />
Zagreb, June 27 th , 2006<br />
VIE-1789-90000-017-415<br />
1
Contents Page<br />
A. Development of CEE bank<strong>in</strong>g market 3<br />
B. Successful <strong>retail</strong> bus<strong>in</strong>ess models 12<br />
C. Potential development of the Croatian <strong>retail</strong> bank<strong>in</strong>g 32<br />
This document was created for the exclusive use of our clients. It is not complete unless supported by the underly<strong>in</strong>g detailed analyses and oral presentation. It must not<br />
be passed on to third parties except with the explicit prior consent of <strong>Roland</strong> <strong>Berger</strong> Strategy Consultants.<br />
VIE-1789-90000-017-415<br />
2
LJUBLJANA<br />
PRAGUE<br />
BELGRAD<br />
TALLINN<br />
RIGA<br />
VILNIUS<br />
WARSAW<br />
BRATISLAVA<br />
BUDAPEST<br />
ZAGREB<br />
ZAGREB<br />
BUCHAREST<br />
SOFIA<br />
A. Development of CEE bank<strong>in</strong>g markets<br />
VIE-1789-90000-017-415<br />
3
The CEE bank<strong>in</strong>g market has experienced three<br />
dist<strong>in</strong>ct phases<br />
Banks<br />
Customers<br />
Foundation 1990-1995<br />
Countries start build<strong>in</strong>g full<br />
function<strong>in</strong>g bank<strong>in</strong>g sector<br />
Foreign <strong>in</strong>vestors start<br />
enter<strong>in</strong>g the market<br />
Market focus on corporate<br />
bank<strong>in</strong>g<br />
Consumer bank<strong>in</strong>g market<br />
still immature<br />
Privatization 1995-2000 Consolidation 2001-...<br />
Privatization of state<br />
owned banks<br />
Foreign banks start buy<strong>in</strong>g<br />
local banks<br />
Bankruptcy of some new<br />
local banks<br />
Competition <strong>in</strong> corporate<br />
bank<strong>in</strong>g <strong>in</strong>creases<br />
Retail bank<strong>in</strong>g market<br />
develops<br />
Competition heats up, especially from<br />
foreign players<br />
Markets are "underbanked" <strong>in</strong><br />
capitalization and product penetration<br />
International banks start to review<br />
their CEE strategy<br />
Corporate bank<strong>in</strong>g market becomes<br />
mature<br />
SME market segment starts fast<br />
development<br />
Huge potential perceived <strong>in</strong> <strong>retail</strong><br />
lend<strong>in</strong>g market and <strong>in</strong>vestment fund<br />
bus<strong>in</strong>ess<br />
Phase 1 Phase 2 Phase 3<br />
VIE-1789-90000-017-415<br />
4
Bank privatization is almost complete <strong>in</strong> CEE<br />
% bank<strong>in</strong>g assets controlled<br />
by the state, 2005<br />
23.9%<br />
SE<br />
21.0%<br />
19.1%<br />
PL SL RO<br />
5.0% 4.5%<br />
3.1%<br />
2.0% 1.8%<br />
0.0%<br />
CZ<br />
HR<br />
BG<br />
SK<br />
Comments<br />
Source: Central banks, ECB, Raiffeisen Research "CEE Bank<strong>in</strong>g sector report, 2005<br />
HU<br />
Poland: The state reduced its majority stake <strong>in</strong> PKO<br />
through a public offer<strong>in</strong>g <strong>in</strong> 2004; sold stake <strong>in</strong> BGZ to<br />
Rabobank and EBRD<br />
Serbia: Privatization took off <strong>in</strong> 2005, 4 small banks<br />
privatized d<strong>in</strong> 2004/ 2005, Vojvodjanska (#4) up for sale<br />
Bulgaria: Privatization complete <strong>in</strong> 2003<br />
Romania: CEC privatization ongo<strong>in</strong>g, BCR completed<br />
Croatia: Croatia Banka and HPB - Postanska Banka<br />
Notes: Updated to reflect BCR’s privatization <strong>in</strong> 2005: A stake of 62% of BCR was sold to ERSTE Bank<br />
VIE-1789-90000-017-415<br />
5
Four groups of regionally-diversified CEE banks<br />
can be dist<strong>in</strong>guished<br />
1<br />
3<br />
Local champions<br />
OTP<br />
PKO BP<br />
Strong presence <strong>in</strong><br />
selected markets<br />
KBC<br />
Erste Bank<br />
Banca Intesa<br />
ING<br />
= Asset share foreign banks,<br />
as of end 2004<br />
ERSTE<br />
KBC<br />
SocGen<br />
BA CA<br />
KBC<br />
SocGen<br />
BA CA<br />
Overview foreign players<br />
94%<br />
UniCredito<br />
BA CA<br />
Citibank<br />
ING<br />
PL<br />
CZ SK<br />
68%<br />
97%<br />
80%<br />
36% HU RO<br />
SV HR 91%<br />
UniCredito<br />
Banca Intesa<br />
Raiffeisen<br />
89%<br />
Foreign banks with market share of 77 % <strong>in</strong> CEE countries!<br />
Banca Intesa<br />
ERSTE<br />
Raiffeisen<br />
BG<br />
75%<br />
Banca Intesa<br />
Bayern LB<br />
ERSTE<br />
KBC<br />
ERSTE<br />
Raiffeisen<br />
SocGen<br />
ABN<br />
Amro<br />
2<br />
4<br />
Comprehensive<br />
regional players<br />
UniCredito/ BA CA<br />
Raiffeisen<br />
Societe Generale<br />
Citibank<br />
Volksbank<br />
Specialists and<br />
opportunistic<br />
players<br />
Allied Irish Bank<br />
BCP Millenium<br />
Fortis<br />
Credit Lyonnais<br />
ABN Amro<br />
BNPParibas<br />
VIE-1789-90000-017-415<br />
6
A second wave of M&A activities is expected as<br />
smaller foreign banks will review their CEE strategy<br />
Banks<br />
1)<br />
2)<br />
Countries<br />
2005<br />
9<br />
7<br />
5<br />
7<br />
1<br />
2<br />
1<br />
1<br />
Total Assets<br />
<strong>in</strong> CEE, 2004<br />
[EUR m]<br />
15,600<br />
4,100<br />
5,500<br />
16,500<br />
6,500<br />
5,300<br />
5,100<br />
1,600<br />
Notes: 1) Focus Poland/only small subsidiaries <strong>in</strong> other countries 2) 2 as of 2005 (HU and BG)<br />
Foreign players of small size/ with limited<br />
presence review their CEE bank<strong>in</strong>g strategy,<br />
might consider exit<br />
Second wave M&A activities expected/<br />
already happen<strong>in</strong>g (e.g. OTP’s appetite for<br />
more CEE assets, divestments by Unicredit<br />
<strong>in</strong> Croatia)<br />
Consolidation with<strong>in</strong> foreign bank<strong>in</strong>g players<br />
expected<br />
Opportunities for "late entrants" or further<br />
consolidation of the bank<strong>in</strong>g sector<br />
VIE-1789-90000-017-415<br />
7
CEE markets are attractive because they are<br />
underbanked compared to the EU<br />
Bank<strong>in</strong>g assets<br />
% GDP, 2005<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
EURO zone<br />
75.913 EUR<br />
SV<br />
14.658 EUR<br />
CZ HU<br />
PL<br />
Croatia: level of f<strong>in</strong>ancial <strong>in</strong>termediation<br />
highest <strong>in</strong> CEE<br />
Despite restrictive measures by the central<br />
bank, cont<strong>in</strong>u<strong>in</strong>g to grow powerfully<br />
Level <strong>in</strong> Croatia still beh<strong>in</strong>d Euro zone,<br />
leav<strong>in</strong>g room for future expansion<br />
Croatia<br />
8.030 EUR<br />
0 5 10 15 20 25 40 30<br />
Notes: 1) 2002-2005 CAGR for bank<strong>in</strong>g assets; The size of the bubble represents the bank<strong>in</strong>g assets/capita<br />
Source: <strong>Roland</strong> <strong>Berger</strong> Strategy Consultants, BA-CA CEE Report, ECB, Eurostat, Central banks<br />
SK<br />
BG<br />
RO<br />
CAGR 1) %<br />
VIE-1789-90000-017-415<br />
8
Croatia is the lead<strong>in</strong>g CEE country on <strong>retail</strong> lend<strong>in</strong>g<br />
– Even more than on <strong>retail</strong> deposits<br />
Retail lend<strong>in</strong>g as % of GDP Retail deposits as % of GDP<br />
4.4<br />
15.3<br />
10.0<br />
4.5<br />
2.1<br />
0.5<br />
18.2<br />
10.9<br />
5.9<br />
5.0<br />
2.8<br />
0.7<br />
24.0<br />
12.4<br />
8.8<br />
6.5<br />
3.7<br />
1.4<br />
28.5<br />
12.6<br />
12.5<br />
8.3<br />
3.8<br />
6.2<br />
31.5<br />
14.9<br />
9.9<br />
4.6<br />
13.1<br />
10.4<br />
37.8<br />
16.5<br />
12.0<br />
2000 2001 2002 2003 2004 2005<br />
52.6% EU 12 54.4% EU 12<br />
7.7<br />
1)<br />
15.9<br />
14.0<br />
HR<br />
BG<br />
HU<br />
PL<br />
CZ<br />
RO<br />
Notes: For EU 12, <strong>retail</strong> lend<strong>in</strong>g and deposits <strong>in</strong>clude non profit <strong>in</strong>stitutions serv<strong>in</strong>g households<br />
Source: ECB Monthly Bullet<strong>in</strong>, CEE Bank<strong>in</strong>g Sector Report 2005 by RZB Group,<br />
1) Data for 2005 estimated – CAGR 20%<br />
CEE Household Credit report by Unicredit<br />
VIE-1789-90000-017-415<br />
31.3<br />
27.8<br />
13.4<br />
36.6<br />
24.4<br />
9.8<br />
43.8<br />
37.5<br />
29.5<br />
24.9<br />
17.0<br />
10.6<br />
41.1<br />
41.9<br />
42.8<br />
35.8 35.2 35.1<br />
30.1<br />
23.9<br />
17.6<br />
10.5<br />
26.1<br />
24.7<br />
19.9<br />
10.1<br />
25.4<br />
23.7<br />
23.2<br />
10.2<br />
44.0<br />
38.2<br />
27.8<br />
22.9<br />
10.9<br />
2000 2001 2002 2003 2004 2005<br />
1)<br />
25.9<br />
HR<br />
CZ<br />
BG<br />
HU<br />
PL<br />
RO<br />
9
Low mortgage penetration will drive growth <strong>in</strong> <strong>retail</strong><br />
lend<strong>in</strong>g, probably more than consumer f<strong>in</strong>ance<br />
Mortgage lend<strong>in</strong>g as % GDP [%] 2005 Consumer lend<strong>in</strong>g as % GDP [%] 2005<br />
EU 12<br />
HR 1)<br />
HU<br />
CZ<br />
PL<br />
RO 2.0<br />
5.3<br />
BG 4.6<br />
11.0<br />
9.5<br />
8.6<br />
36.6<br />
CAGR 2)<br />
10%<br />
18%<br />
66%<br />
50%<br />
26%<br />
124%<br />
98%<br />
EU 12<br />
Notes: For EU 12, <strong>retail</strong> lend<strong>in</strong>g <strong>in</strong>cludes non profit <strong>in</strong>stitutions serv<strong>in</strong>g households 1) Data for 2005 estimated 2) CAGR 2000-2005<br />
HR 1)<br />
Source: Bank<strong>in</strong>g structures CEE (ECB), ECB Monthly Bullet<strong>in</strong>, CEE Bank<strong>in</strong>g Report 2005<br />
BG<br />
PL<br />
HU<br />
RO 5.8<br />
7.4<br />
CZ 6.2<br />
9.5<br />
11.2<br />
16.0<br />
24.0<br />
CAGR 2)<br />
4%<br />
25%<br />
65%<br />
10%<br />
32%<br />
33%<br />
102%<br />
VIE-1789-90000-017-415<br />
10
Shr<strong>in</strong>k<strong>in</strong>g marg<strong>in</strong>s will force banks to <strong>in</strong>crease<br />
operational efficiency – Croatian banks already <strong>in</strong><br />
good shape<br />
Average <strong>in</strong>terest spread Cost-Income Ratio, [%]<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
20,6%<br />
12,7%<br />
7,6%<br />
7,2%<br />
17,2% 16,1%<br />
11,1% 11,0%<br />
8,8%<br />
6,6%<br />
7,7%<br />
7,3%<br />
14,7%<br />
13,7%<br />
9,1% 9,2%<br />
11,5%<br />
8.0%<br />
7,0% HR<br />
7.6%<br />
6.4% BG<br />
6,7% 6,6%<br />
5,9% PL<br />
2000 2001 2002 2003 2004 2005<br />
Notes: 1) Calculated for top 10 banks<br />
Source: National Banks, WOOD Company CEE Banks-" Manag<strong>in</strong>g South East"<br />
RO<br />
62.8%<br />
RO 1)<br />
61.0%<br />
58.9%<br />
56.7%<br />
PL SK BG<br />
53.3%<br />
HR<br />
50.5%<br />
HU<br />
46.3%<br />
CU<br />
45-50%<br />
EU best<br />
practice<br />
VIE-1789-90000-017-415<br />
11
B. Successful <strong>retail</strong> bank<strong>in</strong>g bus<strong>in</strong>ess models<br />
VIE-1789-90000-017-415<br />
12
CEE bank<strong>in</strong>g markets are sell<strong>in</strong>g markets, with a<br />
focus on expansion and less on cost management<br />
Key success factors<br />
1<br />
Strategy<br />
Position<strong>in</strong>g: Universal or<br />
niche bank?<br />
2 Distribution<br />
Alternative channels<br />
Network optimization and<br />
expansion<br />
3 Market<strong>in</strong>g & Sales<br />
effectiveness<br />
Market<strong>in</strong>g/ Communication<br />
Cross Sell<strong>in</strong>g<br />
Sales empowerment<br />
VIE-1789-90000-017-415<br />
13
Staff, strategy, market<strong>in</strong>g & sales, distribution are<br />
seen as key success factors <strong>in</strong> CEE<br />
Top success factors <strong>in</strong> CEE bank<strong>in</strong>g<br />
Staff<br />
Strategy<br />
Market<strong>in</strong>g & Sales<br />
Distribution network<br />
Speed/Time to market<br />
Pragmatism<br />
Customer base<br />
Risk management<br />
Front office processes<br />
Back office processes<br />
Cost management<br />
Products<br />
Internal organization<br />
IT<br />
8%<br />
8%<br />
12%<br />
19%<br />
19%<br />
25%<br />
25%<br />
25%<br />
31%<br />
38%<br />
50%<br />
58%<br />
58%<br />
Source: "Key factors for success of banks <strong>in</strong> CEE" by EFMA and zeb/<br />
77%<br />
Comments<br />
Staff: management talent is scarce<br />
Strategy: universal bank or niche<br />
bank<br />
Market<strong>in</strong>g & Sales: transform<br />
branch staff from adm<strong>in</strong>istrators<br />
<strong>in</strong>to sales-driven, customer oriented<br />
Distribution:<br />
– Usage of alternative channels is<br />
high <strong>in</strong> CEE<br />
– Modern trends regard<strong>in</strong>g branch<br />
locations: malls, supermarkets<br />
– Invest <strong>in</strong> branch expansion to<br />
close gap with EU <strong>in</strong> terms of<br />
branch density<br />
VIE-1789-90000-017-415<br />
14
STRATEGY<br />
Most banks offer universal services, but specialist<br />
and niche players have also proven successful…<br />
Market Position<strong>in</strong>g– CEE examples<br />
Broad<br />
Product<br />
portfolio<br />
Narrow<br />
Focused player Universal<br />
C D<br />
A B<br />
Niche player Product Specialist<br />
Narrow Distribution channel/segment Broad<br />
Comments<br />
A Niche player, with focus on few<br />
products and/or distribution<br />
channels with competitive advantage<br />
B Product specialist, with focus on<br />
few products, but extensive,<br />
<strong>in</strong>novative distribution channels<br />
C Focused player, on distribution<br />
channel/client segments with broad<br />
product portfolio<br />
D Universal bank, with a wide range<br />
of products and distribution channels<br />
VIE-1789-90000-017-415<br />
15
STRATEGY<br />
…which are sometimes <strong>in</strong>terim stages on the<br />
development path to become a universal <strong>retail</strong> bank<br />
Examples of implementation <strong>strategies</strong><br />
Broad<br />
Product<br />
portfolio<br />
Narrow<br />
Focused player Universal<br />
Niche player Product Specialist<br />
Narrow Distribution channel/segment Broad<br />
Implementation <strong>strategies</strong><br />
2003: Offer basic account, loan an<br />
deposit through m<strong>in</strong>i branches –<br />
high market<strong>in</strong>g cost for brand<strong>in</strong>g<br />
2004: Offer mortgage loan products of<br />
other banks (3rd party provider)<br />
2005: Develop <strong>in</strong>ternet offer, credit cards<br />
Step 1: Consumer f<strong>in</strong>ance through POS<br />
Step 2: Usage of <strong>in</strong>termediaries<br />
Step 3: Own sales units/branches, offer<br />
deposits, enter micro companies<br />
segment<br />
VIE-1789-90000-017-415<br />
16
STRATEGY EXAMPLE<br />
Lukas bank of Poland focuses on consumer f<strong>in</strong>ance<br />
to build up a large customer base<br />
Product<br />
Installment loans to <strong>in</strong>dividual customers, for<br />
products and services purchase, cash and car<br />
loans, mortgage loan with a free of charge analysis<br />
of a loan application with<strong>in</strong> short period<br />
Target: mass clients, high number of clients over 50<br />
years – low risk group as far as loan repayment is<br />
concerned<br />
Plans to enter the segment of small enterprises<br />
Implementation of a new central IT system<br />
Customer<br />
Distribution<br />
Consumer f<strong>in</strong>ance<br />
(Credit Agricole)<br />
large customer base<br />
Branch location <strong>in</strong> the centers of large and smaller<br />
towns, areas close to shopp<strong>in</strong>g centers and block<br />
of flats settlements<br />
Co-operate with more than 31,000 shops, service<br />
po<strong>in</strong>ts and networks of big department stores<br />
where customers can buy and f<strong>in</strong>ance the goods<br />
Extensive promotional campaigns and high<br />
spend<strong>in</strong>g on market<strong>in</strong>g<br />
Substantial <strong>in</strong>crease of revenue and profitability <strong>in</strong><br />
2004; ROE 73%, net profit EUR 68 m<br />
Results<br />
VIE-1789-90000-017-415<br />
17
STRATEGY EXAMPLE<br />
Provident Polska focuses on the low <strong>in</strong>come<br />
segment and delivers cash loans at home<br />
Product<br />
Cash loan up to 1.250 EUR for max. 1 year, pure<br />
mono-l<strong>in</strong>e<br />
Competitive <strong>in</strong>terest rates, but very high<br />
commissions; high effective <strong>in</strong>terest rates (100-200%)<br />
Fast turnover, high marg<strong>in</strong>, low <strong>in</strong>terest rate risk –<br />
cash loans are small and short term<br />
Target: low <strong>in</strong>come segment<br />
Value proposition: Eas<strong>in</strong>ess of gett<strong>in</strong>g the cash<br />
loan – no bank account, no guarantors, relative fast<br />
(<strong>in</strong> 48 hours), only guarantee is the confirmation<br />
about salaries from last 3 months<br />
Customer<br />
Distribution<br />
Cash loans for the low<br />
<strong>in</strong>come segment<br />
Delivery and collection by representatives at<br />
customers' home<br />
Close contact with client through representatives<br />
Representatives´ commission based on collection<br />
Increas<strong>in</strong>g network of small purely sales offices<br />
(223) <strong>in</strong> the whole country<br />
Alternative approach to credit stand<strong>in</strong>g evaluation,<br />
base for the evaluation is the home of the client<br />
Simple, but effective risk management process<br />
(bad loans: market standard)<br />
Bad loans sold to companies specialized <strong>in</strong> the<br />
collection of receivables<br />
Risk Management<br />
VIE-1789-90000-017-415<br />
18
STRATEGY EXAMPLE<br />
Polish credit unions (SKOKs) are also successful <strong>in</strong><br />
tapp<strong>in</strong>g the lower <strong>in</strong>come segment<br />
Strategy<br />
Implementation<br />
Results<br />
Non-profit associations focus<strong>in</strong>g on simple products targeted to low<br />
<strong>in</strong>come customers (members) and rely<strong>in</strong>g on personal relationships <strong>in</strong> local community<br />
Favorable legal status for credit unions <strong>in</strong> Poland (no capital requirements, no <strong>in</strong>come tax until<br />
end 2006, etc.)<br />
Fast service through decentralized and simple processes<br />
Attractive pric<strong>in</strong>g<br />
Internal stabiliz<strong>in</strong>g fund and guarantee system<br />
New services: <strong>in</strong>vestment funds, life <strong>in</strong>surance, mortgage products<br />
Fast growth and <strong>in</strong>creased profitability <strong>in</strong> recent years<br />
One of the most successful concepts for provid<strong>in</strong>g services <strong>in</strong> sav<strong>in</strong>gs and deposit segment<br />
A new competitor for traditional banks<br />
Assets of SKOK now account for over EUR 1 bn<br />
The number of members grew by 29% annually reach<strong>in</strong>g 1,3 m members at the end of 2005<br />
The number of cash desks and branches at the end of 2005: > 1.500<br />
VIE-1789-90000-017-415<br />
19
STRATEGY EXAMPLE<br />
MultiBank built up its client base as an <strong>in</strong>ternet<br />
bank only – Outlets to support client acquisition<br />
Product<br />
Very <strong>in</strong>novative solution <strong>in</strong> the mortgage loan<br />
offer – mechanism of balanc<strong>in</strong>g the loan amount<br />
with client sav<strong>in</strong>gs with<strong>in</strong> the Multiplan<br />
High product flexibility – no fees required for early<br />
repayment and currency change<br />
Target: middle and affluent segment - clear<br />
separation of VIP clients (Aquarius Club) and small<br />
enterprises<br />
Customer<br />
Distribution<br />
Internet bank with<br />
branches for client<br />
acquisition<br />
Multichannel access to the current account –<br />
<strong>in</strong>ternet, branches (51), telephone bank<strong>in</strong>g, SMS,<br />
WAP<br />
Attractive branch style and equipment give clients<br />
the impression of high service quality and<br />
„closeness" to client<br />
Cooperation with the ma<strong>in</strong> <strong>in</strong>termediaries is<br />
centrally coord<strong>in</strong>ated – the bank cooperates mostly<br />
with big <strong>in</strong>termediaries – Expander, Open F<strong>in</strong>ance<br />
Promotion<br />
VIE-1789-90000-017-415<br />
20
STRATEGY EXAMPLE<br />
GE Money exploits full potential of customer needs<br />
via cross sell<strong>in</strong>g – Professional CRM program<br />
GE Capital Multiservis Czech Republic<br />
Basic Idea Realization by Multiservice<br />
Customer applies<br />
for sales f<strong>in</strong>ance<br />
account at POS<br />
to buy e.g.<br />
wash<strong>in</strong>g mach<strong>in</strong>e<br />
Once acquired<br />
customer gets<br />
"converted"<br />
Cross sell<strong>in</strong>g<br />
Customer life<br />
cycle program<br />
% of open<strong>in</strong>g balance<br />
100%<br />
90%<br />
80%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
1<br />
2<br />
3<br />
Card issued: 4th-6th month<br />
4<br />
x-sell<br />
loans<br />
revolvers<br />
0%<br />
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46<br />
Month on file<br />
1<br />
2<br />
3<br />
4<br />
Drive customer<br />
acquisition by "sales<br />
f<strong>in</strong>ance loan"<br />
products<br />
Drive high conversion<br />
rate by automatic flip<br />
to revolv<strong>in</strong>g credit<br />
Drive revolv<strong>in</strong>g by<br />
strong cash card<br />
access functionality<br />
Drive x-sell and reactivation<br />
by targeted<br />
offers/ products<br />
VIE-1789-90000-017-415<br />
21
Key success factors<br />
1<br />
Strategy<br />
Position<strong>in</strong>g: Universal or<br />
niche bank?<br />
2 Distribution<br />
Alternative channels<br />
Network optimization and<br />
expansion<br />
3 Market<strong>in</strong>g & Sales<br />
effectiveness<br />
Market<strong>in</strong>g/ Communication<br />
Cross Sell<strong>in</strong>g<br />
Sales empowerment<br />
VIE-1789-90000-017-415<br />
22
DISTRIBUTION<br />
Alternative distribution channels offer a faster<br />
payback period with a lower <strong>in</strong>vestment<br />
Products and distribution channels – Assessment CEE<br />
Segments/<br />
products<br />
Investment/<br />
Insurance<br />
Mortgage loans<br />
Car loans<br />
Consumer loans<br />
Credit cards<br />
Deposits<br />
Investment level<br />
Size<br />
Low<br />
<strong>in</strong>vestments<br />
POS 3rd party/<br />
sales agents<br />
Low<br />
<strong>in</strong>vestments<br />
Comb<strong>in</strong>ations are difficult Comb<strong>in</strong>ations are possible<br />
M<strong>in</strong>i offices/<br />
sales outlets<br />
Medium<br />
<strong>in</strong>vestments<br />
Direct access<br />
Large <strong>in</strong>itial<br />
<strong>in</strong>vestments<br />
Standard<br />
branches<br />
Large<br />
<strong>in</strong>vestments<br />
VIE-1789-90000-017-415<br />
23
DISTRIBUTION<br />
Eurobank has a "Supermarket-Bank<strong>in</strong>g" branch<br />
format – small sales outlets <strong>in</strong> high traffic locations<br />
Example "m<strong>in</strong>i-office" Configuration "m<strong>in</strong>i-office"<br />
Information material<br />
ATM Sales person<br />
Needed space: 8-12 m 2<br />
ATM (about 50% with deposit function)<br />
2 work places with computer network access<br />
Place to provide <strong>in</strong>formation material<br />
Located <strong>in</strong> places with high visitor rate<br />
(supermarkets, shopp<strong>in</strong>g centers …)<br />
High market<strong>in</strong>g support of EUR 15 m (2004)<br />
resulted <strong>in</strong> >300,000 clients <strong>in</strong> 2 years<br />
Investments per "m<strong>in</strong>i-office"<br />
ATM with deposit function USD 15,000<br />
ATM without deposit function about USD<br />
5,000<br />
Other equipment for the office about USD<br />
15,000<br />
VIE-1789-90000-017-415<br />
24
DISTRIBUTION<br />
10% of all mortgage loans <strong>in</strong> the Polish market were<br />
granted by <strong>in</strong>termediation of Expander <strong>in</strong> 2004<br />
Expander: Independent F<strong>in</strong>ancial<br />
Intermediary<br />
Offer covers 90%<br />
mortgage<br />
loans <strong>in</strong> Poland<br />
Cooperation with<br />
20<br />
banks and 70<br />
<strong>in</strong>vestment funds<br />
Value of loans <strong>in</strong><br />
2004 USD 400 m<br />
21 branches<br />
<strong>in</strong> 13 cities;<br />
4 years on the<br />
market<br />
Average loan<br />
USD 40.000<br />
120 f<strong>in</strong>ancial<br />
consultants<br />
Comments<br />
Expander offers a full range of sales services<br />
for deposits, <strong>in</strong>surance and mortgage loans:<br />
<strong>in</strong> 2004 10% of all mortgage loans were<br />
granted by Expander<br />
It started <strong>in</strong> 2000 as an <strong>in</strong>ternet portal as the<br />
only distribution channel, evolv<strong>in</strong>g <strong>in</strong>to a<br />
traditional branch network of 23 outlets <strong>in</strong><br />
2005<br />
Expander was bought by the General Electric<br />
group <strong>in</strong> 2003<br />
Ma<strong>in</strong>ly middle class liv<strong>in</strong>g <strong>in</strong> big cities has<br />
used the services of Expander and its<br />
competitor "Open F<strong>in</strong>ance"; people with<br />
average salary for Poland (about USD 600)<br />
use their services<br />
VIE-1789-90000-017-415<br />
25
DISTRIBUTION<br />
Bank BPH is us<strong>in</strong>g franchis<strong>in</strong>g to expand its branch<br />
network <strong>in</strong> suburbs and small towns<br />
Outlets and<br />
development<br />
Product<br />
offer<br />
100 outlets ma<strong>in</strong>ly <strong>in</strong> three Voievodships (out of 16)<br />
Bank <strong>in</strong>tends to ga<strong>in</strong> <strong>in</strong> this way a closer access to the clients <strong>in</strong> the areas where the<br />
bank does not have its own branch network<br />
350 new outlets by the end of 2005, total number of 600 outlets by 2006<br />
90% of all <strong>retail</strong> products (sav<strong>in</strong>gs account, term deposits, credit cards, (cash) loans)<br />
Servic<strong>in</strong>g small bus<strong>in</strong>ess beg<strong>in</strong>n<strong>in</strong>g of 2006<br />
Organization Partner <strong>in</strong>curs all the <strong>in</strong>vestment costs connected to sett<strong>in</strong>g up the branch<br />
Partner employs staff and sets the level of salary<br />
Bank offers the tra<strong>in</strong><strong>in</strong>g for the partners open<strong>in</strong>g the outlets<br />
Break-even po<strong>in</strong>t reached as soon as after 3-6 months<br />
Partner receives part of the transaction fees generated by the branch<br />
Preferred locations: suburbs, large settlements of block of flats, shopp<strong>in</strong>g centers and<br />
centers of small towns<br />
All operations are carried out on-l<strong>in</strong>e and booked directly <strong>in</strong>to the system of the Bank<br />
VIE-1789-90000-017-415<br />
26
DISTRIBUTION<br />
PKO BP, the large sav<strong>in</strong>gs bank <strong>in</strong>creases access<br />
by the set up of agencies po<strong>in</strong>t of sale<br />
Outlets and<br />
development<br />
Product<br />
offer<br />
Organization<br />
Two types of agencies: so called ‘old’ type agencies – located <strong>in</strong> production plants<br />
and ‘new’ type agencies accessible to all customers: approx. 3,000 agencies<br />
Established ma<strong>in</strong>ly <strong>in</strong> small towns where PKO BP does not have their own branches<br />
and bigger cities <strong>in</strong> block of flat areas<br />
PKO BP plans to <strong>in</strong>crease the number of products and services available trough<br />
the agency (next to cash handl<strong>in</strong>g, open<strong>in</strong>g accounts, loan applications, etc.)<br />
Agencies realize around 20% of all cash operations with<strong>in</strong> the bank, 7% of sav<strong>in</strong>g<br />
accounts, <strong>in</strong>termediation <strong>in</strong> loan sale – 20,000 loans <strong>in</strong> value of EUR 70 m p.a. (2004)<br />
Agency functions <strong>in</strong> the name of and on behalf of the bank PKO BP<br />
A person <strong>in</strong>terested <strong>in</strong> open<strong>in</strong>g the agency has to be an entrepreneur (run a bus<strong>in</strong>ess)<br />
Decision concern<strong>in</strong>g sett<strong>in</strong>g up the agency is taken by the director of the<br />
regional <strong>retail</strong> department<br />
Agent must provide space for 1 cash teller, space for servic<strong>in</strong>g client with adequate<br />
safety measures (around 30 m 2 with 2 employees), and has to rent a POS term<strong>in</strong>al<br />
The average <strong>in</strong>vestment <strong>in</strong> the outlet amounts to ca. PLN 10,000<br />
PKO BP provides the agent with software, bank’s logo (free of charge), basic tra<strong>in</strong><strong>in</strong>g<br />
Agency cannot employ anyone without the bank’ s acceptance<br />
VIE-1789-90000-017-415<br />
27
Key success factors<br />
1<br />
Strategy<br />
Position<strong>in</strong>g: Universal or<br />
niche bank?<br />
2 Distribution<br />
Alternative channels<br />
Network optimization and<br />
expansion<br />
3 Market<strong>in</strong>g & Sales<br />
effectiveness<br />
Market<strong>in</strong>g/ Communication<br />
Cross Sell<strong>in</strong>g<br />
Sales empowerment<br />
VIE-1789-90000-017-415<br />
28
MARKETING AND SALES EFFECTIVENESS<br />
Lessons learned from Spanish banks: Market<strong>in</strong>g<br />
expenditure is l<strong>in</strong>ked to sales success<br />
Share of advertis<strong>in</strong>g and communication costs to<br />
all non-personnel costs [<strong>in</strong> %] 1)<br />
Average CIR<br />
<strong>retail</strong> segment<br />
Premises costs<br />
100 100<br />
17-23<br />
IT costs 16-26<br />
Advertis<strong>in</strong>g/<br />
Communication<br />
45% 76% 78% >80%<br />
...<br />
18-21<br />
Spanish<br />
banks<br />
20-31<br />
19-29<br />
6-10<br />
German<br />
banks<br />
Notes: 1) Sample of selected Spanish and German big banks, 2004<br />
...<br />
100<br />
25-33<br />
10-15<br />
...<br />
Polish<br />
banks<br />
100<br />
15-20<br />
8-12<br />
...<br />
1-4 10-15<br />
Croatian<br />
banks<br />
Comments<br />
Spanish banks have a high<br />
share of market<strong>in</strong>g and<br />
communication costs<br />
Effective <strong>in</strong>crease <strong>in</strong> brand<br />
recognition and sales<br />
(Product campaigns, special<br />
offers for target groups, etc.)<br />
Increase <strong>in</strong> market<strong>in</strong>g and<br />
advertis<strong>in</strong>g costs <strong>in</strong> the last<br />
few years (e.g. Santander<br />
+8% s<strong>in</strong>ce 2002) at the<br />
same time decrease <strong>in</strong><br />
other non-personnel cost<br />
(e.g. Santander -9% s<strong>in</strong>ce<br />
2002)<br />
VIE-1789-90000-017-415<br />
29
MARKETING AND SALES EFFECTIVENESS<br />
Cross-sell<strong>in</strong>g ratio is another important measure of<br />
sales effectiveness<br />
Cross-Sell<strong>in</strong>g Ratios of selected Spanish banks, 2004<br />
[<strong>retail</strong> segment] 1)<br />
3.3<br />
Banco<br />
Popular<br />
3.4 2)<br />
3.7<br />
3.9 2)<br />
Banesto Santander Banco BBVA<br />
Sabadell<br />
Notes: 1) Analyzed products: current account, deposits, mortgage loans,<br />
credit cards, consumer loans, <strong>in</strong>vestment funds, <strong>in</strong>surance etc. 2) 2002<br />
Source: Annual reports; Salomon Smith Barney<br />
4.5<br />
6.3<br />
Bank<strong>in</strong>ter<br />
Average of<br />
Croatian<br />
banks: < 2.5<br />
Comments<br />
Mortgage loans as anchor<br />
products for cross sell<strong>in</strong>g<br />
Example: Santander<br />
customers with mortgage<br />
loans have six products <strong>in</strong><br />
average<br />
Bank<strong>in</strong>ter value proposition:<br />
"Most <strong>in</strong>novative,<br />
highest quality, multichannel<br />
convenience,<br />
personalized services"<br />
based on anchor product<br />
mortgage loans<br />
Usage and development of<br />
sophisticated CRM-Tools<br />
VIE-1789-90000-017-415<br />
30
MARKETING AND SALES EFFECTIVENESS<br />
Variable remuneration for sales employees is a<br />
significant lever to support sales culture<br />
Variable remuneration for sales employees –<br />
EXAMPLES [%] 1)<br />
15-45<br />
Spanish<br />
banks<br />
Variable Fixed<br />
Notes:1) Example of selected Spanish, Polish and German banks (<strong>retail</strong> segment)<br />
2) Very few Polish banks have variable part up to 50% values only for full time employees<br />
Source: Company's <strong>in</strong>formation<br />
10-30<br />
Polish<br />
banks 2)<br />
5-15<br />
German<br />
banks<br />
15-25<br />
Croatian<br />
banks<br />
Comments<br />
Variable remuneration share<br />
for sales staff at Spanish<br />
banks is high (up to 45%) –<br />
significant driver of sales<br />
culture<br />
Example Santander<br />
– Collective targets (for<br />
example market share <strong>in</strong><br />
target customer groups)<br />
– Individual targets<br />
(dependent on specific<br />
employee profile)<br />
– Customer satisfaction/service<br />
(based on<br />
customer surveys every<br />
six months)<br />
VIE-1789-90000-017-415<br />
31
LJUBLJANA<br />
PRAGUE<br />
BELGRAD<br />
TALLINN<br />
RIGA<br />
VILNIUS<br />
WARSAW<br />
BRATISLAVA<br />
BUDAPEST<br />
ZAGREB<br />
ZAGREB<br />
BUCHAREST<br />
SOFIA<br />
C. Potential development of Croatian <strong>retail</strong><br />
bank<strong>in</strong>g<br />
VIE-1789-90000-017-415<br />
32
<strong>Growth</strong> <strong>in</strong> <strong>retail</strong> lend<strong>in</strong>g is expected to slow down,<br />
driven more by mortgage than consumer lend<strong>in</strong>g<br />
Outstand<strong>in</strong>g <strong>retail</strong> loans [EUR m]<br />
CAGR<br />
Retail<br />
lend<strong>in</strong>g<br />
% GDP<br />
Mortage<br />
Consumer<br />
24,0%<br />
5,787<br />
1,661<br />
4,126<br />
2002<br />
28,5%<br />
7,190<br />
2,202<br />
4,988<br />
2003<br />
Source: CEE Bank<strong>in</strong>g Sector Report 2005<br />
20% 17%<br />
31,5%<br />
8,533<br />
2,797<br />
5,736<br />
37,8%<br />
11,022<br />
3,543<br />
7,479<br />
2004 2005E<br />
44,2%<br />
12,895<br />
4,145<br />
8,750<br />
2006E<br />
Comments<br />
Mortgage loans account for only 32%<br />
of <strong>retail</strong> loans <strong>in</strong> Croatia, while <strong>in</strong> the<br />
EU the percentage 80%<br />
Consumer f<strong>in</strong>ance boom fueled by<br />
strong demand for durables is<br />
expected to slow down due to<br />
restrictive National Bank measures,<br />
market saturation on certa<strong>in</strong><br />
segments, slow down <strong>in</strong> white goods<br />
demand<br />
VIE-1789-90000-017-415<br />
33
Banks have to f<strong>in</strong>d the right strategic position<strong>in</strong>g;<br />
not everyone can be a universal bank!<br />
Competitive bank<strong>in</strong>g environment<br />
Product<br />
+<br />
–<br />
Croatia<br />
–<br />
Focus Universal<br />
Banka Sonic<br />
Cost Saver/ Niche Product specialist<br />
= Asset size<br />
Splitska Banka<br />
OTP Bank<br />
Auto Banks<br />
Erste Bank<br />
HAAB<br />
Slavonska<br />
Distribution<br />
PB<br />
ZABA<br />
Raiffeisen<br />
Build<strong>in</strong>g societies<br />
Consumer f<strong>in</strong>ance<br />
+<br />
+<br />
Product<br />
–<br />
Eurozone/ Global Retail Bank<strong>in</strong>g<br />
Focus<br />
F<strong>in</strong>ancial<br />
advisors<br />
Self<br />
bank<strong>in</strong>g<br />
Brokers<br />
Mortgage<br />
brokers Niche banks<br />
–<br />
= Asset size<br />
Auto<br />
bank<br />
Universal<br />
Universal banks/<br />
f<strong>in</strong>ancial<br />
supermarket<br />
Private<br />
bank<br />
Mortgage<br />
banks<br />
Niche Product Specialist<br />
+<br />
Distribution<br />
VIE-1789-90000-017-415<br />
34
Branch density is at par with mature CEE bank<strong>in</strong>g<br />
markets<br />
Branch density [# per 100.000 <strong>in</strong>habitants] 1)<br />
H<br />
PL<br />
RO<br />
CZ<br />
HR<br />
UK<br />
FR<br />
IT<br />
DE<br />
ES<br />
11<br />
12<br />
15<br />
16<br />
18<br />
19<br />
44<br />
Notes: 1) Incl. cooperative banks, 2005<br />
52<br />
Source: National Central Banks; Bankscope<br />
58<br />
99<br />
Comments<br />
Low branch density relative to EU<br />
Plans for additional branches<br />
announced for 2006<br />
High potential to improve branch<br />
density and <strong>in</strong>crease revenue BUT<br />
<strong>in</strong>vestment and <strong>in</strong>novative branch<br />
concepts required<br />
VIE-1789-90000-017-415<br />
35
Alternative distribution channels offer a faster<br />
payback period with a lower <strong>in</strong>vestment<br />
Products and distribution channels – Assessment Croatia<br />
Segments/<br />
products<br />
Investment/<br />
Insurance<br />
Mortgage loans<br />
Car loans<br />
Consumer loans<br />
Credit cards<br />
Deposits<br />
Investment level<br />
Size<br />
Low<br />
<strong>in</strong>vestments<br />
POS 3rd party/<br />
sales agents<br />
Low<br />
<strong>in</strong>vestments<br />
Comb<strong>in</strong>ations are difficult Comb<strong>in</strong>ations are possible<br />
M<strong>in</strong>i offices/<br />
sales outlets<br />
Medium<br />
<strong>in</strong>vestments<br />
Direct access<br />
Large <strong>in</strong>itial<br />
<strong>in</strong>vestments<br />
High competition Low competition<br />
Standard<br />
branches<br />
Large<br />
<strong>in</strong>vestments<br />
VIE-1789-90000-017-415<br />
36
Credit cards and mortgages will be <strong>in</strong>creas<strong>in</strong>gly<br />
attractive for <strong>retail</strong> banks<br />
Market segment attractiveness overview<br />
<strong>Growth</strong> potential<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
Grow<strong>in</strong>g Attractiveness<br />
Leas<strong>in</strong>g<br />
Deposits<br />
Consumer lend<strong>in</strong>g<br />
Non-life <strong>in</strong>surance<br />
Corporate lend<strong>in</strong>g<br />
Credit<br />
Cards<br />
Mutual Funds<br />
Life <strong>in</strong>surance<br />
Market<br />
concentration<br />
Notes: Bubble size represents size of the bus<strong>in</strong>ess. Size of the cards bus<strong>in</strong>ess not def<strong>in</strong>ed.<br />
Market concentration measured by HHI (Herf<strong>in</strong>dhahl – Hirschmann) <strong>in</strong>dex from 0 to 1; 0 Represents low market concentration.<br />
Source: BACA, <strong>Roland</strong> <strong>Berger</strong> analysis<br />
Mortgage lend<strong>in</strong>g<br />
Low Medium High<br />
Comments<br />
Some product groups require<br />
more specialist know how such<br />
as <strong>in</strong>vestment products<br />
Credit cards expected to boom<br />
due to co-branded cards, an<br />
<strong>in</strong>creas<strong>in</strong>gly attractive market<strong>in</strong>g<br />
tool for <strong>retail</strong>ers and banks;<br />
smart cards and premium cards<br />
are promis<strong>in</strong>g niche segments<br />
VIE-1789-90000-017-415<br />
37
Levers to grow profitably – cheaper distribution,<br />
product <strong>in</strong>novation, sales effectiveness<br />
1. Choose the right<br />
strategic position<strong>in</strong>g<br />
2. Excellent client<br />
segmentation/focus on<br />
target groups<br />
Position<strong>in</strong>g as a universal bank only if significant market share can be achieved;<br />
otherwise pursue niches<br />
Development of new segments (e.g. low <strong>in</strong>come segment, agribus<strong>in</strong>ess)<br />
Focus on SME client segments<br />
3. Product Innovation Us<strong>in</strong>g one product as an anchor, then cross sell<br />
New <strong>in</strong>novative products (e.g. sav<strong>in</strong>gs+ mortgage loan)<br />
4. Optimize distribution Use alternative distribution channels via third party agents, m<strong>in</strong>i offices<br />
Customize branch format to target clients and location<br />
Periodically reevaluate branch locations<br />
5. Execution Increase of sales efficiency <strong>in</strong> <strong>in</strong>tegrated multi channel concept<br />
Strengthen<strong>in</strong>g of market<strong>in</strong>g/communication<br />
Increase of sales resources and cross sell<strong>in</strong>g leverage of sales channels<br />
Sales focus on performance (Incentives, activity controll<strong>in</strong>g, etc.)<br />
Tight processes; shorten<strong>in</strong>g response time<br />
Risk management<br />
VIE-1789-90000-017-415<br />
38
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants worldwide<br />
Amsterdam Barcelona Beij<strong>in</strong>g Berl<strong>in</strong> Brussels Bucharest Budapest Detroit Düsseldorf Frankfurt<br />
Hamburg Kiev Lisbon London Madrid Manama Milan Moscow Munich New York Paris Prague<br />
Riga Rome São Paulo Shanghai Stuttgart Tokyo Vienna Warsaw Zagreb Zurich<br />
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants d.o.o.<br />
Trg bana JelaSiTa 5<br />
10000 Zagreb<br />
Croatia<br />
VIE-1789-90000-017-415<br />
39