Universally speaking
Massive financing deals are still elusive, while banks rush to open as many branches as possible. With the market in frenzy, CEO and Chairman of universal bank BRD - Groupe Societe Generale Patrick Gelin reveals how to stay steady in the rough waters ahead
Roads, utilities, energy, construction
and rehabilitation:
building up new infrastructure is
the key to the future economic success
of Romania.
But such projects have massive costs,
usually between 100 million and three
billion Euro, and cannot always find
funding with hand-outs from Brussels.
So banks should step in to finance the
Government or private sector to ensure
projects run smoothly.
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“Yes, BRD would be interested in funding large scale infrastructure projects. There are huge opportunities,” says chairman and CEO Patrick Gelin. “But in 2005 nothing really happened. We don’t know yet what will happen yet in 2006.”
Gelin wants to discuss future financing solutions with the parties involved in such projects, but adds: “We must know exactly what type of plan. The solutions exist. The money is here. The problem is the planning and the capacity to manage the project.”
With an economy still dependent on the state sector, the next stage could be Private-Public Partnerships (PPP), where Government or local authorities and private firms join-up to financially assist the public sector. An example of this is a private contractor paying for the work to build a public hospital and then cashing in by renting the building back to the state.
“We should like to have opportunities in the PPP sector because our parent company SocGen has good knowledge and expertise,” says Gelin. “From today the number of opportunities is very limited. I’m not sure the Government will take all the measures for this type of financing in 2006.”
Banca Romana pentru Dezvoltare (BRD), which Societe Generale bought in 1999, still sees opportunities in privatisation as well as co-financing large deals.
But as the local consumer society emerged, BRD has pioneered consumer loans in Romania, where it holds a market share of around 20 per cent and is still in a rapid branch opening drive.
Patrick Gelin has worked for Societe Generale for over 35 years. In 1998 he helped lead Societe Generale’s operations in Britain when the bank’s private banking division bought out UK-based Hambros Bank. In 2001, he arrived in Romania, amid the digestion of localbased BRD into the French giant.
Now there is a tougher rival on the scene. Currently the banking sector is one of the most advanced sectors of the Romanian economy. Strong in competition, it still lacks the maturity of the new states that joined the European Union in 2004, especially as almost a third of the market was in the hands of state bank Banca Comerciala Romana (BCR).
Bought from the state by Austrian Erste Bank for 2.2 billion Euro last
December, market leader BCR should now bring a new level of competition to the local market. From his experience of acquisitions, Gelin advises Erste: “You have to have about two years to reorganise the structure… You need to have a good plan in the medium term.”
As the Black Sea and Balkan nations develop, so do opportunities for banks to grow regional operations. Present in Ukraine and Romania, Raiffeisen Bank has followed BCR into the Republic of Moldova in setting up a representative office. These are the two largest local rivals to Gelin’s bank. Meanwhile BRD - Groupe Societe Generale and its French owner do not deny cooperating for a potential move over the River Prut.
“It’s under examination by BRD,” says Gelin. “No decision has been taken so far.”
Plastic fantastic
Credit card companies are now asking
the banking system to switch their customers
to chip-and-pin format of credit
and debit cards, because this reduces
the chances of fraud and harmonises the
trading system in Europe.
The ‘EMV’ or ‘Smartcard’ option is
yet to come to Romania. Gelin says it “should be implemented” before 2007 in
the bank.
But Romania has not yet switched on
to plastic.
Banks have issued millions of cards,
but only 70 per
cent of those have
been swiped at
some point in the
last three months.
“Even if there
are a lot of cards,”
Gelin says, “they are not utilised. This is
still a cash economy.”
There are exceptions, such as some
hotels and restaurants, but he says in
Carrefour, for example, only around
ten per cent of sales are made using
cards, compared to around 40 per cent
in France.
A card economy is the next stage on
the path to a virtual bank account. But
due to the slowness of this usage, it
seems Internet banking is not a priority.
“E-banking at the moment is marginal,”
says Gelin, “and will stay marginal
for a while.”
Branches remain the best place to attract
business.
Crowded market
From the 35 banks in Romania, around
20 are trying to build up a strong retail
presence nationwide. High streets in
major towns over 300,000 inhabitants
are now packed with the
logos of local financial
brands.
Though it increases
awareness, this is a
costly luxury: bricksand-
mortar units require
a sophisticated IT structure with back-up
and maintenance, trained sales staff, visible,
high-street or mall-located space in
expensive parts of town. ING and Banca
Transilvania have expanded rapidly in
the last two years, while BRD Groupe
Societe Generale has also boosted its
network to over 300. Asked whether
this will grow to 400 by the end of the
year, Gelin would not commit himself. “We don’t open branches just to have the
pleasure to give a big figure,” he says.
Mergers and acquisitions are next.
Unicredito has taken over HVB and
the latter bank has bought local-based
Banca Tiriac. “Yes, there will probably
be a consolidation of the system,” says
Gelin. Taking the experience of the west
as a model, he says that in individual new
European countries, the retail market
will be dominated by five or six banks.
“There are too many banks competing
for the retail market,” he says.
Some banks, such
as those who lost
in the recent sale of
BCR, are still interested
in taking
on Romania but, in
retail, Gelin says setting
up a greenfield bank would be “very
difficult”.
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“But there we have a lot of banks for a market that is very narrow,” he adds. “There are only around 100 multinationals. We need four, five or six banks not ten or 15 banks, there is not the space for that.”
To remain competitive, some of the 35 banks will either have to withdraw from the market or go into niche offerings, or private banking.
Banca Transilvania has denied it is for sale. But, as the largest and most dynamic Romanian-owned bank, it could be an option. “If and when Banca Transilvania is sold, there will be a lot of interest from investors and foreign investors,” Gelin adds.
When the Government put on sale savings bank CEC, Societe Generale initially pitched into the battle, but pulled out. Now the bank is back on the shelf with the Government mulling the opportunity of selling it in two or three years, especially if it can hold out for a better price. If CEC is not sold, Gelin says the Government has to take measures to reorganise the company.
“It would be very difficult to develop with the strong competition,” he says, “and should be sold eventually.”
So would SocGen be interested in the future in purchasing either Banca Transilvania or CEC?
Gelin does not rule this out.
“We are interested in principle,” he says “but after that we have to know what we are buying.”