Vol. 2 No.2  

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.

     Chief Executive Officer and, since 2004, Chairman BRD - Groupe Societe Generale Romania
Education: The Institute of Political Studies, Paris, Master’s degree in Law
Previous employment:
1970 Employed with Societe
1986 - 1989 CEO: SG
1989 -1993 Manager of the
Agencies Group in Haut de Seine
1993 -1998 Manager of the
Corporate Agencies in Paris
1998 - 2001 CEO: SG UK, City
of London
2001 - 2004 CEO: BRD -
Groupe Societe Generale
     But due to political infighting in Romania over the last five years there are long delays in commissioning, starting and paying for public works, such as motorways or the rehabilitation of the capital.
     “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”.

Number crunching

     BRD Groupe Societe Generale
Corporate, retail and investment
     Second largest bank in Romania after Banca Comerciala Romana
     Estate: over 300 branches

September 2005 figures:
     Total assets: 5.2 billion Euro
     No of ATM S: more than 500
     No of active clients,
individuals and companies:
almost 1.7 million
     Total volume of credits:
Approx. 2.5 billion Euro (up 38
per cent on the same period 2004)
     Net profit for first nine months of year: Approx. 127 million Euro

     In corporate banking he says it is possible for a new player to enter the market.
     “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.”