Tatrabanka was established in 1990 as a private bank. The first private bank with foreign know-how to become a universal financial bank. Can you give us a brief overview of the main steps that marked the development of Tatrabanka over the past 11 years?
We started in 1990, shortly after the velvet revolution, after the first transformation or modernisation of the legislative environment it was possible to set up the entities one would expect in Western countries. We started as a joint venture with various Slovak financial institutions that at that time were state owned. Hardly any other green field operations started eleven years ago, even in neighbouring countries the foreign investors tried to take over or acquire interests in existing organisations, and those who started from scratch usually stayed in wholesale banking. If you look at the big multinational banks they all stayed in wholesale banking, if they tried to become universal banks, they did it very slowly. So in that respect we are a clear example of a Greenfield operation with a clear objective of becoming a universal bank serving the entire country through a nation-wide network.
One of the most important steps that we made during the last eleven years was to attract first class young Slovaks. We trained them and we were able to develop excellent credit skills and build up a first class credit portfolio with multinationals initially with top class Slovak clients but now more and more with the smaller and medium sized Slovak companies which are very important. Another important factor in our development was the decision to establish strong E-capability and this was important for a number of reasons.
Tatra Bank Head office in Bratislava One, this economy similarly to other economies never completely moved away from the old communist style of banking system towards the chequebook society and to the support of the credit card which you see in other parts of Europe.We really moved from the old cash society into the electronic age. We were able to capitalise on the excellent educational facilities that Slovakia offers. We put together a very strong team which is not only able to handle the electronic payment systems, but also credit cards, dial bank facilities, web sites, interactive electronic channels as well as virtual credit cards.
These are the key developments that we experienced and which we developed by buying the appropriate softwares from abroad. With applications, installation, testing and the actual running of the systems, we adapted to meet local requirements because even the best systems would not help you if it were not all done by Slovaks. Out of 2,500 employees, there are only four expatriates here and it only shows that the Slovaks really run this bank rather than the foreigners.
Did you invest in new technologies from the very beginning or was it a gradual updating of your equipment and services?
It has certainly been a gradual development. Eleven years ago, after the velvet revolution, there was no domestic clearing system in place, it was only implemented afterwards. Ten years ago it was much faster to withdraw X amount of crowns from one bank, put the crowns in your suitcase and go 500 m to the next bank and process it. It was much faster than using the previous clearing system that would have taken some time. But I think that on one side the Central Bank of Slovakia made a very conscious decision to copy the Czech clearing system which was installed in 1991 right after gaining their independence, so we were continually moving towards developing electronic clearing for the country. That of course provided the base for other banks to move much faster in developing electronic products.
Do you believe that you still have a competitive advantage in the electronic area in particular?
We think that in certain areas we continue to have a competitive edge. But it is clear that the new, strong and very important shareholders in the key big banks have financial means and they also have systems developed by their own head offices, which they will implement and install in due course. So we can run electronic processing only efficiently if we have a critical mass. They may have it here, they may have it in other countries, and they may have it as an organisation. So in due course they certainly have quite a number of factors that play in their favour, we just have to make sure that they do not catch us up.
Today you seem to be the most efficient bank since you have recently been elected the best bank of the year by the Slovak Trend magazine. However, today you have 10% of the market in terms of assets, you are supposed to be the third one on the market. What are your expectations in terms of gaining new market shares?
As far as the wholesale corporate banking sector is concerned we are now equal to VUB. VUB's bad loan portfolio was sold to the government's Consolidation Bank and therefore they started more or less with a clean slate. It was transferred earlier this year, the same applied to Sporitelna. Their loan portfolio has been cut by half and their credit portfolio is supposedly clean, most likely it is clean, otherwise foreign investors would not be interested. We believe we have a very strong base in order to stay in the lead together with VUB and some of the other foreign banks. We have an excellent track record as far as servicing top domestic and international clients is concerned and throughout our decentralised regional organisations our regional offices are in the position to service our medium sized clients. That is something that the competition will have a hard time following because we have been working on it for quite some time. We believe we have the right people for these kinds of assignments.
The corporate business is supported by modern electronic processing, the Internet, and through electronic clearing system. We are offering direct access to foreign exchange markets through the Internet system. They can buy and sell foreign exchange electronically, they do not even have to call our dealing room, and even for smaller amounts this is the attraction. If a large company wants to buy 10million USD, they can go through the Internet, get the exchange rate and then do the deal with us. We have certain products that we can offer at competitive prices and at a competitive speed to our corporate clients. The tough competitiveness will continue on the retail side of the business.
On one hand, in the past 10 years the Slovak consumer has not been very well serviced by the banking system. Why? First of all, client purchasing power had made it very difficult for banks to review and accept retail, secondly, the legal environment was not very conducive to retail business. In spite of the housing shortage it took quite some time to define the extension of mortgages, taking into consideration mortgage security and funding. All these instruments are now more or less in place, even though the legal environment could still be improved in a way to make things easier for clients as well as for the banks. Thirdly, during the difficult years, right after independence, we increased the rates of interest and it was expensive for the consumer to borrow money. Interestingly enough, the Slovak consumer has very high potential to save, despite all the hardship and despite high unemployment. At the same time the Slovak consumer is also very conservative. Unlike his foreign counterpart, he will hardly borrow to simply buy a washing machine, consumer good or in order to pay for some vacation. There is quite a number of factors that up till now have prevented banks from doing more business.
Things have now changed. We offer a variety of consumer products, fast servicing of mortgage loans. We started with the mortgage business early this year and we captured more than 35% of the market. It takes a certain amount of time not only to develop and introduce the product but to also train your staff and your sales people, which for such a product is fairly difficult, given regarding the legislative environment. We have further developed Internet services for our consumers and now everybody can make their payments through Internet. We have not only expanded our branch network but also developed the network that basically covers all major shopping centres in this country.
| How many branches do you have today in the country?
We have 90 branches. Our shopping centre branches are usually open seven days a week from 9:00 to 21:00 which for the time being should enable us to continue attracting more clients. To round up the picture, the consumers may want to finance their needs, some of them also have their own savings and for the savings to be invested properly we are offering various investment products. From our very simple certificates for deposits to our full range of investment funded products, which are either managed directly by us here or our parent company.
Is this activity related to Tatra Asset Management?
Tatra Asset Management, is our asset manager, they manage these funds. They actually only manage the crown portion, the foreign exchange portion is managed by our brand company, the investment company and asset management company, which is something you see in all industry. You cannot have enough experts here who know how to invest in the US.
Do you see a growing interest from the public in collective investment?
We have to look at the distribution of income. We clearly have the best potential. You have many Slovaks working abroad. The purchasing power is much higher there and unemployment is much lower. That is clearly reflected in the per capita income but also in costs. But the flats here for example are more expensive than the flats in Kosice, probably twice as much. In the east the goods are cheaper, there is a lower purchasing power and higher unemployment. Here we see the biggest part of the market regarding investment products. You have nation-wide interest when it comes to pension funds. The Slovak social system suffers from the same problems as the social systems in the West. The Slovak government has a very strong vested interest in developing the second and the third pillar for retirement purposes. We can offer our clients a pension fund that is managed by Tatra Asset Management which ensures that it is in line with Tatra Bank's reputation, they ensure that we actually receive the highest possible return.
What range of pension funds does this company actually provide to the customers in SR?
Pension funds are clearly licensed by the government. There are a limited number of licences that were issued. Presently there are four pension funds and they compete very fiercely to attract both employers and employees to work with them. The employer and employee can contribute up to 3% of their basic salary to that fund. There are also retirement benefits.
You mentioned that you were involved with small and medium size companies that also benefit from PHARE and EXIM programmes. What have been your medium and long term programmes based on those international funds?
International funding agents are of interest as long as the domestic capital market is not well developed and the capital formation is not in line with the growth of the economy. In the past there was a very important programme from PHARE, the European Investment Bank, from the EBRD, to a certain extent also the Japanese Exim Bank. 5-6 years ago these programmes were very important because on one side they provided funding and also took over part of the credit risk. We should not forget that 5-6 years ago the economic environment was much more difficult, therefore credit risk was higher. The key impact of these programmes was not necessarily cheap funding but the opportunity taken through credit risks to develop know-how, to train and bring up account officers, lending officers, who know how to handle this type of business. The SME programme was supported by these multinational institutions, also in the form of bringing in foreign experts. Every market has its own peculiarities, the projects provided the necessary background the stimulus to understanding what forces drive the market.
Since 1998 the National Bank has been focusing its monetary policy on interest rates. Today the decrease of interest rates on loans and deposits is around 8%. How would you describe the impact that this monetary policy has had on the inter-banking system in Slovakia and also on stock market activities?
The stock exchange or the capital market in general does not play any significant role in this country. The reasons are that with the privatisation of the major Slovak companies and the acquisition of them by foreign investors, the list of good companies on the stock exchange has declined. Secondly, both the exchange and the so-called authorisation centre, which transfers ownership and handles the purchase and sale has been a very cumbersome institution. It is very difficult to buy and sell and to get the things done. For example, as a foreigner if you want to register here you need an authorised translation of your birth certificate. So you have to go through trustees, you have to go through your own bank in your own country and they have the same problem. So many times investors stayed away because of the cumbersome transfer process. From that point of view the capital market does not play a significant role. The monetary policy of the Central Bank certainly contributed greatly to the stabilisation of the money market and banks. The money market also consolidated itself due to the disappearance of weaker banks. Some of the smaller banks were not really a positive sign on the bank market. A number of them have disappeared and we are now talking about very reliable players.
Do you think that this trend will continue over the next few years?
The government has decided to sell Investicna Banka to the Hungarian NTB bank, there is only Istrobanka that is left, it is a small independent bank, Banka Slovakia is a small institution which will either disappear or will be bought by somebody, either by a domestic player or a foreign investor. By and large, the process of restructuring is completed.
How would you describe the banking sector in Slovakia as a potential investment destination?
The government has fulfilled one of its promises to restructure the banking sector. With the sale of the largest banks, the sector has been completely restructured. It will develop in due course in a highly competitive market where foreign investors will find the necessary expertise and get the financial support for their investment projects. We believe this restructuring is the best starting signal for Slovakia's possible admission into the EU. Given the present stage of development in Slovakia, the capital market plays a role but not that significant because the largest corporations are or will be owned by foreign investors who will be interested in the major stock exchanges in Europe or perhaps in the US. I think the banking system will be able to meet its obligations and further develop to become the corner stone of the Slovak economy.
What would be your greatest personal challenge over the next few months?
I came to Slovakia 11 years ago from my previous careers in Asia, the USA and Western Germany and it was certainly a great experience to start a green-field operation. Nobody really thought that Central and Eastern Europe would develop in such a way. Some countries have developed faster than others. Many countries still have a long way to go, with regards to improving living standards, social situation, health systems and education systems. The process is well on its way. For Slovakia I wish that this and future governments tackle both the social and economic problems that this country faces and look at ways to accelerate the transformation process to ensure that the economy and its social institutions play a direct role in furthering Slovakia's development, both economically and socially.
What is your final message to our readers and potential investors interested in coming to Slovakia?
I think more and more as a European in spite of cultural and ethnic difference. Slovakia is very much in the heart of Central Europe and has long history, the country is an integral part of Europe. It is a country that is putting all its expectations on its full integration with Western Europe. At the same time it offers opportunities to foreign investors in many areas which in other countries you do not have. Well-educated work force, people who are very diligent, hard working and loyal, a young work force who wonder why the development is not fast enough. There are many Slovaks who work abroad and want to come back, but due to the lack of good opportunities find it simply more conducive to work and stay abroad. There are close to 80 000 Slovaks working in the Czech Republic. The Czech Republic developed faster after Czechoslovakia split, many Slovaks are working in Germany and these people would love to come back if the employment opportunities were as good and equal as they are in other European countries.
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Tatra Banka