Bank to the future
By : Bogda Zukowska
Poland's banking sector has proved a popular hunting ground for foreign institutions eager to set up in Central Europe's largest market. Many banks such as Germany's Bayerische Landesbank are eager to secure a place at the table, while others such as Austria's Raiffeisen Bank Polska (RZB) are already talking about consolidation and expansion.
On solid ground: Raiffeisen bank Polska is betting on Poland's potential.
In fact, putting its money where its mouth is, RZB last month moved to its new $37.5 million headquarters on Warsaw's ulica Piekna. "This is the best proof that we will stay here forever," said Jaroslaw Dabrowski, deputy president of RZB.
RZB is one of 36 foreign banks and financial institutions that hold majority stakes in 48 of Poland's 74 banks, accounting for 69.5% of the industry's net assets in 2000. This figure, a key indicator in determining a bank's position on the financial market, leaves little doubt that foreign firms already dominate Polish banking.
The trend shows no signs of slackening. In February, foreign banks upped their share to 70% of the Polish market when France's Credit Agricole took over Wroclaw-based Lukas financial group, owner of Lukas Bank, which holds 0.5% of the sector's assets. Further acquisitions are planned.
The next deal could be Raiffeisen's purchase of a controlling stake in Bank Pocztowy (BP), a small bank based in Bydgoszcz, in northwestern Poland. Raiffeisen has placed a binding offer in BP, due May 14, said Jeffrey Millikan, deputy president of RZB Polska. "We are ready to bid for a 35% stake in Bank Pocztowy and hope to strike a deal by early summer," Millikan said. He added that if the deal fails it would be difficult to locate another bank suited to Raiffeisen's needs for expanding its retail business.
Indeed, the number of banks still available for outside investors is shrinking fast. The latest potential acquisitions targeted by investors include Cuprum Bank, based in Legnica in western Poland, and Bank Rozwoju Cukrownictwa (BRC) headquartered in Poznan. Both are controlled by Bank Handlowy (BH). After its recent merger with Citibank (Poland), BH will likely streamline its operations and sell stakes in both banks. "We are looking for interested buyers," said Jerzy Suchnicki, head of BH's Capital Investment Center. "It's part of Citibank's strategy in Poland."
According to Suchnicki, there is no deadline attached to selling shares in the banks and therefore stakes will go to buyers offering the best price. Though he declined to reveal details about the banks' finances, he said they are "on the safe side." Last year, Bank Handlowy bailed out troubled BRC and increased its capital by E6 million.
Fast-growing Invest-Bank is also looking for an investor. According to President Stefan Ciesla, only a minority stake is being offered for sale, leaving no room for a strategic investor to use the bank as part of a larger strategy. Other banks likely to be put on the selling block are Wschodni Bank Cukrownictwa, which has zl. 1.13 billion ($285 million) in assets, and smaller institutions such as Bank Wschodni, Wielkopolski Bank Rolniczy and Bank Powierniczo-Gwarancyjny with holdings of less than zl. 300 million ($75 million) each.
Way to go: City's merger with bank Handlowy has given the U.S. company more muscle in Poland's retail banking sector.
In fact, putting its money where its mouth. While the number of banks available for sale is dwindling, investor interest shows no signs of waning. At present, about 10 foreign banks are said to be looking at Poland's banking sector. The Banking Supervisory Borad (GINB), a state institution that awards banking licenses, is tight-lipped about revealing the names of potential entrants to the market. Industry watchers, though, point to Dresdner Bank, which has been without a Polish presence since withdrawing from its joint venture with France's BNP Paribas, and Bayerische Landesbank, another big German bank, which has so far failed to win a stake in a Polish financial institution. Other analysts mention two Spanish banks, Banco Bilbao Vizcaya Argentaria and Banco Santander.
These German and Spanish rivals could have similar reasons for entering the sector. For one thing, the growing banking presence of these two countries in Poland creates a base of clients for their own operations back home. Foreigners are also looking to position themselves on Poland's financial market the largest among European Union (EU) candidate countries.
Latecomers pay more
But entering the Polish banking sector has not been the bargain that some multinationals may have expected. The main reason is the National Bank of Poland's policy in recent years to limit entrants to those willing to buy Polish entities.
Credit Agricole paid $262.5 million for a 75% stake in Lukas this year a hefty sum considering that Enterprise Investors (EI) asset management company paid $15 million for a 28% stake in Lukas in 1997.
Another reason why entrants are required to spend more to gain a foothold in the banking sector is Poland's stable economy and growth potential. "Poland's strong economic performance and stable financial and political environment have prompted a wave of new entrants to the country's retail banking sector," according to consulting company McKinsey's fourth-quarter 2000 report.
Andrzej Powierza, an analyst with Wood&Co., agreed with the assessment. "Corporate banks are entering the retail market looking to do more business and to diversify their revenue sources," he said. "The more deposits they attract, the less they are dependent on the inter-banking market, which is going to be less attractive as a source of raising money for banks' needs."
Raiffeisen's targeting of BP will also likely result in a costly acquisition. BP is a relatively small bank with $200 million in assets. But for Raiffeisen it has two attractive features. Apart from BP's 90 national branches, the bank has access to some 90,000 post offices. For the Austrian bank, which intends to focus on retail banking and small and medium-sized industry services, buying into BP provides a perfect opportunity to expand its network. By comparison, Powszechna Kasa Oszczednosci Bank Polski (PKO BP), the state-owned savings bank, has Poland's most extensive retail network with 6,557 branches.
Raiffeisen is also hoping to become the principal bank behind national post office Poczta Polska, which holds 66.6% of shares and 74.2% of voting rights in BP. A large, cash-hungry client such as Poczta Polska would boost RZB's corporate business considerably. "We are ready to pay a reasonable price looking at our future business with Poczta Polska and its long-term commitments," Millikan said.
Looking for greener pastures
Banks, when not busy looking for fresh opportunities to merge and acquire, focus on developing new products and services to generate greater profits.
The Internet is one area that promises to cut costs while bumping up earnings. According to estimates by consulting company Arthur Andersen, the average cost of a banking transaction via the Internet is still just several cents, compared to $1 at a teller window.
Internet banking has been making headway with an estimated 170,000 Internet banking users. But this still falls far short of the roughly 10 million traditional bank accounts used by Poles around the country.
Kredyt Bank is making inroads in the insurance market.
Bank Rozwoju Eksportu (BRE Bank), which launched Poland's first virtual bank called mBank in November, had more than 30,000 clients in just two months. Meanwhile, eight traditional Polish banks have begun offering clients Internet banking and now have some 70,000-100,000 e-accounts. Wielkopolski Bank Kredytowy (WBK) was at the top of the list last December with more than 40,000 e-accounts, followed by Bank Przemyslowo-Handlowy with 12,500 e-clients.
Hoping to repeat the success of mBank is Inteligo Financial Services Polska and the local branch of its partner Bankgesellshaft Berlin, a wholly owned subsidiary of its German parent. Together they have already invested $11 million to launch Inteligo, a virtual bank. The venture, aimed at the retail sector and small companies, is due to take off this spring.
Polish banks are also making inroads in the insurance market to develop so-called bank insurance. Kredyt Bank and No. 2 insurance company Warta, both listed on the Warsaw Stock Exchange, have just announced a joint bank insurance project that is set to launch in June. Stanislaw Pacuk, Kredyt Bank's president, declined to say how the new product would contribute to lifting the bank's profit.
Warta is expected to raise an additional zl. 20 million-zl. 70 million ($4.8 million-$17.1 million) through the sale of insurance premiums.
Getting weird: Bank Gesellschaft Berlin and Inteligo Financial Services Polska are slated to launch a virtual bank called Inteligo in June
This product is still so new to the market that it has yet to be given a Polish name. In France and Portugal bank insurance is popular with some 60% of insurance products being offered through banks, while in Germany 20% of insurance premiums are sold in banks. With bank-insurance products, clients receive financial services, such as accounts or payment cards, together with insurance products. "There is a rationale for banks cooperating with insurance companies because banks are seeking to reduce risks, while insurers are looking out for risks," said Jacek Chwedoruk, director of Rothschild Polska's investment services. "Premiums collected by insurers are seen by banks as a source of long-term funds."
Other companies slated to offer bank-insurance products are AIG Bank, a subsidiary of U.S. insurance giant Fortis Bank, with 98% of shares owned by Belgian Fortis Bank.
According to Chwedoruk, bank insurance is likely to develop differently in Poland than in the West. While Western banks develop by acquiring insurers, Polish banks are likely to work with insurers or to set up their own insurance companies as in Poland there are no insurance companies left to acquire.
