Optimism reigns at BRE

by Aleksander Nowacki

BRE Bank's president, Wojciech Kostrzewa, announced last week that his bank plans to increase its market share from 6 percent to 10 percent before Poland joins the euro zone. The planned market share growth will be based on BRE's retail banking operations, as the institution plans to double its number of individual clients over the next three years. His announcement comes in the wake of a series of similar statements by other institutions.

West LB, HSBC, Amerbank and, most recently, Citibank Handlowy have all recently gone public about their plans to expand in the retail sector. Industry experts are, however, doubtful whether it will be possible for all the players to achieve their objectives.

"Increasing market share from 1.8 percent to more than 6 percent has taken us seven years. I believe that another increase should not take us as long," said Kostrzewa, adding that it would be deemed a success if the common currency was adopted by 2009, thus setting the time frame for BRE's expansion plans.

"If they try to do it through organic growth, they don't stand a chance," said Maciej Stańczuk, president of West LB. "The only way forward is through acquisitions." He went on to highlight his own company's problems with finding an appropriate institution, as "buying a small bank in rickety condition would not solve any problems either." It would thus appear that there are more potential takers than banks that could be profitably acquired.

Nevertheless, he sees the plans as a natural way to develop in the face of difficult market dynamics, especially in the corporate sector.

"Those active only in the corporate segment tend to be overexposed to the vagaries of the economic cycle," Stańczuk said. "Moving into the retail sector is an obvious strategic answer to this situation (which is) new to this country." He went on to point out that after a period of incessant and steady economic growth throughout the 1990s, the slowdown of 2000 took bankers by surprise.

Stańczuk named BRE Bank as a prime example of an institution adversely affected by the economic slowdown. In his view, banks are now looking to counterbalance the slowdown's negative effects by turning to individual clients, though he sees the banking sector's reaction to the situation as being delayed by some 18-24 months.

Krzysztof Kluza, advisor to the president of Citibank Handlowy, points out that the retail sector is not the remedy to all the sector's troubles. Despite falling deposits, overliquidity is still a major problem for all banks.

"The current pattern in this country is to take funds off the individual client and lend them to the corporate sector," he said. "That is not going to be helped by developing retail services."

It is still, however, seen as the more attractive segment of the market, with a lower proportion of bad loans and better loan growth dynamics.

Wojciech Kostrzewa confirmed that the entirety of the group's retail section, including mBank, MultiBank and Investment Funds Supermarket, should be in the black by the end of 2005.

As owner of the first and largest virtual operator in the country, mBank, BRE Bank is the leading player on the Internet banking market. It alone has opened more than 500,000 bank accounts and collected deposits worth zł. 2.2 billion (€490 million) and is expected to be the powerhouse of the group in the years to come. mBank is expected to record an operating profit for the first time this year.

PKO BP, the leader in the retail segment, has not overlooked the rising challenge from its niche competitor and itself entered the virtual banking market through its acquisition of Inteligo last year.

West LB's Maciej Stańczuk was keen to point out the trappings inherent in an over-enthusiastic attitude to the new technologies.

"With retail banking, especially on the Internet, you can put practically no end of money into the marketing," he said. "And once you breach the marketing budget, getting back to the break-even point can become like swimming upstream."

Stańczuk points out that the market leaders are likely to lose some of their client base to the competition in the near future, but he does not expect a major reshuffle on the market. It is rather through attracting new customers that the ambitious smaller competitors are likely to seek an increase in their market position in a country where 40 percent of the population do not yet have a bank account.