"Raiffeisen International is currently “digesting" the banks it has purchased recently, but never fails to seek new acquisition targets. Herbert Stepic, Chief Executive Officer of the bank, does not regret that they sold their Ukrainian subsidiary to OTP, saying he was extremely satisfied with the deal.In an interview with Portfolio.hu, the highly acclaimed banking expert also talked about Raiffeisen International's expansion plans, the bank swap in Ukraine, the CEE market and has also formulated an opinion about the OMV-MOL duel.
Portfolio.hu: Raiffeisen International has built an immense portfolio over the past years. Do you believe your expansion has geographical boundaries?
Herbert Stepic: Our expansion definitely does have geographical boundaries. Raiffeisen International's focus lies on the former communist countries of Central and Eastern Europe, which lacked a functioning banking-system. In these markets we can add value.
Over the past 20 years of operations in the region, we have developed comprehensive experience to offer a quickly growing number of customers state-of-the-art banking products. By now, we are present in 18 of these countries, including representative offices in Moldova and Lithuania, and a leasing company in Kazakhstan. We are servicing 12.5 million customers through about 2,900 business outlets. This is the largest service network of any international bank operating in the region.
Portfolio.hu: Which may be your new target countries? Do you prefer the Caucasus or Central Asia? Do you think Raiffeisen International may set its eyes on targets even farther than that?
Herbert Stepic: In the last 2 years we have acquired three banks, including the two big "chunks" Bank Aval in Ukraine and Impexbank in Russia. Now we are doing our homework to assure a quick and smooth transformation of those banks. Growing organically and deepening our market coverage is now our main-focus.
Nevertheless we are always assessing potential acquisition targets to expand and/or deepen our regional coverage. It is no secret that Kazakhstan would be an interesting market for us, provided that we can purchase the majority stake in one of the top-ten banks.
Portfolio.hu: For the time being, investors do consider Russian and Ukrainian exposure a positive feature. Aren't you concerned that a crash, similar to the one in 1998, could devaluate your investments in the blink of an eye?
Herbert Stepic: First of all, I do not see any signs for a financial crisis in Russia as compared to the default on government debt in 1998. Russia is benefiting heavily from the export of natural resources and henceforth generates cash-flows which are wisely used to reduce government debt.
On top of that when the crash in Russia in 1998 happened, Raiffeisen was the only foreign bank, which stayed in the country. We showed our customers that we are there for them - even in hard times. Of course we were confronted by losses, but due to the crisis we could build up a strong relationship to our customers.
Portfolio.hu: In Ukraine you have carried out a bank “swap", a deal that seldom happens on international markets. Are you satisfied with the EUR 650 m OTP paid for RBUA?
Herbert Stepic: I am extremely satisfied with the deal. We were one of the first foreign banks to operate in Ukraine. Raiffeisen Bank Ukraine was a comparably small bank, with focus on affluent customers, a balance sheet total of 1.2 bn euros as to 31 December 2006 and 39 business outlets.
At the end of 2005 we decided to buy Bank Aval because we knew that this was a further important step in securing both Raiffeisen International's leading local presence in Ukraine and the group's leading position in Central and Eastern Europe. Ukraine is one of the most important markets for us. With this acquisition Raiffeisen bought a very large branch-network of more than 1,300 outlets. We would have never managed to gain a market presence like this by growing organically.
Portfolio.hu: While Aval certainly offers much bigger potential, don't you regret to have left staff, know-how and a chunk of the market for OTP?
Herbert Stepic: No, I don't regret selling Raiffeisen Bank Ukraine. Our initial thought was to merger the two banks, but after evaluating the pros and cons, we decided that selling was the better option. It also accelerated the transformation process.
Portfolio.hu: Do you see any difference between the Hungarian and the other CEE banking markets? What exactly are these?
Herbert Stepic: There are differences. Due to the persistently high key interest rates of the National Bank of Hungary, which is a direct result of the unsustainable economic policies, the share of foreign currency denominated loans is with 43.6% of total credits highest in Hungary among the Central European new EU member countries.
Despite the short-term effectiveness of the austerity measures in reducing the twin deficits in the budget and the current account balance, the medium term sustainability of the measures are not yet certain, mainly due to the sliding support for the ruling Social Democrats.
Whereas real wage growth has been accelerating in most CEE countries in 2007, the temporary inflation spike caused by the austerity package will lead to a drop in real wages in Hungary this year and will likely allow only for a small increase in 2008. This could eventually lead to a weakening of the credit demand, although the available data up to the year end 2006 does not suggest that a slow-down has taken place yet.
Portfolio.hu: It has little to do with the banking market, but we simply cannot go around the subject: What is your take on the OMV-MOL takeover battle?
Herbert Stepic: As you might know, I am one of the supervisory board members of OMV. I would prefer a fast solution. I understand that independence is important. Nevertheless I believe that - especially on this sector - it is substantial to bundle the power, which is only possible for a strong player.
Portfolio.hu: Even your rivals say you're a great gourmet so it is absolutely imperative that you tell us which is your favorite restaurant in Budapest.
Herbert Stepic: I enjoy eating at "Gundel". The restaurant has a wonderful atmosphere and they serve delicious Hungarian food."
Source:
Portfolio Online Financial Journal
10.08.2007