Filenews 3 October 2021 - by Theano Thiopoulou
Interview with Oliver Gatzke
The vision of Hellenic Bank's new CEO, Oliver Gatzke, is to reorganise the organization, enhancing the value for all involved. "We are pursuing a conservative lending policy and this will not change", he says in his interview with "F", the first to Cypriot SMEs since taking office, and stresses that the excess liquidity available to the bank will be given to loans that enhance the competitiveness and productivity of the economy, such as health, education, energy (renewables), technology, tourism, transport and shipping.
"We are interested in investment opportunities led by international banks, such as acquisitions and mergers, private equity projects, as well as in the financing of infrastructure projects in the energy industries, development of tourist resorts and other major projects in the tourism industry," he says.
For the new CEO, one of the main challenges is reducing staff-related costs, which are inflexible and often irreversible. "My goal is meritocracy and equal treatment, creating a culture that will suit a modern organization like Hellenic Bank." The population, he notes, which corresponds to per credit institution, per branch and per bank employee in Cyprus is much lower than the average in the Eurozone... "This, combined with the shift of customers to digital service channels, reveal the urgent need to further reduce banking institutions, branches and bank employees in order to make our banks more competitive."
It cannot be done without banks
You have, Mr. Gatzke, taken over as managing director at a time of banking challenges. As a foreign technocrat, how do you see the situation that is taking shape in the Cypriot economy and the banking system?
The Cypriot banking system has improved significantly since 2013. Banks now rely on much more solid foundations. They have a strong capital position and liquidity, non-performing loans are constantly decreasing, while the size of the banking sector has decreased significantly, relative to the country's GDP and is now comparable to the levels in Europe.
Despite the impressive recovery, 2020 has been an extremely difficult year. The COVID-19 pandemic has sharply reduced economic activity in almost all sectors worldwide. Clearly, banks have a catalytic role to play in supporting and financing the recovery of the economy. The banking sector is the focus of economic activities and I am sure that, without a strong banking system, with a sustainable business model, strong capital and liquidity, the real economy cannot grow in a sustainable way.
Recognizing its leading role, Hellenic Bank is at the forefront of supporting its sustainable customers, households and businesses. In 2020, we announced a record number of new loans, in addition to €1 billion, while so far in 2021 we have granted loans exceeding €500 million.
I am optimistic that the increased economic activity of the first nine months of 2021, which was boosted by the government's support packages, will continue into 2022. In addition, the implementation of the Recovery and Resilience Plan will boost domestic activity and, by extension, employment, improving growth prospects through the necessary reforms.
As far as banks are concerned, it is necessary to have a long-term sustainable business model. This is a big challenge, given that we operate in a highly competitive environment, with a large number of banks, under strict regulatory requirements and problems that we have inherited from the past such as NPLs and the structure of expenses.
The population per credit institution, per branch and per bank employee in Cyprus is much lower than the average in the Eurozone. This, combined with the shift of customers to digital service channels, reveal the urgent need to further reduce banking institutions, branches and bank employees in order to make our banks more competitive.
The lending policy remains strict
You are invited, among other things, to manage the excess liquidity available to Hellenic Bank and to provide loans to solvent customers. At the moment, the lending policy is judged to be very conservative. Will we see more aggressive policy?
Yes, we are pursuing a conservative lending policy and that will not change. Nevertheless, last year we announced a record number of new loans, in excess of €1 billion. The problem lies in the fact that the Cypriot economy, households and businesses are already over-indebted.
We are looking for ways to channel our liquidity, always within the risk-taking framework of the organization and a sustainable risk/reward profile. We want to strengthen personal relationships with customers, in order to increase our borrowing. We target sectors with growth prospects, while we also carefully enhance international lending through participation in joint ventures.
Here I would like to stress that the Cypriot banking system has significant excess liquidity, amounting to €14 billion approximately. Cypriot banks deposit this money with the ECB and are required to pay a parking fee of 0.5% per year. This is a cost that banks have been absorbing since 2014. Negative interest rates are expected to remain at these levels, creating a major challenge for banks with excess liquidity. One option is to look at imposing a liquidity fee on deposits, from a threshold and above. This is a trend in Europe, where more than 300 banks already apply liquidity charges and negative interest rates. In this case, we will be able to offer alternative options to our customers, such as investment and insurance products.
In which business and other sectors is it estimated that Hellenic can be expanded with loans in the next five years?
We focus on sectors that enhance the competitiveness and productivity of the economy, such as health, education, energy (renewables), technology, tourism, transport and shipping. Most of these areas will be significantly strengthened by the Recovery and Resilience Fund and by the financing of the European Union's Green Agenda. At the same time, private sector loans mainly concern housing, small loans to new customers and support of our existing customer base.
We are also interested in investment opportunities led by international banks, such as acquisitions and mergers, private equity projects as well as in the financing of infrastructure projects in the energy industries, development of tourist resorts and other major projects in the tourism industry.
Shipping is also an industry that offers great opportunities given the strategic location of Cyprus and the attractive legal and fiscal framework. Hellenic Bank has been serving the shipping industry for 40 years, through a specialized service centre.
The challenge is to reduce staff costs
Is it estimated that the digital age will bring another staff reduction? How do you plan to manage staff and union issues?
Digitalisation in the banking sector is no longer an option but an imperative. Fintech companies increase competition globally, raise customer standards and requirements. In this extremely difficult environment we must remain competitive, taking care of the needs of our customers. In the last year we have seen a huge shift towards digital and alternative channels. Clearly, some traditional roles in the banking industry are no longer important but at the same time new roles and opportunities are created. Consequently, our priority is to retrain and upgrade the knowledge of the staff in order to cope with the new challenges.
As far as corporate issues are concerned, our intention is to enter into a frank dialogue with all those involved and to find common ground. Our staff is the driving force of the organization. If they are not motivated and not satisfied they cannot offer excellent service to customers. At the same time, however, given the economic challenges, the uncertainty that exists and the intense competition, both from domestic banking institutions and from fintech companies, we must seriously address the long-standing issue of high costs in order to continue our sustainable course and a successful business model. One of the main challenges is to reduce staff-related costs, which are inflexible and often irreversible. My goal is meritocracy and equal treatment, creating a culture that will suit a modern organization such as Hellenic Bank.
Reduce stores and shift customers to digital channels
Continuous digitization and the exploitation of technology is part of our lives. How do you take advantage of it at Hellenic Bank? When will we see digital stores?
Both in Europe and globally, the trend is no longer the creation of digital stores but the reduction of physical stores and the shift of customers to digital channels. In Cyprus, where we still have the most stores in proportion to population throughout Europe, this need is even more intense. Therefore, we need to reduce our network of stores and, using technology, cut red tape, improve the decision-making process for lending and offer products.
It is very important to strengthen the footprint of our digital channels and I believe that Hellenic Bank is on the right track. Significant steps have been taken and, as a result, more than 85% of all transactions are carried out through alternative channels instead of stores. Tools like the Mobile App are exactly what we need. With Contact Pay, customers can send and receive money to and from their contacts. At the same time, through Hellenic Bank Web Banking, customers can transfer money, order cheque books, apply for a new account, loans and insurance products, pay utility bills and much more. The wide network of new generation ATMs covers more than 83% of cash transactions, providing 24/7 service, while the Customer Service Center handles a significant load of requests for which customers in the past had to visit a store.
Clear legal framework for divestments
How do you, Mr. Gatzke, as the new CEO of The Hellenic Republic, coming from foreign banking systems, see the broader issue of divestments in Cyprus and the frequent suspensions voted by the Parliament, as well as its intentions to change the legislation?
High levels of NPLs carry significant risks to the stability of the banking system, but also to the outlook for the economy. It is also one of the most important concerns of rating agencies, but also of supervisors, both in Cyprus and Frankfurt. Therefore, a clear and stable legal framework is necessary. Constant legislative changes bring about volatility and uncertainty, making the secondary market for NPLs less attractive to investors.
At the same time, divestments are one of the most effective tools available to banks to settle debt. It is used as the last resort and always with great care, nevertheless the weakening of the legislative framework reduces the discipline of the borrower in fulfilling his obligations and his willingness to make a settlement. This essentially helps strategic defaulters to evoke their obligations. Significant progress has been made in handling NPLs in the banking sector, but any change in the legal framework for foreclosures could delay the process and jeopardise citizens' deposits.
Mr. Gatzke's vision for Hellenic Bank and the main pillars
Did you know enough about the Cypriot banking system and Hellenic Bank before you made the decision to work here? What is your vision for the bank?
In 2014, Hellenic Bank managed to recapitalise itself with private capital, thus protecting the deposits of its customers and maintaining its reputation as a solvent and secure bank. I believe that the Hellenic has all the ingredients for success. My vision is to reorganize the organization, enhancing the value for all involved. The basic principles for a successful reorganisation strategy are:
- A financially stable institution, with a strong capital base and liquidity and a sustainable business model, in particular with a cost structure similar to that of European banks.
- Customers and digitization: With more than 500 km. our goal is to unlock the capabilities of our customer base and become their main banking choice. To do this, we need to differentiate ourselves from the market and offer seamless service, competitive products and personalized services. We are working to simplify our procedures, speed up our decision-making processes and become as efficient as possible. Our goal is to integrate technology into decision-making processes, continuing customers' transition to digital channels for their own faster and easier service.
- People: To evolve our work culture, to unfold the skills of the staff and to promote meritocracy.
- ESG: To enhance the risk / performance profile of our loan portfolio, through a healthy growth and diversification, focusing on the ESG triptych (Environment, Society, Governance). We want to lead this green transition and the shift of ECB regulations to a more sustainable green agenda.
