it in banking in central europe – an overview

1.IT in Banking in Central Europe An Overview Enterprise Ireland Dublin November 2006

Introduction to G&C

Development of the Banking Sector

Overview of the Banking Sector in Central Europe

Differences to Western Europe & Business Trends

Key Areas of IT Opportunity

Strategies for Winning the Business /Decision - Making Process

Banking and IT Consulting Company

Founded in 1990, Headquartered in Czech Republic

4 Partners, over 20 Consultants and SW engineers

Offices in Germany and Switzerland

Over 50 clients (financial sector), mainly in Europe

SW Development and Implementation

Universal Banking System (T/O/P Banking)

Enterprise Content Management(WINS / FileNET)

Risk and Profitability Management (SAP R/3 SEM)

ALM & TC (Mantas USA)

IT Consulting Services

System Integration

IT Strategy (development and implementation)

IT Procurement / IT Outsourcing / IT Organisation / IT Audit

Project based co-operation with global IT Vendors & Consulting Companies

SAP, ORACLE, IBM, Getronics, IFN Systems, FileNet, Mantas, Logica, IHAG Informatik AG (CH)

Savings Bank Foundation for International Cooperation (Germany), WestLB

Czech & Slovak Republics

Agro Banka / GE Money Bank

Czech National Bank

Czech Savings Bank (Erste Bank Group)

SOB Bank (KBC Group)

Investment & Post Bank

SOB Leasing

eBanka (Raiffeisen International)

Komern Banka (Societe Generale Group)

Slovak National Bank

VUB (Intesa BCI Group)

(SK&CZ)

Western Europe

ABN AMRO, UK

WestLB, Germany

A&A Actien Bank, CH

Bank am Bellevue, CH(Swissfirst Bank AG)

E.Gutzwiller&Cie Banquiers, CH

Expersoft AG, CH

Private Bank IHAG AG, CH

Rd, Blass Private Bank, CH (Deutsche Bank Group)

Savings Bank Foundation for International Cooperation, D

Swiss.net Bank, CH

Zurich Invest Bank, CH

CEE & SEE

Aval Bank, Ukraina

Central Bank of Lithuania

Eesti Hoiupank, Estonia

Inkombank, Russia

Komercijalna Banka, Macedonia

Lithuanian Savings Bank

Bank Union, Belarus

Oschadny bank, Ukraine

Prominvest bank, Ukraine

Rijeka Banka, Croatia

Sberbank, Russia

State Savings Bank, Bulgaria

National Savings Bank, Yugoslavia

Several private banks in Azerbaijan

Post Bank, South Africa

Teba Bank, South Africa

Introduction to G&C

Banking sector limited to monobanks serving ascentral bank and commercial bank

Supplemented usually by one big savings bank

Banks were more passive administrative units

Restructuring of financial systems

Two-tier banking system

P rivati z ation / split-up of monobanks

Foundation of new banks

L icensing of foreign banks

Legal framework and bank supervision

First wave of automation and modernisation

Macroeconomic instability

Crises of some financial institutions

Solvency problems / bankruptcies

State-lead recapitalization programs

Transfer of bad loans from commercial banks

Review of legal framework

Major restructuring of the sector

Positive results of restructuring

Balance sheets improved

Expansion of services

Improved profits

Concentration process

Foreign investment

Mergers and acquisitions

Majority of banks with dominant foreign ownership

Sttn banka eskoslovensk

M onobank

S upplemented by a few state banks specializedonselected activities and controlled by Sttn banka eskoslovensk

Czech and Slovak Savings Bank

Central bank : Sttn banka eskoslovensk

T ransfer of assets , liabilities, branch network and clientstoKB and VUB

CSOB, Czech and Slovak Savings Banks and Zivnostenska banka continued their activities onacommercial basis

New Banks, e.g .

1990 -1992:from 5 to42 commercial banks and ,

6 branches of foreign banks

Mainlywith domestic capital

CZ: less 24 banks

e.g. Moravia bank

Foresbank

(PL: less 6 banks)

(HU: less 2 banks)

Review of legal framework

Major restructuring of the sector (Capital aid, cleaning of balance sheets)

Consolidation and stabilisation programmes launched

Introduction to G&C

The entire development process resulted in a banking environment in CE that is

Largely foreign-owned

Most banksare owned byinternational banks

Roughly 90 per cent of assets are controlled by banks with dominant foreign ownership

Relativestrongconcentration

5 largest banks have always more than 55 per cent share

Only a few state banks still left to be privatized

S tate-owned banks still havea market share of around19 % of total banking assets in Slovenia

Few domestically owned players

The situation in SEE and CIS is slightly different as the process is not that far yet

E.g. Takeoverof BCR in Romania by Austrian Erste Bankjust recently

For comparison: Komercni Banka in CZ was acquired by Societe Generale in 2001

SEE and CIS are the focus of international banks at present

Banks in central Europe have a good profitability and show increase of all key indicatorsdue to

Policies to improve bank governance and market transparency

Regulatory measures to reduce risks

Evolution from "ratio watching" to process examination in bank supervision

Competition from foreign banks

Significantly improved balance sheets

Introduction to G&C

Main d ifferenceisin product penetration rather than offering

Potential for future growth

150 million people in CEE have no business relationship to a bank

Overall size of the banking sector in CEE remains small compared to the Eurozone and the degree of intermediation also remains rather low

However, efficiency lags behind Western European standards

X-efficiency in old / new EU member states in 2003: 86% vs. 67%

(x-efficiency = measure how managers are able to minimise cost by input allocation and exploration of technological opportunities)

Retail iscurrentlythe main growth engine, especially loans segment

Products: Consumer loans, Mortgages, Payment Cards,Mutual funds

Robust growth & low interest rates

Improved bank balance sheets further greater supply of loans

However: Risks from risk management deficiencies (default estimates, liquidity management, etc.)

Delivery systems

New ATMs

Upgrades: Functionality &security

Electronic banking

The revival of the branch :G rowing importance of retail banking proved the importance of a solid branch network

Raiffeisen and Unicredito each have approximately 2500 branches across 15 countries

Erste, Intesa, OTP and Societe General each have between 1000 and 2000 branches across 7 8 countries

The next 10 largest banks in CE each have several hundred branches across various countries

Customer led strategy

Banks will have to concentrate on customer loyality programs and price determination

Leasing*

Leasing marketin Europereached a record volume of 270 mil. EUR last year

Importance in CE even higher than in WE: Outstanding leasing contracts make up 8% of GDP in CE (vs. 5% in WE)

Markets in CEand CEE countries growing 3 times as fast as in Western Europe (36% vs. 12%)

Special services

Building society services,Life and pension insurance

Asset Managementstarts emerging

Growing competition from non-banks

Competition is concentratedonSME

Not much space for competition in the area ofcorporateclients

Clients are shared among banks

Only portions of provided services can be cha r ged

Corporate loans are declining due to restructuring of balance sheets, risk aversion, other means of financing (capital markets)

Hot Topics

Fee income from financing services

Databanking

Direct interfaces between the economic system of company and bank

Support of corporate clients in fulfilling compliance requirements, for example SOX (Sarbanes-Oxley)

Corporate payment cards/ Loyality programs

Flexible usage for business trips, limits on manipulation with cash, security, etc

Investment banking

Loans to housing developers, municipalities, etc.

Project Financing

Co-branding of credit cards with car manufacturers, telephone and energy companies, airlines, etc.

Banks in CE more often face the same regulatory framework as Western banks:

Banks owned by foreign groups have to report to mother banks based on their regulatory requirements

Compliance with capital adequacy and risk control guidelines

Basle I

Basle II

Compliance with regulations regarding Anti-Money-Laundering (AML) and Terrorist Financing, e.g.

40 + 8 FATF Recommendations

US Patriot Act

Compliance with regulations regarding market abuse

EU Market Abuse Directive (MAD)

Markets in Financial Instruments Directive (MiFID)

Integration to EU

Enhanced regulatory reporting requirements & supervision

Accounting Standards

Preparation for Euro

Introduction to G&C

Strategic IT Technologies

Central p rocurementmanagementvia foreign owners of the bank

EUCompliance

Core banking systems

Licens ing Policy

Centraldecision and /orprefered vendor

Local implementation of business processes, maintenance, legislation, localization

How strict lyto be applied dependent on the culture of the mother company

Specific IT Technologies

Local markets

Local legislation

Local clearing

Regulatory reporting

ATMs (different standardsin different countries )

HR systems

Adjustments and functional overlays of strategic (centrally selected) systems

Specific local processes

Specific reporting

Local services: is not effective to solve centrally

Backupcentre

Outsourcingof services

Banks are conservative customers

It takes a longer time to create a business relationship

Alliances with local companies established on the market are recommended

Knowledge of language, local environment, on-site support

Local support partner are highly valued

Networking

Personal contact with key players and decision makers is important

Regular meetings, Seminars, Lunches ,Etc.

Selection procedure

Differences to Western Europe: longer, slower decisions

Conduct of formal tender process often with no decision at all

References, successful projects (local references are important)

Not only IT knowledge but also experience in the industry (Banking) is becoming more and more important!

it in banking in central europe – an overview

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