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Reporter: Banks are faced with waves of complaints from customers. What is the current status of the lawsuits that BCR is involved in?
Tomas Spurny: We have successfully defended ourselves in most individual lawsuits. We have recently won the lawsuit with the ANPC in the class action lawsuit based on law no. 193/2000. We have several lawsuits still waiting.
I will tell you something that may seem counterintuitive: we do not want to win lawsuits, because we do not want to go to court.
I think that there are two levels to this problem. The legal one, where we have successfully defended ourselves, and then, there is a moral level. From that point of view, we want to have a good relationship with customers, because the damage isn't caused by lawsuits, but by the fact that people are unhappy with the products that they bought.
We are perfectly ready to do a series of things: first of all, we are proactively working with the ANPC, because we understand and appreciate their position in defending consumer. It is a commercial and social issue which deserves a high level of attention. Therefore, we have considerably improved our relationship with the regulator.
Second of all, over the last 24 months, BCR has invested in a "Customer Experience" unit. That division is in charge of day-to-day issues, such as feedback from customers, lawsuits and complaints. We are trying to eliminate the causes of these problems.
We are also ready to accept cooperation and oversight from a consumer protection agency, as a member of civil society. We are very close to reaching an agreement with an association which we consider credible, unbiased and reasonable, when it comes to symmetry between our commercial interest and consumer protection.
Finally, we are testing a pilot program which concerns the holders of mortgages or loans that have been bought by consumers before 2010. We are trying to create a program for those debtors that have problems in making their full repayments, but whom, over the last five years have shown that they are willing to cooperate with the bank and to make at least partial repayments. We are in the process of negotiating with the NBR to allow us to replace these loans with a new product that is very advantageous to consumers, and depending on their future repayment performance, we will make certain concessions for those debtors.
Reporter: Can you tell us more concretely what you have in mind?
Tomas Spurny: We are doing three things: loan conversion (ed. note: from foreign currency to lei), we are cutting the interest to a level currently adapted to current conditions, and thirdly, depending on the customers' future payment behavior, we will grant selected customers a discount off the loan's principal to certain of them, to encourage them to repay the loan by cutting the monthly installment.
We have tested the program on approximately 200 customers, we have very good results and to us it is currently critical, to see how we can apply this program to as high a number of people as possible. I want to emphasize that debtors who have loans which they did not make any repayments on over the last two years, then they will not qualify for that program.
If another borrower has a similar case and they tried to repay some money during that same period, we will approach things differently. Circumstances are different, and sadly, some people try to take advantage of this situation.
We want to make sure that the program is addressed to people who deserve it.
Reporter: How much did the monthly repayment decrease, for the two hundred customers that you tested the product on?
Tomas Spurny: 40%. It's a unique scheme. The monthly repayment decreases 35-40% depending on the measures that we take. There are mortgages that amount to approximately 1 billion lei and which theoretically qualifies for that treatment.
We are hoping to enter the market with that program starting in July this year.
I repeat, this program is only intended to prove that we are a different bank than we were three years go, in terms of philosophy. We want to do what is right, for people who have tried to honor their obligations and to help them. Those people that have money and don't want to pay we cannot help. They need to help us.
Reporter: How do you think banks can regain the customers' trust?
Tomas Spurny: BCR does have the customers' trust. According to the studies, we are leaders when it comes to customer confidence. Among the 41 banks, our name has a significant value.
That being said, the general level of trust in the banking system can be improved. That's because it stands at 68, compared to 80 or higher in other countries. We can improve it by doing what we talked about in the beginning - consumer protection, relations with customers are very important. Banks must sell simple products, that people understand.
We intend to practice what we call responsible lending.
If you go to a branch, the bank will give you a documentation with questions that you need to ask and the key elements about what you bought, in terms of risk or price.
These measures are an appetizer before the European legislation which will appear - the directive on mortgages, the MiFID directive. We want to get ahead of that and play a major part in transparency, I call it the honesty dimension, so that it doesn't look like we are trying to fool our customers.
People are smart, they will figure out when you've done something that is not transparent or balanced.
Another solution, that is very important, would be the support from the elite. Every country has a political elite and an opinion-maker elite.
Reporter: When you're talking about the political elite, are you referring to politicians?
Tomas Spurny: You have elected representatives. They are the elite by definition, because people vote for them. I call them elite because it is not easy to show up before a large number of people and gain their trust. I think that the political elite must help itself and help us as well. I would like to see more people say: "You may not like banks, you don't have to like them, but we really need them". Because without them, you can't create prosperity, you can't have a middle class, you can't resolve many of the issues that the country is having, concerning infrastructure, unemployment, two million people that are outside the country, an entire generation of children growing up without their parents. Our job is to create prosperity, not misery.
I hope, and I am optimistic when it comes to the fact that people will realize that bashing banks means crushing the hopes of creating a "New Deal".
Banks support society, the country, they contribute to increased prosperity, in a balanced, symmetrical manner. We need to make customers understand that we are not trying to cheat them by selling them toxic CHF loans, that will turn into a nightmare, people need to understand the risks of borrowing. That is called financial education.
Erste Group has been around for 196 years. It has trust. It has survived Napoleon, Bismarck, the experiment of communism, all the "-isms".
Erste Group has been in Romania for about ten years. We have the trust of our customers and we want to build prosperity. We have to invest in Romania's financial education. It is our job and we will do it.
Reporter: What is the status of the restructuring process of BCR?
Tomas Spurny: We have announced in November 2012 that we will restructure the bank.
The goal of the restructuring was to cut the bank's costs, from their 2011 level of 476 million Euros, by 100 million Euros. We have reached that goal by the end of 2014.
Restructuring also involved downsizing, we have closed down approximately 160 branches and we have cut 2700 jobs. We started off with approximately 9200 employees at the end of 2011 and we have reached 7200.
The second element of the restructuring concerns the portfolio of non-performing loans (NPL). In 2012, we had an NPL ratio of 18% for a portfolio of 50 billion lei. In 2013, the level has reached 30%, and by the end of 2014 we have succeeded in cutting that volume to less than 25%. In the last three years, the bank has set up provisions for non-performing loans amounting to 10 billion lei, to cover the losses that the bank suffered prior to 2012. We are hoping that this year we will complete the second element of the restructuring, namely the cleanup of the balance sheet. That thing remains to be seen, we have a very ambitious target, to bring back the bank to a state of full health and to have a ratio of non-performing loans below the market average by the end of the year.
The third element of the restructuring, the one which is being discussed in public, was the dropping of lending in foreign currencies. In October 2012, the bank has stopped granting loans denominated in Euros to consumers. We were the first bank on the market to do that, we did not engage in CHF lending at all, and as a result, starting in 2013, we have built a market share of approximately 24-25% on the mortgages in lei side based on the Prima Casa and Casa mea program.
In 2014, after we have completed the main restructuring tasks, we have started to look for new customers on the corporate lending side, and in 2015, at the end of Q1, numbers show that we have approved approximately double the volume of corporate loans compared to the past years.
Reporter: What is the current status of the lawsuits with individuals?
Tomas Spurny: We've had somewhere between 16 and 20 individual lawsuits. Most of them have been settled or have been won by the bank.
We've also had a lawsuit filed by one of the five unions we have in the group. That lawsuit covers about 70 employees. That was severed into three lawsuits and we have the preliminary rulings in two of them, both in favor of the bank. So we have successfully defended ourselves. I want to mention that me and the management of the bank were seeking to have good relations with the unions in the bank and with the exception of one of them, we have been successful in that regard. I think that the level of social dialogue has improved a lot over the last three years, but that is obviously my opinion, which may differ from that of the unions.
Reporter: Do you expect other lawsuits?
Tomas Spurny: I wouldn't want to speculate, but when comparing the restructuring of BCR to others that I have worked on, the litigations initiated as a result of the restructuring are not surprising, nor are their results. The Romanian Labor Code has its specific parts, compared to other countries that we have worked on, but we have succeeded in resolving most of the problems with the employees. I think that the morale in the bank has improved considerably now that people see the positive results of the pain and effort that they have gone through over the last three years.
• "The rate of default on the corporate segment has been tremendous"
Reporter: BCR got involved in the restructuring of Cemacon, by selling for 1 Euro non-performing loans of several million Euros. Even though it was announced as a successful restructuring, still, in the Cemacon trade it would appear that BCR is a net loser. What is your comment on this restructuring?
Tomas Spurny: Let's look at the overall picture. In 2011, had a loan portfolio that was worth 50 billion lei. 55% of that was on the corporate segment and 45% on the retail segment. The rate of default on the corporate segment has been huge. I think it can be compared to other very difficult markets. Mexico and the Scandinavian countries in the 90s.
As a bank, we have tried to use the same approach that we have described for retail. If you are our corporate customer and you want to work for us in good faith - if you don't run to Monaco with your Mercedes and with the bag full of money, but instead try to save your company -, then we will try to cooperate.
Cemacon shareholders came to us and they told us that the company has debts and it can't survive. They've asked us if we would agree to convert part of that debt into equity.
We made a deal with the company in 2013, we have made an evaluation and we have decided to convert 15 or 17 million Euros into equity and to save the company. That is the story!
Reporter: And are you pleased with that situation?
Tomas Spurny: I am not pleased, because for the bank it has been very painful to do that. Still, in other cases, the bank lost virtually all its money, for example with Romstrade.
I can think of approximately 20 other cases where the owners didn't care about the company, they didn't care about the people they employed, instead they were thinking of other things.
At Cemacon we did the right thing, we saved the company, the jobs, we saved part of the economy. Are we happy? Of course not.
Reporter: These loans are somebody's fault. Do you plan to turn against the former employees or managers of the bank?
Tomas Spurny: I am not a judge or a prosecutor, I am a manager.
When you lend to companies, you lend based on their performance and based on the future outlook. If we look at 2007, Romania was a country that was much different compared to 2011. Sometimes the outlook doesn't match reality, people make mistakes.
I am not looking to find justifications, but the fact is that BCR and many other banks were optimistic at the time, customers were optimistic themselves. What happened afterwards was quite sad.
Should people go to jail for that, should we drag them through the street?
I am not sure, it is not in my job description to make that kind of judgments.
Reporter: Other banks have talked to the prosecutors.
Tomas Spurny: We have cases in which we have called upon the prosecutors, but the one that you are talking about does not qualify.
Reporter: Are there other cases like Cemacon where you have conducted restructurings, through debt conversion?
Tomas Spurny: There is also the case of Ambient. We had negotiations with 12 other companies to convert their debts into shares.
Reporter: Why did you choose those companies?
Tomas Spurny: We believe that those companies have value in terms of their future presence in the market and in the economy. For any bank, anywhere in the world, not just in Romania, saving companies is a more advantageous option than insolvency or bankruptcy.
When I look at the portfolio of BCR, we have insolvencies that have lasted seven years.
Looking at things from an economic perspective, it is a tragedy that productive assets are kept for seven years without anybody working with them and without producing anything.
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