The expansion of the loan and deposits portfolio - the main benefit of the merger between Patria Bank and Banca Carpatica

• (Interview with Daniela Iliescu, CEO of Patria Bank)

Reporter: What is your view on the banking market, at this time, and what do you think the future will look like?

Daniela Iliescu: The banking industry in Romania had an extremely dynamic trajectory. In the ten years since the big crisis, the banking sector has continued to consolidate, in my opinion. The banking system had a positive evolution generated in particular by a positive macroeconomic evolution - and not just from a numbers perspective, but also in terms of the level of confidence of the population in general, which has also led to an acceleration in lending. Following the constant efforts of the banks, the ratio of non-performing loans dropped.

Over the last three years there were very good results, and the positive trend makes us optimistic that banks will be able to focus their efforts and resources towards their main area of activity, namely financing the economy and implicitly, Romanian's welfare.

Most of the Romanian banks have a majority share capital, which shows the openness of the Romanian banking system towards a European banking system and not only. Even though the assets of the Romanian banking sector are predominantly owned by foreign capital institutions, the trend is down compared to the previous years, which shows a consolidation, even that of the group of Romanian investors.

Automation and digitization are two of the most visible trends of these years, and the evolution in this sector emphasizes the gap between urban and rural. We still need financial education in the rural area so we can increase the banking rate in those areas as well.

Compared to 2008, banks operate with less staff and fewer branches, under the impact of digitization and the change in consumer behavior, aspects which have increased the efficiency of workflows and automation for banks.

A great issue of the sector and of the Romanian economy is still the low degree of financial intermediation, evaluated through: i) the percentage of loans compared to the GDP, which is the lowest in the EU - 27%, far below other countries in our region and ii) the percentage of the population which has an account - also very low - over 55%; this denotes a low degree of financial education and of the use of financial products by the Romanian population; a major reason for this is the demographic structure and the urban/rural geographic distribution. Patria Bank, through its strategy, has always had an important pillar dedicated to increasing the degree of financial intermediation, through the granting of products and services to some customers with a low degree of financial inclusion. We will continue to build this pillar and we hope to see other players which will approach this potential market, the second Romania, of customers in smaller towns and the rural areas.

Reporter: How has the activity of Patria Bank evolve after the merger with Banca Carpatica and what have been the advantages of this merger?

Daniela Iliescu: Since the merger, and until now, Patria Bank has seen a positive evolution, with an actual double-digits dynamic. A merger has a major impact and is felt at every level of the bank. The effort behind it is significant, especially when you want to achieve it within a very short delay. We are more than two years after the merger and the financial results of the bank are on a rising trend; we almost broke even in 2018, and the first quarter of 2019 at a profit, while the new loans have seen a good progress.

The merger gave us a very good liquidity base, which we have preserved and increased in the areas of interest, assuring the premises for a two digit increase on the sales segment.

The expansion of the loan portfolio, as well as deposits represents the main advantage of the merger. Banca Carpatica has also brought with it a portfolio of non-performing loans. After the transactions for the assignment of the non-performing loans of last year, the bank completed the integration process of the merger. This has also brought us into the team a number of very good people, who are still on the Patria team and which are still with us in the development of the business.

Reporter: What is the bank's level of lending and the degree of non-performing loans?

Daniela Iliescu: The figures and results of the first six months look good: 1.6 billion lei loans, with a non-performing ratio which is continuously dropping. The volume of deposits in this period amounts to approximately 2.7 million lei (debts concerning the clientele), volume which stands out through the high quality of the clientele, stability and continuity in contracting.

Reporter: What new lending products have you launched?

Daniela Iliescu: I think that this year we are talking more about star offers. One of the examples is the loan "Patria Acasă", which has become of the best mortgages on the market - Annual Effective Interest rate starting off at 3.99%. We also have a competitive offer on deposits: 3.50% p.a. on the "Patria Clasic" deposit + 0.25% bonus for "Bani Noi" (New Money). It's the offer of the summer. Consumer loans are also very competitive: with an interest rate starting at 7.45%.

To us it is very important to have products that are as competitive and accessible as possible, so that we can grant customers some of the best alternatives in the market and at the same time give sales people the products and instruments needed for a conversation as easy and direct with customers as possible.

Furthermore, we have begun a series of projects which would facilitate the offering of complete services. The introduction of the new internet banking platform (combined with the effort to enroll as many customers as possible in it) and improving the remote services provided to the customers, in the context of the increased digitization of the economy, will determine an optimal service of the customers, regardless of the place where they choose to interact with us: from home, in the branches on in non-cash offices.

We also have a new Internet and Mobile Banking platform, which improves the customers' access to the bank's services. It is simple and easy to use and provides many benefits.

Reporter: What benefits does the bank get from the fact that it is listed on the capital market?

Daniela Iliescu: As am issuer listed on the Bucharest Stock Exchange, Patria Bank actively uses the mechanisms of the capital market to diversify its financing sources.

At the same time, through the capital market we have access to institutional banking investors. Strategically, we want to build an authentic Romanian bank, which can coagulate the resources from the Romanian capital market and become an important player in lending to and supporting the local economy.

Thus, after two share capital increases performed in 2018, the bank recently summoned a General Shareholder Meeting in order to approve the launch of a bonds issue.

According to the information included in the notice to attend, the intention is to issue a maximum of 10,000 unsecured bonds, uncovertible and unsubordinated, denominated in Euros, with a nominal value of 500 Euros/bond and a nominal value of a maximum of 5 million Euros. The bonds will have a maturity of 8 years and a coupon yield of 6.5%/year, payable every semester. The bonds will be sold through a private placement, and the intermediary which will be put up for approval to the General Shareholder Meeting is Tradeville SA. If the offering is successful, the bonds will be admitted for trading on a market managed by the Bucharest Stock Exchange.

Reporter: What is your opinion on the Romanian capital market?

Daniela Iliescu: In time, it has succeeded in implementing a modern infrastructure as far as institutions, the regulatory framework, the participants and their services are concerned. Of course, we would like to see a growth for some of the market parameters - transaction value, capitalization, number of investors, number of issuers or number of financing transactions conducted through the exchange. We have confidence that this objective will be achieved in turn (but gradually, over time).

As far as we are concerned, we are pleased with our position of issuer listed on the BSE and we want to contribute to the development of the market through its financing which we are going to launch in the future.

Reporter: How has the activity of the bank been affected by the implementation of Government Emergency Ordinance 114?

Daniela Iliescu: We have been impacted. The unpredictable context in the beginning of the year, with new taxes, but unclear at that moment, with pressures on the image of the system, with the state of uncertainty and waiting from the market players, have pressured our budgets and plans. We took a number of measures, it hasn't been easy, we have resettled in the new context and we have focused on growth and results.

Reporter: What is your view on the legislative projects in the banking system being discussed in the Parliament?

Daniela Iliescu: We feel that any regulation which aligns the legislation in Romania to the international standards is welcome, especially in the case of those who open up the customers' options to access services. These increase competitiveness and improve the quality of the services provided to customers. The pressure of implementing them in the case of smaller banks, such as ours, is felt more heavily, because the implementation costs affect several budgets.

Reporter: What shortcoming does the legislation in the sector have and what are the difficulties of the market?

Daniela Iliescu: The legislation in the sector still needs to be adapted to the specifics of the local market. That is where the major problems start from in Romania, we are integrating some models that don't fit the country. Or we do not take sufficient steps to prepare their prior integration.

Even though the degree of financial intermediation is particularly low in Romania, still, the banking system is more developed now. The diversification and adaptation to the target customers are the elements which have and will continue to make the difference. We have a multitude of targets, out of which several stand out. One is the young sophisticated public, from the major cities, which is very demanding, which wants to experience digital applications and remote services, concerned with the risks they expose themselves to through loans and more aware of how they spend their money. On the other hand, we have the mature public, from the smaller cities and the rural areas, who pay a lot of attention to their day-to-day spending, concerned with the next day and the welfare of the family and their household. Each one needs to be targeted differently.

Reporter: How ready is the bank for the era of computerization?

Daniela Iliescu: In Patria Bank we see computerization as an instrument by which we can better serve the customer to save them time - the time spent in accessing these services and trading time. "Here and now" becomes ever more important to a customer. The level of computerization will determine in the future the degree of competitiveness of banks, which is an additional challenge for the small banks and the investment budgets.

We are continuously taking steps towards digitization and improving the solutions offered to customers, together with the automation of internal processes. For instance, since September, we are launching a new internet banking service, a platform that is simpler and easier to use, with many advantages for the customer. It even includes a function of personal budget planning, which helps people keep tabs on it.

Reporter: Do you think a new financial crisis is coming? How ready would the bank be for such a case?

Daniela Iliescu: It is a subject that a lot has been written about last year, and in the beginning of this year, it became tabloid fodder. We are part of a global system and Romania is an economy that is integrated on a European level. Major changes on the foreign markets will inevitably affect us, to a lesser or greater extent. Banks have learned a lesson from the 2008 moment, and are more cautious, more solid and aware of their circumstances.

Reporter: Thanks!