Tomas Spurny: "We will never see the reckless expansion of lending again"

Reporter: What do you think the new banking model will look like in Europe?

Tomas Spurny: It is very difficult to cover the subject in an interview like this. If you look at the European markets and at the components of the Eurozone, the structures of the banking industry and the models are very different. There is no such thing as a European model.

The models are different depending on the degree of development of the capital markets in each country. If we look at the British model and we compare it to the German or Spanish model we will find major differences when it comes to the owners of the banks, the structure of revenues and operations of those banks.

If we think of the future of South-Eastern Europe, we will see and we are already seeing consolidation.

Romania is a country with 41 banks and in a few years there may be fewer of them. Some of them have already been sold, such as Volksbank, RBS, Millennium Bank.

The second phenomenon that we are witnessing is the development of alternative financial institutions. I think that the Central Bank has approved the "peer-to-peer" lending platform, which will bring a new form of competition into the market.

On the payments side, we are seeing, for example, that Vodafone has imported the M-Pesa payment system, to compete with major banks on a very specific niche.

In the future, I think that there will be banks which will offer retail services, but they will have to do so in a more efficient and user friendly manner.

What we will probably not see anymore is the reckless expansion of the lending market, to put it politely. The big question is who will finance the economy and how.

Reporter: Who?

Tomas Spurny: In Romania, banks play an important part in financing the economy, so there can be no prosperity without them.

Reporter: Do you think that the Romanian capital market has any chance in this context?

Tomas Spurny: Without the involvement of the local banks, the economy can not grow. Normally, foreign investors bring funding from their own countries, they do not work with the local banks. Major companies raise financing internationally.

The capital markets do stand a chance, but I am not sure if this applies to the Romanian stock market as well.

There are two significant aspects for Romania to develop its stock market. The first one, which is very important, is the effort to change the status of the Bucharest Stock Exchange from a frontier market to an emerging market.

Another step is keeping of the mandatory (Pillar II) private and optional (Pillar III) pensions as they have been designed. Political will must exist to ensure the predictability of the country's pension system and maybe the way the funds of the pension funds can be used better to support economic development, with a certain level of guarantees from the state that future pensioners won't lose their money.

That capital could be used better for long term financing of the infrastructure, perhaps even for those projects that get postponed over and over.

Reporter: Do you think the "bail-in" procedure will deter people from keeping their money in bank deposits?

Tomas Spurny: I think that overall, Romania has the reputation of a country that is very attractive for foreign investors. If we look at the level of debt that Romania has, the cost of the debt has been favorable to Romania. Thus, I don't think that the problem of the bail-in will have an immediate effect on deposits over the next three years, because the country has gradually stabilized and has improved its position within the European Union. Personally, I am seeing significant progress when it comes to macroeconomic and microeconomic stability. I don't think that depositors should worry about resolution plans, bail-in or turnaround, because the Romanian regulators, the NBR, have done a very good job in eliminating the risks that are significant to the country through the banks' owners.

Reporter: You do not see risks caused by the situation in Greece, given the weight of banks with Greek shareholders in the Romanian banking system?

Tomas Spurny: About 17% of the assets in the Romanian banking system are owned by Greek shareholders.

If you look at it from the stability point of view, these banks are not at all dependent on liquidity from Greece. In fact, I think it is the other way around, they could become liquidity providers for the parent banks that are hurting. But I don't think that is the case.

I would be very surprised if even one leu from Romanian deposits were sent to Greece, because it is impossible for that to happen.

I don't think there is any cause for concern for the stability of the Romanian banking system, if there were any problems in the Greek banking sector in the next 2-3 months.

Reporter: Does BCR or Erste intend to make acquisitions in Romania?

Tomas Spurny: Even if it did, I wouldn't tell you.

Reporter: Do you think that BCR will remain the first bank in the Romanian banking sector?

Tomas Spurny: I don't think that it is relevant if it it's the first.

When speaking about first, do we mean size, customer satisfaction, profitability?

We want to be a bank for Romania, so that we can add value to the country's development.

Then, we want to be profitable. Erste has been in Romania since 2006. Cumulatively, between 2006 and until 2014, the bank's profit has amounted to 1.2 billion RON. Which is roughly 300 million Euros.

The acquisition of BCR cost Erste Group 4.6 billion Euros.

The new investments of Erste Group in BCR have amounted to over 600 million Euros and we have made a total profit of 300 million Euros. That means less than 1% per annum. As a result, Erste Group can not be accused of having taken advantage of Romania.

Aside from that, Erste has financed the bank with over 6 billion Euros during its expansion.

When BCR was acquired it had a portfolio of 27 billion lei and that portfolio increased to 50 billion lei.

We can say that Erste helped built Romania's prosperity and then it took many losses.

The Cemacon case is irrelevant, because it is a fortunate case where the bank succeeded in cutting its losses. What is relevant is the incredible level of commitment, trust and dedication to Romania.

After a result like that, any other investor, that only wants to make money, isn't going to ask who should be punished, rather they will tell themselves "maybe we should pack it up and go somewhere else".

I think it is important to convey that, we did not take advantage of this country, we helped build it and we will continue to do so. We hope we are going to do that with better results for the banks' shareholders and for the employees.

Since 2006, the biggest harm was suffered by Erste shareholders, who have an overall loss and by the employees of BCR, who have been downsized.

2500-2700 families have lost their sources of income due to their layoffs.

The BCR restructuring program was not done on a whim, it represented the commitment to Romania. When you are in a situation like the one I have described, you must react. Speaking about trust, we hope that it will be reciprocated by the elites that I was talking about, which we hope would support not just us, but the entire banking system.

We want these elites to judge correctly which banks bring added value to Romania and to have a positive future together.

Reporter: Do you intend to remain an universal bank?

Tomas Spurny: We are a universal bank, even though Erste has started off as a savings bank for disadvantaged people 196 years ago.

We will support every customer segment that we have, unless either regulatory or other issues make certain activities unprofitable in the long run. We will drop the activities that do not provide long term opportunities to create value.

Reporter: Which segments do you intend to lend predominantly to?

Tomas Spurny: We want to support the real economy, companies that manufacture either for domestic production or consumption or for exports - from agriculture to advanced technology, the automotive industry. We are focusing on those companies that bring value to the GDP.

In the restructuring, the bank has been set up around six industry clusters. The corporate banking segment was divided among those six groups, where we try to make the employees understand the industries in question and to make them get closer to our customers.

From the risk management point of view, like most banks we have a rating scale from 0 to 10. 0 means you're an angel and you don't need any money at all, 10 means you are insolvent, you need all the money in the world but nobody will give it to you. As a policy, given the bank's history, we are only able to lend to companies that are in the middle of the scale or higher.

The rating is calculated depending on two criteria. One is the past performance - those companies that pay their taxes and don't try to hide their profits have easy access to financing, because if you have a profit, if you have cash flow and you are also lendable.

Unfortunately, in Romania, many private companies have difficulties in that regard. I hope that the new Fiscal Code that was approved by the government will fix this issue, that people will pay their taxes and that they will place an emphasis on announcing their financial results. That is the key to having access to funding.

A second criterion is the position of the company in the industry.

The second biggest problem today is that we have a huge pool of liquidity, which we can't place in the market because the demand comes from companies with very poor ratings, rather than from those we could lend to.

According to an IMAS study, 30%-40% of the Romanian companies want to reduce their degree of indebtedness, so people don't want to borrow money. That, to me, means lack of confidence in the future. I am hoping that this will change.

It's not that we don't want to lend money, but we don't have enough opportunities, which is the biggest problem that we are currently facing.

Reporter: Banks should do something about it.

Tomas Spurny: We should all do something about it. All companies have to become more transparent to the fiscal authorities, whether we like it or not. That is a fact, because banks work with financial statements, which are also used for tax returns. Like I've said, I have great hopes for the Fiscal Code, because I believe the government is taking steps in the right direction.

Reporter: We don't yet know whether this fiscal code will be applied.

Tomas Spurny: I am an optimist, I hope it will, because it will certainly help, in a situation where we have a need for a 5% GDP growth for this country to prosper, to create a middle class and to resolve the social issues that it has - unemployment, job creation. This has to be done by tackling multiple fronts. One would be the fiscal front. The second issue would be the modernization of the Labor code, which is very difficult, because people don't like that. But a more flexible labor code would allow the creation of more jobs.

Reporter: Is BCR ready for the stress tests in autumn?

Tomas Spurny: Absolutely. We have gone through an asset evaluation exercise in the first half of 2014. There were four banks that went through the European exercise.

In 2014, we have also reevaluated potential losses, we have set up provisions. Over the last three years, we have allocated 10 billion lei to cover loan losses, so I am sure that we currently have one of the cleanest balance sheets in the country.

Reporter: How is the Basel III regulation affecting the activity of BCR?

Tomas Spurny: It has affected it in many ways. In terms of capital management, I would say that we do not have absolute clarity concerning how the capital requirements will evolve in the coming five years on a local level. This has not been completely set, in many countries, not just in Romania. It would be a good thing for us to understand how much capital we are going to need.

Still, the bank is overcapitalized, so for us capital is not an issue, in terms of the current requirements.

The second Basel III important element for us is the management of assets and liabilities and the manner in which the bank will obtain and maintain sufficient liquidity.

This affects us in an unusual manner. Romania has one of the lowest rates of current account use. Many people pay cash. In most countries, people pay through wire transfer. Thus, the general level of use of the current accounts in Romania is far lower than in other countries. it would be a good thing if the banks were used for current payments, because current accounts are one of the most important sources of financing that we have.

I think that Basel III will also be goof for developing the Romanian capital market, because banks will be able to issue bonds on the BSE to finance the mortgage portfolios and the long term loans for infrastructure.

Thirdly, the volume of investments that we need to make for our systems and reporting capacities within the group for compliance of our system and regulatory capacities is significant. Our plan for the next five years involves investments of 300 million Euros in various improvements of the bank, of which a significant part is investment in regulatory compliance.

Reporter: How many years do you think will pass before Erste shareholders are pleased with the acquisition of BCR?

Tomas Spurny: That is a difficult question. I am not a shareholder, but over the last three years I've had frequent contacts with Erste shareholders at investors relations events. I think that BCR shareholders understand that the management and the bank have met their management targets.

The key problem in Romania is to start the bank's growth, in terms of revenues and volume. That is the function of the years 2015 and 2016. Once you remove the bank from the edge of the cliff, it takes time to guarantee that growth will happen. I would say that the progress of restructuring and the reinvigoration strategy should become visible in the first quarter of 2017. That's when the jury comes back and we will be able to have a verdict on whether the efforts we undertook since 2012 to rebuild the bank have been successful. Up until then, we will have an interim assessment and it will be decided in 2015 whether the bank will reach its target, its budget and complete the restructuring of its balance sheet. This is the last year when we are going to have residual restructuring tests.

Reporter: The press recently wrote about the loan package which BCR intends to sell. Is that information correct?

Tomas Spurny: I can not confirm that.

Like I've said, the restructuring had several components, one of them being the complete cleanup of the balance sheet, and another being the creation of a structure of 500 employees, which would deal with certain cases.

We currently have Spanish consultants who are surprised by the efficiency in the bank, which is higher than in Western Europe. We will change this bank to make it have a quality balance sheet and to be the safest bank for any depositor.

That is my obsession, because I like transparent banks, without surprises, where there is nothing to hide and you have no reason to worry. That is the final goal.

It doesn't matter if we are ranked 1st, 2nd or 3rd, I prefer the depositors' prosperity and safety.

Reporter: So will you sell that 2.7 billion Euros loan package?

Tomas Spurny: I have no idea what these people are writing about. Mass media says all kinds of things.

When we have something to say, we will, but right now this is not the case. Simple.