Top Manager in Discussion: Heinz Wiedner, Raiffeisen Bank’s CEO-in-waiting
On 1 January Austrian Heinz Wiedner will take over as CEO at Raiffeisen Bank after Péter Felcsuti’s roughly two decades at the helm. We spoke to Wiedner about his plans for the bank and the prospects of the Hungarian banking sector.
Why has the Austrian parent company appointed an Austrian to lead its Hungarian subsidiary for the first time?
The rather difficult circumstances mean that certain changes are necessary to prepare the bank well for the future. We need to concentrate on different things now than in the pre-crisis years. That was certainly one reason why the decision was made to appoint someone as CEO who knows the Raiffeisen Group well and can bring certain best practices from the group to Hungary. The aim is also to bring the Hungarian subsidiary bank closer to the group and to place certain emphases that we believe are necessary for the Hungarian market. I will be able to contribute to that. Optimising processes and efficiency has been a consistent part of my work in the various stages of my career so far, although of course that won’t be my only focus.
What aims do you have for the bank?
We would like to improve processes and structures to the point where we can achieve profitability even in times of low growth. It is a question of setting ourselves up so that we are sustainably ready for the future. We need to introduce structural improvements that will also help us in the long term. That is only possible by increasing efficiency. The main cost-cutting steps have already been taken after the crisis broke. We now need to make an effort to optimise processes so that we can get by in the coming period with virtually no cost increases. Our aim is to grow without our costs rising.
Where do you believe there is still potential to increase efficiency?
In internal processes, rather than on the sales side. We still have too many processes that are not automated. We need to change that. We will do that process by process. Of course that takes a certain amount of time. The process optimisation will take place in the framework of a lean management concept.
What are the other points that you will focus on?
We need to improve our risk management as well as our efficiency. Risk costs have rocketed in the past years and are still rising, although to a lesser extent. The number of non-performing loans is too high. We are working on getting the most out of those loans. We are also analysing in detail the mistakes of the past and taking measures to prevent such errors being made again. During the boom period almost all the banks made certain mistakes. They were so focused on growth that they took on too much risk. That is what needs to be avoided in future. Ultimately the profitability of a bank is highly dependent on its risk outcome.
Will there be a strategic realignment of the business areas in which you operate?
We will continue to operate as a universal bank. We won’t withdraw from any sectors. We have business customers, a field in which the bank has always been very strong, and private customers. Within those two sectors there will be a greater or lesser focus on certain customer groups. We are in the process of developing strategies for the individual sectors.
And what of the foreign exchange loans issue?
That topic is not yet over and done with. We need to continue to be very cautious. We no longer grant Swiss franc-denominated loans and we are very selective when it comes to euro-denominated loans. There is very thorough monitoring of existing foreign exchange loans. Rather than one big strategy there are a large number of individual solutions. It’s no coincidence that we have a relatively large department dealing with this topic. In retrospect it can be clearly recognised that it was a failure of the entire banking system here in Hungary that so many Swiss franc loans were granted.
What can the government do now regarding that question?
For a long time there was talk of creating an appropriate instrument. I haven’t heard anything more specific about that at the moment, and I think by now it would be too late. The banks have found their own ways of handling the problem. At Hungarian banks a large proportion of the non-performing loans are already in the books and being digested. If these loans were now to be transferred to a bad bank, then it would be chiefly a question of the price.
What is the mood like among your business customers?
Apart from the automobile sector and some exporters there is still a general attitude of “wait and see”. There are few long-term investments. Everyone wants to find out first how the general conditions will change. That can be clearly felt when it comes to demand for loans. Our credit volume on the Hungarian market is still declining. It is not the case that we don’t want to grant any loans. There is simply a lack of investments. Until that trend is reversed we cannot speak of the economy picking up in a sustainable way.
And what about the property sector?
The picture here is also far from rosy. Things are at a standstill and companies are waiting to see what will happen. The uncertainty regarding mortgages is another reason why the banks are very cautious. Currently there is a foreclosure moratorium in force until April. Nobody knows what will happen after that. If the lender no longer has the right to repossess the property, then using a property to secure the loan is no longer worth anything and the lender needs to adapt its lending behaviour accordingly.
Let’s talk about the bank tax.
We appreciate that the banks also need to contribute to stimulating the economy. In Hungary, however, the state did not pump money into the banking sector during the crisis as in other countries. It didn’t have to bail out any banks. The foreign parent companies took care of that by, for example, deciding collectively not to take their money out of Hungary. If that had not been the case there could have been a chain reaction with unforeseeable consequences. Nevertheless the special tax for 2011 and 2012 will be levied retrospectively on the 2009 balance sheet total.
Were there any prior consultations?
The banks were asked at the beginning but unfortunately none of our suggestions were adopted. No notice was taken of our suggestions. The Hungarian bank tax is around ten times that of the British in relation to the gross domestic product of the two countries. I also find it problematic that it is not based on profit. Many banks will find themselves driven into the red as a result of the special tax.
Including your bank?
The bank tax contributed significantly to the fact that we had to post a loss for the first nine months of this year. Despite the tax remaining in place we hope to record a profit again next year. The tax for 2010 and 2011 can no longer be changed. The question is what will happen in 2012. If the bank tax remains at its current level and in its current form, then of course it will have an effect on our long-term strategy. After all, our owner expects an acceptable return on the capital invested.
What has been your short-term reaction?
In the short term it is only possible to react by reducing costs. The prices barely offer any room for manoeuvre. If the tax remains in the long term, however, then it would be a delusion to think that it will not have an effect on our prices and our credit volume. We don’t want to invest fresh capital now to achieve growth that will give us only a minimal return. That wouldn’t make sense from a business point of view.
What is your strategy regarding the bank tax?
We will try to establish dialogue with the government, including through the Hungarian banking association, and we hope that the government will prove to be a reliable negotiating partner. It cannot be in the interests of the government to create far greater problems for Hungary in the medium and long term as a result of short-term consolidation efforts. The banking sector has a significant impact on the development of the economy. The whole issue will have an effect on how Hungary is perceived internationally. The Hungarian state will again have to take out loans. The question then is at what cost? In addition to dialogue with the government we also want to be more involved on the European Union level. I am thinking not so much of a uniform solution to the question of the bank tax – national views differ too much for that – but of various meetings between economy and finance ministers at which measures such as the tax can be addressed.
What are your long-term expectations?
Despite all the difficulties I believe that collectively we will be able to overcome the problems and find solutions that will point the way forward from 2012. We are not against a bank tax per se but we are against a bank tax that makes our lives impossible. Hungary is a significant market, and not only for us. I absolutely cannot imagine that banks will pull out of Hungary. That lends strength to my optimism.
What are the prospects of your bank specifically?
We would like to further develop our solid market position. In terms of balance sheet total we are currently sixth on the market and the difference between the banks in places three to eight is very small. In future we would like to be in the top five in balance sheet total. However, the balance sheet total is not everything. I regard customer business as more important. We are even better positioned in terms of that than our balance sheet total. We have a good network and excellent staff. That opens up possibilities for growth.
