Press detail

Vienna/Muenster, October 5th, 2009 – Small and medium-sized enterprises (SME) have proven to be the backbone of the economy in Central and Eastern Europe (CEE). From a macroeconomic perspective they contribute to the diversification and reduction of concentration risks. Also they alleviate the effects of a recession on productivity, employment market and growth. Last but not least the economies in CEE can count on the SMEs to act entrepreneurial, innovative and flexible, as they are mostly managed by their owners: entrepreneurial spirit and the will to survive are fundamental characteristics. Altogether the large amount of small and medium-sized enterprises represents an enormous potential for banks – the surveyed banks issued on average 45 % of their total loan volume to SMEs.

The study “SME Banking in CEE“ was developed in a joint venture with EFMA (Paris) as well as Erste Group AG (Vienna). It is based on data from 59 banks in Croatia, Poland, Romania, Russia (Moscow), Serbia, Slovakia, the Czech Republic, Hungary and Ukraine – more than 60 % of these 59 banks rank among the top 10 in their respective countries and 80 % are subsidiaries of international banking groups. Additionally SME experts of 24 banks were interviewed.

Stability and sustainable profitability rather than customer acquisitions and expansion of market range

In the past the main emphasis of most banks focused on loan products. Far into the year of 2008 proportionally high rates of growth in the credit business have been observed. The strongest growth is registered in CIS, with 82 % of banks expanding their loan portfolio by more than 20 % (the average of all banks in the sample: 60 %) and 64 % of all banks increasing their margins (the average of all banks in the sample: 55 %). One cause for the unbalanced income structure (45 % of the gross earnings are derived from the credit business) lies in the strong demand for loans in times of easy access to refinancing during periods of growth. Another reason is the partially low risk sensibility in the past. This image will presumably change significantly in 2009: the queried banks report declines up to 80 % in the new client business.

„The new challenge is to find a balance between sales, risk and efficiency, to define a clear business model and to implement this strategy consequently”, says Helge Boeschenbroeker, Senior Manager at zeb/ and initiator of this study.

What has changed in SME Banking due to the economic crisis?

74 % of the interrogated banks mention the “impact of the financial crisis”, 50 % the “current macroeconomic environment” as the biggest threats to SME banking. Regarding the question of the effects of the financial crisis 69 % stated the worsened quality of the loan portfolio. Most of the banks (65 %) are also worried about the sharp decline in new client business which has arisen due to SMEs not meeting the banks’ (increased) requirements for approved financing as well as the lower demand due to clients’ awaiting the further development. However, the surveyed banks also identify chances in the crisis. About two-thirds see an opportunity to present themselves as a strong partner for their clients even in “less favorable conditions”. As a sparring partner they are ready to support their clients – provided it being reasonable and possible – regarding the granting of credit to selected clients. As another consequence of the crisis many banks have started to deal intensively with the growing number of troubled loans: 15 % of the polled banks have already sold non-performing loans, another 25 % plan to do so. 75 % have centralized problem loan processing.

What are the success factors and what are the levers for profitability?

• More than 70 % of the questioned banks regard “Service Quality“ as one of the three most important success factors; more than 60 % the “Personal Relationship“ with the customer.
• Another success factor is the organizational structure: to implement SME as an “independent“ segment is more promising than maintaining SME within the corporate or retail banking segment.
• Customer penetration rather than new client acquisition: In retail the approach of client acquisition/expansion of client reach has shifted to an increase of profitability of existing clients/customer penetration. In addition to risk issues the evidence suggests that an increase in profits with existing clients is much more efficient.
• Focus on client facing activities: relationship managers with a client facing time over 60 % have on average 20 % higher cross selling ratio, but only 28 % of relationship managers spend more than 60% of their time interacting with clients.
• Lean product portfolio: banks with a lean product portfolio covering the general demand have a higher cross selling ratio than institutes offering a significantly more extensive and individualized product range.
• Operating efficiency: efficient processing – mainly located in the credit business as most resources are bound here – increases the earning power and simultaneously improves (supported by an appropriate IT system) customer satisfaction by shorter processing time periods.
• Efficient controlling systems: The increase of profitability is the main goal for CEE banks, however only about half of the banks can measure profitability on client and product level. Accordingly 65 % of the queried banks indicate the approach towards implementation of Business Intelligence Solutions and Management Information Systems.

“With respect to sales, we see three key challenges: firstly, to better understand these clients; secondly, to select the right clients for further growth; and thirdly, to enhance cross-selling significantly to increase the profitability of a single client and of the business segment as a whole. We still consider sales aspects – after overcoming the crisis – to be vital for sustainable and future-oriented growth”, predicts Böschenbröker.

Outlook

Right now CEE is undergoing the worst economic downturn since the beginning of the transformation process. Still zeb/ expects higher growth rates in this region in the mid and in the long term in comparison to Western Europe. As the SME sector is at least engaged in this development – and even may be regarded as its major driver – the SMEs will especially profit from new growth. This development will gradually narrow the gap between the Western as well as the Central and Eastern European micro businesses and SMEs and result in a larger number of reputable medium-sized players in many markets, addressing credit institutions with increasing demands for financing, advisory and further banking products and services. Therefore CEE remains a profitable growth market with prospects in the long run for its credit institutes.

zeb/rolfes.schierenbeck.associates is a management and IT consulting firm specialising in the financial services sector with twelve offices in Germany, Austria, Switzerland, Poland, the Czech Republic, Ukraine and Hungary. zeb/ has over 650 employees and ranks among the leading consulting firms for banking, insurance and other financial services providers.

Further information on the company is published in the zeb/Report, available on www.zeb.de or – on request – by mail.

Contact:
Dr. Anne Täubert
Corporate Communications
Phone: +49.251.97128.220
Fax: +49.251.97128.110
E-mail: ataeubert@zeb.de