Representatives of BA/CA announced new e-bank and mutual fund services for customers on September 26.photo: Juraj Bachár/Hospodárske Noviny
The Slovak retail banking market received a further development impulse this week when Bank Austria Creditanstalt (BA/CA), the Austrian financial house, announced it was offering Slovak customers e-banking services and the chance to invest in mutual funds.
Now, for a minimum investment of 100,000 Slovak crowns ($2,000), Slovak citizens will be able to put their money into foreign bonds and blue chip shares through BA/CA daughter company Capital Invest. Under the mutual fund arrangement, people put their individual savings into one of several collective investment vehicles, whereupon fund managers decide how the money should be invested. The funds vary in type from low-risk ventures like money markets, medium risk destinations like bonds, or high-risk high-yield equity markets.
Speaking at a press conference September 26, Regina Ovesny-Staka, chairman of the board for BA/CA in Slovakia, added that the bank had also applied for a mortgage banking licence, and was awaiting word from the National Bank of Slovakia on if and when it could begin offering loans to homebuyers as well.
Ovesny-Straka said that while the new products were mainly part of the bank's plan to develop its retail activities in Slovakia, they did owe something to the imminent privatisations of three major state banks and expectations that strong foreign investors would soon enter the market. "We feel the bank owes it to its clients to come up with new products," she said, "and it [our strategy] doesn't depend on how the competition behaves. [But] we expect a strong investor to come in [through privatisation], and competition to increase. We have to prepare for this by being more active and effective."
Banking sector analysts agreed that privatisation of state banks such as Banka Slovakia, Investičná a rozvojová banka (IRB), Všeobecná úverová banka (VÚB) and Slovenská sporiteľňa (SLSP) and expectations of fiercer competition, combined with low returns from corporate banking, had put a premium on retail activities recently.
"These days, if you want to be successful you have to be in retail [banking]," said Martin Barto, head of strategy at SLSP.
Appetite for risk
The key to the success of the bank's mutual fund offer, BA/CA Slovakia vice-chairman Imrich Bereš said, will be to find customers who are both willing to take the risk and have the money to spare for a long-term investment.
"There are three types of [banking] customers in this country," said Bereš. "We have the unteachables, who only look at high yields, then the orthodox customers who only know two banking products - savings accounts and term deposits - and the innovative group, which is usually younger and middle generation people who want to play on international markets."
That this third type of banking customer is growing in number in Slovakia was confirmed by analysts. While deposits in commercial banks totalled over 540 billion Slovak crowns ($10.1 billion) at the end of August, Slovak mutual funds administered property worth only four billion. However, according to estimates produced by the Slovak Association of Investment Funds, this number could climb to 70 billion within five years as Slovak consumers looked for investment alternatives to low-yield savings accounts.
"Although the band is not very wide yet, there definitely is a group of customers which are attracted to mutual funds offered by respectable institutions, by which I mean holders of banking licences in this country," said Barto.
"I see it [mutual funds] as a very prospective market," agreed Július Strapek, CEO of the Tatra Asset Management investment fund, which manages over 2.3 billion crowns, or over half, of the Slovak mutual fund market. "We attract intelligent, rich people from cities who like new things and who are relatively young. Falling interest rates [on deposit accounts] are pushing people to look for new opportunities to invest, while globalisation is bringing companies to Slovakia which are attractive to invest in, such as Deutsche Telecom [which in August purchased a 51% stake in telecoms firm Slovenské telekomunikácie - ed. note]."
Strapek added that banks were being driven to develop new revenue streams by plunging margins. Whereas banks made up to 7-8% margins when interest rates were at 30% in 1998, he said, "you can't find such high margins these days, which is why banks find they have to 'turn' money - to earn fees on [brokering] securities, management fees, custody fees and so on".
E-banking
BA/CA's e-banking system was lauched September 25, and followed the high-profile market entry of Tatra banka's eliot service in June. Customers will be able to gather account information, transfer money between accounts and pay bills through the Internet, although they will still have to show up at one of BA/CA's six Slovak branches to open an account.
The 'new generation' of banking clients, Barto said, was behind the growing popularity of e-banking as well. "The [e-banking] market is very promising, and all banks are taking steps in this area. SLSP, for example, already has 30,000 e-banking clients, and with the growing penetration of the Internet, the area will be even more active in the future. However, it's mostly driven by young people - you can't expect old ladies in villages to be interested [in e-banking]."
Barto explained that Internet banking helped not only customers save time but also banks to cut costs, a fact that had contributed to its growing popularity. "E-banking saves banks a lot of costs and allows them to focus on more profitable activities," he said.
Philippe Moreels, a member of the board at Tatra banka in charge of eliot, said that while it was "objectively true" that e-banking cut costs for banks, in a small market like Slovakia's it was more often the case that e-banking gave banks a way to offer clients "better and different services" - services which, if offered through the Internet, did not require investment in an extensive branch network, and allowed smaller players to cater to national customer bases.
"Anyone who wants to compete with the three major state banks [in terms of branch networks] realises he has a lot of work ahead of him," Moreels added.
