The new normal means a need for financial services innovation

Innovation will always be the hot topic for the new banking, in the era of Internet of Things.

1. What is the ‘new normal’ in banking in 2015, after an intense deleveraging process?

Prudence has become a keyword post-crisis. Banks have now tighter risk policies, especially in commercial lending. Consumer-wise, indebtedness is still high and new retail lending is going on a different path after the law changed in 2012. Operational expenses of banks are also in focus as they will be decreased and new restructurings will be seen, as well as consolidations.

On the other hand, despite the deleveraging process, clients are now more careful when talking about making financial decisions, so banks have to bring new and high-quality products to gain and maintain consumers’ confidence. Therefore, the new normal also means a need for innovation in terms of financial services that meet clients’ needs.


2. How does the higher-than-expected economic growth reflect on the Romanian banking system? How does the growth reflect on your bank?

It should be mentioned that there are some important factors that have put a lag between the evolution of the banking sector and the economy. Just to mention a few, the dominance of multinationals in the economy that relies first of all on financing from abroad, infrastructure projects that are still suffering, low urbanization and discrepancies between the income level of urban-rural population – all these are slowing down the growth of the banking system.

However, we started seeing the light at the end of the tunnel. Considering the fact that the economic growth reflects in a significant way on the banking system and vice versa, we are expecting a positive growth in the near future in banking, while we foresee a 3% increase of GDP, and of 3.5% for 2016.

Despite all of the above, Garanti Bank has had a very good first half of the year. Lending and customer deposits have registered and continue to register remarkable evolutions. The second quarter has played an important role in our overall results and we expect the rest of the year to continue to be very dynamic.


3. After the crisis, as a defense measure against NPL, the banks in Romania looked for less risk, so less banking. Is credit back on the market?

NBR’s measures regarding NPLs were taken for the system’s wellbeing. Though it has been contracting for a while, now that the market is back on the rise, lending is picking up as well. Last year, new loans have increased by 15% compared with 2013, amounting to RON 51 billion. In the first semester of this year, the new loans volumes increased by 18%, compared to the similar period last year, up to RON 29 billion, heavily supported by housing loans in local currency. Our overall loan volume stock in all segments (SME, corporate and retail) reached, in the first semester, RON 6.27 billion, representing a 27.8% increase year-on-year.


4. We are currently in the lowest interest rate environment ever registered for loans in the local currency. Do you see the possibility of a further decrease?

The key interest has diminished gradually in the past two years. Every reduction of the monetary policy interest rate of National Bank of Romania usually translates into a diminishing of banks’ loan interests in lei, thus encouraging this specific type of lending and supporting the local economy.

The reduction of bank interest rates, nonetheless, depends on more than just one factor. They depend on every bank’s clients, their needs of specific product and their businesses. It is a complex topic and must be addressed from all angles.
If we are to talk about the near future, by the end of 2015, we might still see a decreasing trend. A slight upward adjustment of interest rate is expected by 2017, when the monetary policy rate is expected to be hiked. But overall, the low interest rate environment is expected to persist, driven by the anticipated loose monetary conditions, both in Romania and the EU, until the end of 2016.


5. What are the risks for 2015-2016?

Nationwide, the main risks are related to further modest dynamics of loans to companies, despite the sustainable growth potential and lower risk associated with loans in foreign currency, amid the widening share of domestic currency loans.
Internationally speaking, there is some uncertainty surrounding global economic growth, driven by the expected reversal of the downward trend in interest rates worldwide, and by the slowdown of the Chinese economy, which is already heated up.



6. Is there any room for innovation in banking in 2015?

Banking is, first of all, a service industry. And when you talk about a service business, you have to integrate the technology in your speech. Good service means you have to be exactly at the right place, at the right time, whenever your customers need, and even before they know that they need you. This is only possible with technology and, of course, innovation, which is the implementation of technology at the service of customers. Now a bank is in the pockets of people. And I can say that there is still a distance to cover, even when we are at the closest distance to a customer. Innovation will always be the hot topic for the new banking, in the era of Internet of Things.

I am comfortable to say this, being a member of one of the most innovative Banking groups in Europe.


7. Garanti Group has put a lot of effort in raising capital from international financial institutions like IFC or EIB and directing the funds towards SMEs. How has this strategy worked? And why has it worked?

Partnerships with international financial organizations play a highly important role in supporting the local business community, as we join forces to help stimulate economic growth and internal production.

For example, the agreement we have signed last year with the IFC, member of the World Bank Group, has translated into great funding opportunities for SMEs, amounting to EUR 35 million.

EUR 20 million out of this total amount was dedicated to women entrepreneurs, assuring a significant increase of their appetite for investment and equilibrating their cash-flow.

The strategy was based on offering tailor made complex financial solutions, customized analysis of customer needs and support for successful completion of projects initiated by small and medium enterprises.


8. You have been in Romania for a while now. In your opinion, regarding banking, what will 2015-2016 look like (similar to what banking year in Romania)?

Every year has its own traits. Last year for example, the key interest rate has been reduced considerably, which subsequently had a positive impact on lending in the local currency. This year, the system’s NPL ratio dropped a few percentage points. Next year, we might see some bank exits from the market and possibly some mergers or portfolio acquisitions.


9. What constitutes ‘a good year’ for Garanti Group?

Every year in which we manage to satisfy our clients’ needs, maintain a balanced portfolio and contribute to the development of the local economy, is a good year for Garanti Group.

2015 has been great thus far for us. Earlier this year, the international rating agency Fitch Ratings has upgraded our long-term IDR to ‘BBB-‘, (Outlook stable), our short-term IDR to ‘F3’, our Support Rating to ‘2’, and our Viability Rating to ‘b+’. Our strategy is to continue to grow sustainably on the long-term and Fitch’s decisions confirm that we are on the right track.