INTERNATIONAL SUBSIDIARY BANKS DIVISIONBanking Industry: What next?Silvio Pedrazzi, Head of CIS area, Intesa Sanpaolo, ItalyCIS Bankers, 2nd International Banking Conference & ExhibitionKiev, June 4th, 2013
2External forces inducing critical choices and structural changesBad and damagedreputation triggeringcustomers’ hostilityPolitical instability intoo many keycountries2009 crisisinheritanceShareholders askingto increase the levelof dividend pay-offStill lack of trust infinancial markets,limiting fundingabilityShortfall of capital:Raising new capital ordeleveraging?Regulatoryconstraints(Basel III)Newdisruptivetechnologies
3Banks are struggling to manage a number of major issuesØ Insufficient level of capital (regardless of the opposite daily statements), mainlycaused by quality of Loan Portfolio and disputable coverage of NPLsØ Still deteriorating (or at least not improving) Loan Portfolio qualityØ Decreasing, in absolute terms, Performing Portfolios volumesØ Significant pressure on Net Operating ProfitØ Need to improve risk management systems and toolsØ Majority of banks are EVA® negative
4How the banks are (really ) reacting?q Ongoing aggressive G&A costs reductionq Layoff plansq Reduction in CAPEX that become mainly devotedto regulatory and risk management needsq Trying to squeeze more value (money ) fromclients (so called «pricing optimization»)q Risk appetite reductionq Moving towards or enhancing low risk businesses,possibly without (or very low) credit risk (i.e.:wealth management, bankassurance, part ofinvestment banking as well as large corporate)Where is the so praisedCustomer Care?
5Expected consequences on branch networksOnce you look at the P&L of single business segments, most likely you will find that «branch networks»are not profitable or, at least too expensive... taking also into consideration the dramatic fall of clients’physical presence (unfortunately, Brett is right ....!!!!!) driven by new customers behaviors and newtechnologies.......q Strong reduction of # of branchesq Development of alternative sales channels (but not enough due to budget constraints)q Trying to preserve multi-segment branches (affluent, SB, lower layer of SMEs) also withinnovative layouts
6New competitors and … Who else will come?q Today, more than ever newcomersare advantaged in «stepping in»leveraging on new technologies andnot being conditioned by legacyq Possibility to target only profitablebusiness, limiting as much as possiblecredit riskq Possibility to design sales channelsfrom the scratch
7…So what?Once again (as during the last 20 years) banking industry seems to be «short-sighted» ....or is forced to be!...But this time the risk is much higher: mistakes are not allowed any more! since.....Ø Sovereigns could be not so willing to intervene (...for free...)spending money of the already upset householdersØ Disruptive technologies forcing to huge, quick, as well asexpensive, structural changes…Conclusionsq The main barrier for technological development could be the traditionalbanking industry itselfq In any case, the network “революція” has already startedq Actually, banks have to suffer from and to limit damages, using only thenext few years to upgrade themselves
8Food for thought=> Do we (bankers) really want this scenario?=> Do we (bankers) really fit to this scenario?=> Do we (bankers) really think we can manage such a “Революція”?=> Are we (bankers) ready and willing to move forward???