IT in Banking in Central Europe – An Overview

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IT in Banking in Central Europe – An Overview

  1. 1. IT in Banking in Central Europe – An Overview Enterprise Ireland Dublin November 2006
  2. 2. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  3. 3. Introduction to G&C Management Consulting <ul><li>Banking and IT Consulting Company </li></ul><ul><li>Founded in 1990, Headquartered in Czech Republic </li></ul><ul><li>4 Partners, over 20 Consultants and SW engineers </li></ul><ul><li>Offices in Germany and Switzerland </li></ul><ul><li>Over 50 clients (financial sector), mainly in Europe </li></ul><ul><li>SW Development and Implementation </li></ul><ul><li>Universal Banking System (T/O/P Banking) </li></ul><ul><li>Enterprise Content Management (WINS / FileNET) </li></ul><ul><li>Risk and Profitability Management (SAP R/3 SEM) </li></ul><ul><li>ALM & TC (Mantas USA) </li></ul><ul><li>IT Consulting Services </li></ul><ul><li>System Integration </li></ul><ul><li>IT Strategy (development and implementation) </li></ul><ul><li>IT Procurement / IT Outsourcing / IT Organisation / IT Audit </li></ul><ul><li>Project based co-operation with global IT Vendors & Consulting Companies </li></ul><ul><li>SAP, ORACLE, IBM, Getronics, IFN Systems, FileNet, Mantas, Logica, IHAG Informatik AG (CH) </li></ul><ul><li>Savings Bank Foundation for International Cooperation (Germany), WestLB </li></ul>
  4. 4. Selection of G&C Clients <ul><li>Czech & Slovak Republics </li></ul><ul><li>Agro Banka / GE Money Bank </li></ul><ul><li>Czech National Bank </li></ul><ul><li>Czech Savings Bank (Erste Bank Group) </li></ul><ul><li>ČSOB Bank (KBC Group) </li></ul><ul><li>Investment & Post Bank </li></ul><ul><li>ČSOB Leasing </li></ul><ul><li>eBanka (Raiffeisen International) </li></ul><ul><li>Komerční Banka (Societe Generale Group) </li></ul><ul><li>Slovak National Bank </li></ul><ul><li>VUB (Intesa BCI Group) </li></ul><ul><li>(SK&CZ) </li></ul><ul><li>Western Europe </li></ul><ul><li>ABN AMRO, UK </li></ul><ul><li>WestLB, Germany </li></ul><ul><li>A&A Actien Bank, CH </li></ul><ul><li>Bank am Bellevue, CH (Swissfirst Bank AG) </li></ul><ul><li>E.Gutzwiller&Cie Banquiers, CH </li></ul><ul><li>Expersoft AG, CH </li></ul><ul><li>Private Bank IHAG AG, CH </li></ul><ul><li>Rüd, Blass Private Bank, CH (Deutsche Bank Group) </li></ul><ul><li>Savings Bank Foundation for International Cooperation, D </li></ul><ul><li>Swiss.net Bank, CH </li></ul><ul><li>Zurich Invest Bank, CH </li></ul><ul><li>CEE & SEE </li></ul><ul><li>Aval Bank, Ukraina </li></ul><ul><li>Central Bank of Lithuania </li></ul><ul><li>Eesti Hoiupank, Estonia </li></ul><ul><li>Inkombank, Russia </li></ul><ul><li>Komercijalna Banka, Macedonia </li></ul><ul><li>Lithuanian Savings Bank </li></ul><ul><li>Bank Union, Belarus </li></ul><ul><li>Oschadny bank, Ukraine </li></ul><ul><li>Prominvest bank, Ukraine </li></ul><ul><li>Riječka Banka, Croatia </li></ul><ul><li>Sberbank, Russia </li></ul><ul><li>State Savings Bank, Bulgaria </li></ul><ul><li>National Savings Bank, Yugoslavia </li></ul><ul><li>Several private banks in Azerbaijan </li></ul><ul><li>Other </li></ul><ul><li>Post Bank, South Africa </li></ul><ul><li>Teba Bank, South Africa </li></ul>
  5. 5. Clients Over 50 banks in 22 countries GREAT BRITAIN SOUTH AFRICA NAMIBIA ESTONIA RUSSIA BELARUS UKRAINE BULGARIA ROMANIA LITHUANIA GERMANY SWITZERLAND CZECH REPUBLIC SLOVAK REPUBLIC MACEDONIA HONG KONG ARMENIA CROATIA YUGOSLAVIA UGANDA TANZANIA KENYA AZERBAIJAN
  6. 6. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  7. 7. Development of the Banking Sector <ul><li>Banking sector limited to ‘monobanks’ serving as central bank and commercial bank </li></ul><ul><li>Supplemented usually by one big savings bank </li></ul><ul><li>Banks were more passive administrative units </li></ul><ul><li>Restructuring of financial systems </li></ul><ul><li>Two-tier banking system </li></ul><ul><li>P rivati z ation / split-up of monobanks </li></ul><ul><li>Foundation of new banks </li></ul><ul><li>L icensing of foreign banks </li></ul><ul><li>Legal framework and bank supervision </li></ul><ul><li>First wave of automation and modernisation </li></ul><ul><li>Macroeconomic instability </li></ul><ul><li>Crises of some financial institutions </li></ul><ul><li>Solvency problems / bankruptcies </li></ul><ul><li>State-lead recapitalization programs </li></ul><ul><li>Transfer of bad loans from commercial banks </li></ul><ul><li>Review of legal framework </li></ul><ul><li>Major restructuring of the sector </li></ul><ul><li>Positive results of restructuring </li></ul><ul><li>Balance sheets improved </li></ul><ul><li>Expansion of services </li></ul><ul><li>Improved profits </li></ul><ul><li>Concentration process </li></ul><ul><li>Foreign investment </li></ul><ul><li>Mergers and acquisitions </li></ul><ul><li>Majority of banks with dominant foreign ownership </li></ul>1989/90 1995 2000 Communist Period Founding Period Crisis & Stabilisation Consolidation & Internationalisation
  8. 8. Development of the Banking Sector – Example: Czech Republic <ul><li>Státní banka československá </li></ul><ul><li>„ M onobank“ </li></ul><ul><li>S upplemented by a few state banks specialized on selected activities and controlled by Státní banka československá </li></ul><ul><li>Czech and Slovak Savings Bank </li></ul><ul><li>Central bank : Státní banka československá </li></ul><ul><li>T ransfer of assets , liabilities, branch network and clients to KB and VUB </li></ul><ul><li>CSOB, Czech and Slovak Savings Banks and Zivnostenska banka continued their activities – on a commercial basis </li></ul><ul><li>New Banks, e.g . </li></ul><ul><li>1990 - 1992: from 5 to 42 commercial banks and , </li></ul><ul><li>6 branches of foreign banks </li></ul><ul><li>Mainly with domestic capital </li></ul><ul><li>CZ: less 24 banks </li></ul><ul><li>e.g. Moravia bank </li></ul><ul><li>Foresbank </li></ul><ul><li>(PL: less 6 banks) </li></ul><ul><li>(HU: less 2 banks) </li></ul><ul><li>etc… </li></ul><ul><li>Review of legal framework </li></ul><ul><li>Major restructuring of the sector (Capital aid, cleaning of balance sheets) </li></ul><ul><li>Consolidation and stabilisation programmes launched </li></ul>2000 Merger of ČSOB and IPB 2000 Erste Bank : 98% of Česká spořitelna 2001 Société Générale : Komerční banka 200 3 UniCredito - Z ivnostensk a bank a 2005 KBC – ČSOB 2006 Raiffeisen International - eBanka 2007 M erge r of HVB Bank and Z ivnostensk a bank planned , both under UniCredito 1989/90 1995 2000 Communist Period Founding Period Crisis & Stabilisation Consolidation & Internationalisation
  9. 9. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  10. 10. Overview of the Banking Sector in Central Europe <ul><li>The entire development process resulted in a banking environment in CE that is </li></ul><ul><ul><li>Largely foreign-owned </li></ul></ul><ul><ul><ul><li>Most banks are owned by international banks </li></ul></ul></ul><ul><ul><ul><li>Roughly 90 per cent of assets are controlled by banks with dominant foreign ownership </li></ul></ul></ul><ul><ul><li>Relative strong concentration </li></ul></ul><ul><ul><ul><li>5 largest banks have always more than 55 per cent share </li></ul></ul></ul><ul><ul><li>Only a few state banks still left to be privatized </li></ul></ul><ul><ul><ul><li>S tate-owned banks still have a market share of around 19 % of total banking assets in Slovenia </li></ul></ul></ul><ul><ul><li>Few domestically owned players </li></ul></ul><ul><li>The situation in SEE and CIS is slightly different as the process is not that far yet </li></ul><ul><ul><li>E.g. Takeover of BCR in Romania by Austrian Erste Bank just recently </li></ul></ul><ul><ul><ul><li>For comparison: Komercni Banka in CZ was acquired by Societe Generale in 2001 </li></ul></ul></ul><ul><ul><li>SEE and CIS are the focus of international banks at present </li></ul></ul>
  11. 11. Key P layers (foreign owners) in D ifferent C ountries Source: Group´s official pages (Oct. 2006)
  12. 12. Comparison of selected countries Share of 5 biggest banks o f total banking assets in % (2004) Commercial banks by type of ownership Share in total bank credit, in per cent CENTRAL EUROPE Source: National data (BIS questionnaire). Privat - domestic State owned Foreign owned
  13. 13. Banking S ector in Central Europe <ul><li>Banks in central Europe have a good profitability and show increase of all key indicators due to </li></ul><ul><ul><li>Policies to improve bank governance and market transparency </li></ul></ul><ul><ul><li>Regulatory measures to reduce risks </li></ul></ul><ul><ul><li>Evolution from &quot;ratio watching&quot; to process examination in bank supervision </li></ul></ul><ul><ul><li>Competition from foreign banks </li></ul></ul><ul><ul><li>Significantly improved balance sheets </li></ul></ul>Source: ČNB Return on Equity ROE in % (2004) Source: Bankovnictví, 8/2006 Remark: Slightly different numbers caused by different sources and methodologies
  14. 14. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  15. 15. Main Differences to Western Europe <ul><li>Main d ifference is in product penetration rather than offering </li></ul><ul><li>Potential for future growth </li></ul><ul><ul><li>150 million people in CEE have no business relationship to a bank </li></ul></ul><ul><ul><li>Overall size of the banking sector in CEE remains small compared to the Eurozone and the degree of intermediation also remains rather low </li></ul></ul><ul><li>However, efficiency lags behind Western European standards </li></ul><ul><ul><li>X-efficiency in old / new EU member states in 2003: 86% vs. 67% </li></ul></ul><ul><ul><li>(x-efficiency = measure how managers are able to minimise cost by input allocation and exploration of technological opportunities) </li></ul></ul>
  16. 16. Business Trends in Retail Banking <ul><li>Retail is currently the main growth engine, especially loans segment </li></ul><ul><ul><li>Products: Consumer loans, Mortgages, Payment Cards, Mutual funds </li></ul></ul><ul><ul><ul><li>Robust growth & low interest rates </li></ul></ul></ul><ul><ul><ul><li>Improved bank balance sheets further greater supply of loans </li></ul></ul></ul><ul><ul><ul><li>However: Risks from risk management deficiencies (default estimates, liquidity management, etc.) </li></ul></ul></ul><ul><ul><li>Delivery systems </li></ul></ul><ul><ul><ul><li>ATMs </li></ul></ul></ul><ul><ul><ul><ul><li>New ATMs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Upgrades: Functionality & security </li></ul></ul></ul></ul><ul><ul><ul><li>Electronic banking </li></ul></ul></ul><ul><li>The revival of the branch : G rowing importance of retail banking proved the importance of a solid branch network </li></ul><ul><ul><li>Raiffeisen and Unicredito each have approximately 2500 branches across 15 countries </li></ul></ul><ul><ul><li>Erste, Intesa, OTP and Societe General each have between 1000 and 2000 branches across 7 – 8 countries </li></ul></ul><ul><ul><li>The next 10 largest banks in CE each have several hundred branches across various countries </li></ul></ul>
  17. 17. Business Trends in Retail Banking <ul><li>Customer led strategy </li></ul><ul><ul><li>Banks will have to concentrate on customer loyality programs and price determination </li></ul></ul><ul><li>Leasing* </li></ul><ul><ul><li>Leasing market in Europe reached a record volume of 270 mil. EUR last year </li></ul></ul><ul><ul><li>Importance in CE even higher than in WE: Outstanding leasing contracts make up 8% of GDP in CE (vs. 5% in WE) </li></ul></ul><ul><ul><li>Markets in CE and CEE countries growing 3 times as fast as in Western Europe (36% vs. 12%) </li></ul></ul><ul><li>Special services </li></ul><ul><ul><li>Building society services, Life and pension insurance </li></ul></ul><ul><ul><li>Asset Management starts emerging </li></ul></ul><ul><li>Growing competition from non-banks </li></ul>* Includes retail and corporate
  18. 18. Trends in Corporate Banking <ul><li>Competition is concentrated on SME </li></ul><ul><li>Not much space for competition in the area of corporate clients </li></ul><ul><ul><li>Clients are shared among banks </li></ul></ul><ul><ul><li>Only portions of provided services can be cha r ged </li></ul></ul><ul><ul><li>Corporate loans are declining due to restructuring of balance sheets, risk aversion, other means of financing (capital markets) </li></ul></ul><ul><li>Hot Topics </li></ul><ul><ul><li>Fee income from financing services </li></ul></ul><ul><ul><li>Databanking </li></ul></ul><ul><ul><ul><li>Direct interfaces between the economic system of company and bank </li></ul></ul></ul><ul><ul><ul><li>Support of corporate clients in fulfilling compliance requirements, for example SOX (Sarbanes-Oxley) </li></ul></ul></ul><ul><ul><li>Corporate payment cards / Loyality programs </li></ul></ul><ul><ul><ul><li>Flexible usage for business trips, limits on manipulation with cash, security, etc </li></ul></ul></ul><ul><ul><li>Investment banking </li></ul></ul><ul><ul><ul><li>Loans to housing developers, municipalities, etc. </li></ul></ul></ul><ul><ul><ul><li>Project Financing </li></ul></ul></ul><ul><ul><li>Co-branding of credit cards with car manufacturers, telephone and energy companies, airlines, etc. </li></ul></ul>
  19. 19. General Legal and Regulatory Trends <ul><li>Banks in CE more often face the same regulatory framework as Western banks: </li></ul><ul><ul><li>Banks owned by foreign groups have to report to mother banks based on their regulatory requirements </li></ul></ul><ul><ul><li>Compliance with capital adequacy and risk control guidelines </li></ul></ul><ul><ul><ul><li>Basle I </li></ul></ul></ul><ul><ul><ul><li>Basle II </li></ul></ul></ul><ul><ul><li>Compliance with regulations regarding Anti-Money-Laundering (AML) and Terrorist Financing, e.g. </li></ul></ul><ul><ul><ul><li>40 + 8 FATF Recommendations </li></ul></ul></ul><ul><ul><ul><li>US Patriot Act </li></ul></ul></ul><ul><ul><li>Compliance with regulations regarding market abuse </li></ul></ul><ul><ul><ul><li>EU Market Abuse Directive (MAD) </li></ul></ul></ul><ul><ul><ul><li>Markets in Financial Instruments Directive (MiFID) </li></ul></ul></ul><ul><li>Integration to EU </li></ul><ul><ul><li>Enhanced regulatory reporting requirements & supervision </li></ul></ul><ul><ul><li>Accounting Standards </li></ul></ul><ul><ul><li>Preparation for Euro </li></ul></ul>
  20. 20. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  21. 21. New Business Model Transforms the Industry
  22. 22. Key Areas of IT Opportunity
  23. 23. Key Areas of IT Opportunity , cont.
  24. 24. Content <ul><li>Introduction to G&C </li></ul><ul><li>Development of the Banking Sector </li></ul><ul><li>Overview of the Banking Sector in Central Europe </li></ul><ul><li>Differences to Western Europe & Business Trends </li></ul><ul><li>Key Areas of IT Opportunity </li></ul><ul><li>Strategies for Winning the Business / Decision - Making Process </li></ul>
  25. 25. Strategies for Winning the Business <ul><li>Strategic IT Technologies </li></ul><ul><ul><li>Central p rocurement management via foreign owners of the bank </li></ul></ul><ul><ul><ul><li>EU Compliance </li></ul></ul></ul><ul><ul><ul><li>Core banking systems </li></ul></ul></ul><ul><ul><ul><li>Licens ing Policy </li></ul></ul></ul><ul><ul><ul><ul><li>Central decision and /or prefered vendor </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Local implementation of business processes, maintenance, legislation, localization </li></ul></ul></ul></ul><ul><ul><li>How strict ly to be applied – dependent on the culture of the mother company </li></ul></ul><ul><li>Specific IT Technologies </li></ul><ul><ul><li>Local markets </li></ul></ul><ul><ul><ul><li>Local legislation </li></ul></ul></ul><ul><ul><ul><ul><li>Local clearing </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Regulatory reporting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ATMs (different standards in different countries ) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>HR systems </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Etc. </li></ul></ul></ul></ul><ul><ul><ul><li>Adjustments and functional overlays of strategic (centrally selected) systems </li></ul></ul></ul><ul><ul><ul><ul><li>Specific local processes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Specific reporting </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Etc. </li></ul></ul></ul></ul><ul><ul><ul><li>Local services: is not effective to solve centrally </li></ul></ul></ul><ul><ul><ul><ul><li>Backup centre </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Outsourcing of services </li></ul></ul></ul></ul>
  26. 26. Decision – Making Process <ul><li>Banks are conservative customers </li></ul><ul><ul><li>It takes a longer time to create a business relationship </li></ul></ul><ul><ul><li>Alliances with local companies established on the market are recommended </li></ul></ul><ul><ul><ul><li>Knowledge of language, local environment, on-site support </li></ul></ul></ul><ul><ul><li>Local support partner are highly valued </li></ul></ul><ul><li>Networking </li></ul><ul><ul><li>Personal contact with key players and decision makers is important </li></ul></ul><ul><ul><li>Regular meetings, Seminars, Lunches , Etc. </li></ul></ul><ul><li>Selection procedure </li></ul><ul><ul><li>Differences to Western Europe: longer, slower decisions </li></ul></ul><ul><ul><li>Conduct of formal tender process – often with no decision at all </li></ul></ul><ul><li>References, successful projects (local references are important) </li></ul><ul><li>Not only IT knowledge but also experience in the industry (Banking) is becoming more and more important! </li></ul>

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