Erste Group Bank AG expects future growth from the expansion of its digital product offerings rather than through M&A, according to CEO Andreas Treichl and CFO Gernot Mittendorfer.
While the Austrian lender may contemplate entering new markets in the near future — provided it has the financial and human resources — it will seek to do so via its new digital platform, dubbed George, Treichl said Feb. 28 during a 2017 earnings call.
"Our appetite to buy into brick and mortar is extremely low," he said.
It is also very unlikely that Erste Group will pursue an acquisition of another bank in its core geographies, with Treichl ruling out a potential bid for Budapest Bank.
The Hungarian government is expected to put the lender up for sale in 2018 as part of an agreement with the European Bank for Reconstruction and Development made in 2015. Belgium's KBC Group NV recently indicated that it would be interested in bidding for Budapest Bank.
'Market-share increases'
Erste Group's No. 1 priority is to complete the rollout of George in all of its core markets, Treichl said. The platform is already operational in Austria, the Czech Republic and Slovakia, and should be launched across the rest of Erste Group's main markets — including Romania, Hungary, Croatia and Serbia — as soon as possible, according to the CEO.
"We think that the rollout of George will definitely help us continue on our growth path, and our vision is definitely to have market-share increases across the board," Mittendorfer added.
New market entries could be considered if "we see that George could be attractive enough that we can attract a strong client base without having a physical presence in one of the neighboring countries," Treichl said.
Erste Group has onboarded 2 million clients on the George platform to date, compared to its total customer base of 16 million. Around 20% of all loans in Austria, the Czech Republic and Slovakia were originated via the new platform, and more than 30% of the deposits in those regions were opened digitally, according to Erste Group data for 2017.
"We are not in a situation where we would be able ... to tell you we've made X amount of net profit based on George, but we can definitely point out the fact that it has increased traffic [and] our client base, and it has dramatically improved the awareness, the image and the attractiveness of Erste Bank in every region where George has been implemented," Treichl said.
IT drag on cost reduction
IT investments would weigh on Erste Group's cost base going forward, but the bank still expects to be able to reduce costs in 2018, as well as in the future. A previously announced cost target of €4 billion is not "completely out of reach," but it is not likely to be achieved this year, according to Mittendorfer.
Over the next two years, Erste Group will focus on bringing its cost-to-income ratio to some 55%, but the ultimate goal would be a ratio of below 50%, Treichl said.
For 2017, the bank reported a 3.2% year-over-year rise in costs to some €4.16 billion, mainly due to increased regulatory and IT expenses.
"There is absolutely no question in our minds that the biggest cost saver ... is the digitization of the back office," Treichl told analysts.
"Closing branches is easy. Banks that cannot achieve [full digitization of the back office] can close branches up to their ears and they will never get efficient. So, that's what are we working on."
