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CEC Bank powers through

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By Cristian Cojanu
With a team strongly committed to modernizing and streamlining its operations, CEC Bank is in a good position to reach its growth goals. In an interview with Business Arena, Bogdan Neacsu, General Manager and President of the bank's Executive Board, outlines some of the strategy behind the bank's positive results and also touches upon some of the current challenges facing the industry.
To what extent was CEC Bank's development strategy affected by the coronavirus pandemic?
Twenty-twenty was a complex, challenging year. In spite of that, we managed to grow. CEC Bank recorded an increase in assets of over 25% last year. In the first months of the pandemic, we focused on working around the challenges to business continuity, as financial services are essential and customers still need access to cash and financing. CEC Bank never stopped its lending operations. At the same time, we continued to implement the bank's modernization program. Digitalization and new  new technologies play an important role in our strategy. We plan to implement an omni-channel business model, making our services available both in our branch network and online. The pandemic has accelerated the adoption of new technologies, confirming that we are on the right track and our focus on digitalization has been the right choice. We have already launched online services such as opening of accounts for new customers and personal loan applications, and we will continue to add more products like consumer loans and SME products to our e-commerce platform.

What challenges is CEC Bank currently facing in the banking market?
In Romania, we are facing a gap in terms of financial inclusion: less than six out of 10 people have a bank account, compared to an average of nearly 100% in the European Union. The level of financial inclusion is even lower in rural areas, and a branch network to cover those areas is necessary. There are still many people who don't have an adequate level of financial literacy, and who need advice for more complex products, such as loans. As a state-owned organization, CEC Bank has a responsibility to society to support financial literacy and increase financial inclusion. According to our business plan, CEC Bank will continue to have a large footprint, the largest bank branch network in Romania, with over 1,000 units. At the same time, we conti­nu­ously monitor consumer behavior, so we have also embarked on a process of digitalization.
The challenge that I can see at the moment is keeping up with the technological changes and with the changes in consumer behavior. History, and especially the more recent period, has taught us that things can change quickly and in unex­pec­ted ways. Digitalization is a trend in recent years, but I don't think we have ever expected to see this effer­ves­cence in the fintech area, with applications and non-financial institutions that compete with the top banks in terms of number of customers. And fintechs have achieved this precisely because they focus on user experience, speed and convenience for their products and services. I think this is a good lesson, from which the banking system will have to learn. Customers should come first, banks should come up with products and services that serve needs and are useful in our daily lives. I think there is great potential for growth in the area of transactions and operations, but more customer orientation is needed.

To what extent did CEC Bank achieve its 2020 objectives?
In spite of the pandemic, CEC Bank ended 2020 with exceptional results. First of all, we didn't stop lending for a second. Our preli­mi­nary financial data looks very good, with a re­cord increase in assets, over 25%, twice as much as the market average. Also, customer deposits increased by over 24%, and in terms of loans, we had a double-digit increase. The bank continued to be profitable and sustainable. We recorded a net interest in­come of over one billion lei in 2020, stable compared to 2019. In terms of income, the asset growth was offset by the downward trend in market interest rates. The interbank interest rate (ROBOR 3M) decreased by about 25% in 2020 compared to 2019, from an ave­rage of 3.13% to 2.38%. The decrease in interest rates mainly affected the loan port­fo­lio, CEC Bank maintaining attractive interest rates on deposits, as the new amounts attracted from customers are the main source of financing for us. At the same time, we had a prudent approach and we wanted to be prepared even for the darkest scenarios, so we recorded additional expenses with loan provisions. Last year, the additional expenses with provisions stood at over 350 million lei, but even so, CEC Bank remained profitable.  

How would you characterize the evolution of the Romanian banking market in 2020?
Twenty-twenty was characterized by many ups and downs. When the state of emergency was declared at the beginning of last year, many activities were suspended. And this was a shock for the economy, as was reflected by macroeconomic data. Romania reported an economic decline of over 10% in the second quarter of 2020, compared to the same quarter of 2019, but in the second half of the year, we saw signs of recovery and the economic contraction decreased to 3.9% at the end of the year. The developments in the banking sector mirrored those at macro level. We witnessed a slowdown of lending activities in the first months of the pandemic, and then demand started to grow. Some segments performed very well: for example, mortgages - with an annual increase of almost 10%. Thus, at CEC Bank, we managed to perform better than the market, with an increase of over 30%.
Currently, the banking system is well capitalized and profitable, even though banks' results were affected by higher loan  provisions worth hundreds of millions of lei last year. The non-performing loan rate remains low in Romania, at around 5%, well below the level recorded during the 2008-2010 crisis, when non-performing loans reached over 20% of banks' portfolios. The situation looks less dramatic as banks recorded additional provi­sions on time, they had a balanced approach to lending, and rapid solutions were identified for loans moratorium during the state of emer­gency. In fact, the vast majority of customers who benefited from deferred installments have resumed payments, and the volume of new requests since the beginning of the year - after the extension of the moratorium - is very low.

What development opportunities result from the somewhat forced digitalization triggered by the pandemic?
More than ever, this period has been marked by restrictions on people's mobility. So, we all had something to gain from digitalization: both customers and banks. Even without the pandemic, digitalization offers speed and convenience. In a context dominated by imposed or self-imposed restrictions, digitalization proves all the more useful. Moreover, in certain situations (time constraints, mobility issues) digitalization is the only option. If we also take into account that about 80% of all banking operations are done over the Internet or using Mobile banking services, sometimes even by people in their 70s, it's becoming increasingly clear why the number of mobile banking users has doubled.
In the recent period, CEC Bank launched several online and digital initiatives which prove that digitalization is not just a project for the future, and that CEC Bank is an increasingly important player in this segment. Among our digital initiatives, I should mention online opening of accounts, even by new customers, personal loans, through our CEC_IN e-commerce platform, instant payments and Alias Pay money transfers, using the Transfond system, Apple Pay as well as Google Pay digital wallet.

What customer profile changes have you seen and what investments is CEC Bank planning to make in order to adapt to the new market requirements?
Work from home is a trend among our customers, they prioritize savings and do business in a digital environment more and more. These are partly direct effects of the current epidemiological context. Migration to digital channels has been a necessity in many industries, including banking. Developing those channels for the post-COVID-19 reality is the next step forward, as the world is increasingly going to rely on online services and business adaptability.
At CEC Bank, we will continue to work for a rapid transformation and modernization of the bank, including operational and technological improvements. We are already working on  enabling online account opening for SMEs, and implementing online solutions for trade finance products for SMEs. In addition, we look to align our processes to best available technologies worldwide.

What are your estimations on the evolution of the main macroeconomic indicators this year and how will they be reflected in the bank's activity?
Although we continue to operate in a volatile and unpredictable environment, we have learned to adapt. For the this year, we are counting on a solid, but sustainable increase in lending of about 10%. The areas in which we see a lot of potential are agriculture, construction, and logistics. We are not overlooking sectors affected by the pandemic such as hospitality, where business people continue to invest and need funding.
What are your main
professional goals this year?
My main target is to ensure the imple­mentation of the business strategy, which aims at consolidating and modernizing CEC Bank. The medium term objective we are holding on to is for CEC Bank to become the fifth largest bank in Romania.

To what extent do you think there is still potential for new mergers and acquisitions on the Romanian banking market?  
In recent years, there have been major international and local transactions. In the last two years alone, on the Romanian market, we saw mergers and acquisitions in the banking sector, with several transactions that were in fact covered by the media. I think there is still room for consolidation in the market. It remains to be seen if and how new such transactions may be completed.
CEC Bank's potential listing on the stock exchange has been discussed at various times.

To what extent could such a scenario be feasible at this stage?
Such a decision belongs to the share­holder, which is the Romanian state. We are just operational managers of the business. And our role is to streamline the bank's activity, to grow and modernize CEC Bank so it can be among the top five most important banks in Romania. Simply put, our role is to manage the bank responsibly and increase its value, which is not only for the benefit of our shareholders, but also of our customers. And I think our achievements and the projects launched in the last two years speak for themselves: our efforts to modernize and stre­a­mline CEC Bank are already taking shape and are visible in the results.

This is also available in our print edition of Business Arena.

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