A big interview with the Chairman of the Board of Directors of Banka CREDITAS
Although the planned tax on extraordinary incomes will not impact bank system stability, according to Vladimír Hořejší, the CEO of Banka CREDITAS, its introduction will be an unwise move. “Talking about excess profits in a cyclic branch, which banking certainly is, is just an huge oversimplification. After good years, weak years come and that’s what we should not forget,” says the banker.“If it is necessary, we shouldn’t impose a tax on a certain sector but we should increase taxation of profits in general,” he adds.
It seems that the tax on extraordinary incomes forces large banks to increase interest rates on savings accounts to decrease their profits. What does this mean for your business? It was just the higher appreciation rate, which was your competitive advantage.
And still is. Our business model for deposits is still the same. We are holding the interest rates on savings products high, and we do not determine any conditions as many large banks do. In this context, our average interest rate on deposits across the products, on savings accounts, current accounts and also for term deposits is being overlooked. Here, we are among the best on the market. Large banks increase interest rates for one or two products, but definitely not for all accounts.
But it affects your bank, doesn’t it?
Yes, it does. Because we try to keep an interest advantage over the competition. We want to give our clients one of the highest interest rates on savings products, and we have been consistent in it since 2017. When large banks increase their interests, we want to be above them. We do it even at the expense of our margin and profit.
So you are not thinking of a change or a response to these new conditions on the market?
Our reaction came at the beginning of October when we increased the interest rates both in Banka CREDITAS and in Max banka, which we have acquired recently. Today, Max banka offers the highest interest rate on the market and pays 6.01 per cent annually for the savings account.
How many clients have been attracted by this offer?
On the first day, we acquired 1,000 new clients. In October, the number of Max banka clients doubled. Max banka currently has more than 24 thousand clients, and Banka CREDITAS in total 170 thousand clients. During the last three years, our plans for the annual growth amounted to 40 thousand clients in Banka CREDITAS. This year we have highly exceeded that number.
The clients are not only the ones with savings accounts, but we also monitor the growth of active clients who regularly use their current account. Which is proved by the increase of issued payment cards in the order of tens of per cent. We want to continue growing, and Max banka is supposed to help us significantly in this.
Do you think that increasing interest rates by large banks is temporary and is only in response to the tax or will it become a standard in the Czech Republic that the interest rates on deposits will depend more on CNB rates?
I think that is a long-term trend that does not concern the Czech Republic only but the whole world. At the time of high inflation, clients are looking for ways how to protect their savings. In general, it is a return back to normal after the abnormal period of zero interest rates.
How do you want to attract your clients when also other large and well-established banks start to offer more or less similar interest rates?
We are consistent in that. Our clients do not have to travel to get higher interest rates. We have been leading the chart of the best interest-bearing savings products for six years. When we started with the bank in 2017, we offered 1.1 per cent on interest rates at the time when the CNB repo rates amounted to 0.05 per cent, which was basically technical zero. At that time, large banks offered an interest rate close to the technical zero as well. So the difference between them and us was approximately one percentage point. And this has not changed so far. Over the long term, we share our profits with our clients.
How will the prepared tax on extraordinary incomes affect the bank market stability?
In general, I am rather a supporter of blanket measures and not of such specific taxes. If it is necessary, we should not impose a tax on a certain sector, but we should increase taxation of profits in general. In my opinion, it will not affect the market stability any way. But it could affect the behaviour of individual banks.
Banks unanimously say that it is not a case of excessive profit. What do you think?
The profitability of banks depends on their ability to efficiently work with savings on one side and the credit risk on the other side in times of high liquidity on finance markets, which can be attributed to central banks together with governments. Just have a look at what the American Fed or ECB did after Lehman Brothers collapsed.
That huge emission of new money undoubtedly affected us as well. Domestic banks were successful with respect to the management of liquidity and credit risks; therefore, they are probably a more interesting target for taxation. But talking about excess profits in a cyclic branch, which banking certainly is, is just an oversimplification. After good years, weak years come and that’s what we should not forget.
By the way: in some countries, additional bank taxes were introduced to compensate for the costs of solving the financial crisis in previous years. Now, we reach for it only to finance the consequences of a short-sighted energy policy of some EU countries affecting Czech households and companies.
How were you affected by the collapse of the domestic Sberbank, which occurred soon after the start of the Russian invasion of the Ukraine? Didn’t it impair smaller banks? People and municipalities may now think more of leaving a big bank for a smaller one just because their deposits will get higher interests there.
I don’t think it could impair smaller banks. In fact, the effect in terms of liquidity was positive for us since a part of that money was transferred to us. The size of the bank definitely was not the issue. Moreover, the Sberbank situation was directly related to the war conflict in the Ukraine. There is one thing about banking that is still the same – it is primarily about the trust in the institution and its brand.
In your opinion, what is the reason why this did not happen with another bank with Russian capital? I mean Expobank you have just acquired and turned into Max Banka?
The Expobank management did a great job to solve their problems, and at the same time they were able to deal with the situation better in the media.
You plan to fully integrate Max Banka in three years. Why is it going to take so long? Why are you going to simultaneously have two brands?
It makes sense for us. We want to utilise the present-day advanced technologies as much as possible and make Max banka a modern bank for retail clients with current accounts, savings products as well as simple online mortgages and consumer loans, which, until now, have only been offered in the form of refinancing. Corporate clients will find a full service within Banka CREDITAS.
Don’t you think that we have too many banks in the Czech Republic? There are around 50 banks on the local market and their range of products is quite similar.
You are right, there is certain product unification, when, for example, mortgages do not differ much. But at the same time, the service comprehensiveness and the behaviour towards the client is of great importance. I am convinced that there are still opportunities how to do business on this market. You just need to be innovative, on alert and respond to various changes. On the other hand, more banks mean greater competition and the clients have a wider choice.
How will the Czech bank market look like in five years?
It will be more concentrated since some smaller subjects will most likely vanish or will be acquired by large players. The reason will be, among other things, regulations in form of various capital requirements because these are extremely expensive for the banks.
Then, we have the already-mentioned unification, which gives the banks significantly less space to differ, so they have to take the path of increasing interest rates on deposits and offering a quality and hassle-free service. In case of medium-sized banks, like us for example, I am not afraid. Our advantage is that we are still a flexible bank. For example, we are able to find a new interesting segment or a market gap faster than the bigger banks.
Has Banka CREDITAS found a similar gap on the market?
Yes. We specialise, for example, on the segment of credit granting to Czech middle-sized companies to which we offer speed, flexibility and a very personal approach.
The important part of the Czech bank market was divided among five to six major banks. Do the smaller banks, like CREDITAS, have a chance to change it? Or can they expect something similar what happened to Equa Bank which was absorbed by Raiffeisenbank?
Our goal is to constantly grow both organically and by acquisition, which is demonstrated, for example, by the acquisition of Max banka or the purchase of Ekorent we gained last year. I am totally convinced that the market will offer acquisition opportunities for us. Whether these are bank subjects or companies offering associated services.
It can be, for example, a leasing or crowdfunding company. There are many options on the market. I see a lot of opportunities especially in the fintech area. The advantage is that this market is still being formed and we, due to our swiftness, can easily enter it. There is some space also in the field of investments, where the attitude of the Czech population and the Czech consumer has changed substantially in recent years. There are indeed plenty of variants on the market.
A few years ago, Jiří Kunert from UniCredit Bank, one of the Czech banking doyens, said that all the regulations can result in bank nationalisation. What do you think? Where can all the efforts to regulate the market finally lead to?
Understandably, the banks are a subject of public interest since the deposits to 100 thousand EUR are insured. Therefore, the regulation is increasingly stricter. It is to say that the increasing regulation is not an issue in banking only, but it is a general condition that relates to most fields.
And to what Jiří Kunert said. Yes, I think that for a short period the banks can be nationalised to a certain extent, but it will never be a long-term solution. In business, it's whether you make a profit or not. For the state, other non-market aspects may be more important, including the unwillingness to behave in a market-like manner. Thus, the state can never be as a good owner as a private subject.
The Czech economy is heading into recession according to economists. Are the domestic banks prepared for that?
The Czech banking sector is above the average capital strength and is efficient in the long term compared to other European countries, so I think it is able to cope with the cyclic economy development. The local banks were really very cautious in the past, so I think that the crisis will not affect them much due to their capital endowment and low risks.
It is said that the banks give you an umbrella when the sun shines and will take if from you when it starts raining. Do you think it is going to be the same in the coming crisis?
I can talk only on behalf of us, and we are different in that. We always talk with our clients and look for the solution together. Of course, a solution that complies with the regulations. But we do not abandon our clients, do not take the umbrella away when it starts raining, on the contrary, we pass one on them.
Do you have any updates from your clients related to the economic slow-down and subsequent problems?
Not yet. No clients have contacted us regarding this issue.
A few years ago, a radical change of the bank market due to the emergence of fintech companies was discussed. Are these changes happening?
There have certainly been some changes. But because we live them, we do not see them so clearly. Although I have to say that I originally expected that fintech will break through in banking much more.
Today, everyone emphasises digital platforms, uses mobile banking and only a few come to the bank personally. Or consider how investment platforms have transformed, because we buy shares only by making a few clicks. At the same time, there are technology companies, e.g. Google or Apple, which came and took over our payment ability when we pay by showing our phone or a smart watch. These are huge changes, but we are not aware of them that much since the changes are gradual. Let me remind you how greatly the payments have gone down in prices.
Earlier, a payment order submitted at the branch was almost one hundred crowns. The companies paid thousand crowns per month for the account administration. This all is for free now, and it affects the bank business hugely. It used to be that a third of banks’ income was made up of fees. Now, most of these incomes are gone.
As a bank, what are your thoughts on introduction of ESG principles?
The environment and responsible behaviour are of great importance, but this issue cannot be solved solely by a label proving that you are doing the right thing as a business in this regard. Or vice-versa, if you do not have the label that you automatically cease to be interesting for investors.
This “labelling” has far-reaching consequences when deciding about investments, and ultimately, for example, it contributes to the current energy crisis. Thus, we should give some thoughts to the whole approach based on the current experience.
So what should happen?
Conditions which would make economic sense for market entities to behave responsibly and in an environmentally friendly way must be created. Do you know what helped ESG the most? The energy crisis. Since performing all those austerity measures makes huge economic sense now. Even Warren Buffett said that he had been investing to ESG from the moment it made economic sense for him. It is simply necessary for ESG to have economic rationality.
This text was published in the Ekonom weekly magazine and at ekonom.cz.