Banking sector Interview

Tamas Hak-Kovacs: «All commitments should be met»

Chairman of the Board of OTP Bank in Ukraine tells about the main criteria in the strategy of managing successful banks

Tamas Hak-Kovacs – completely team player who is not afraid to take responsibility for any scale and any risk decisions. According to him, this is his work, and that’s what exactly he is paid money for. But most of all he appreciates the freedom to act, which the head office of OTP Bank gave him. It is an approach in business that motivates him, and as a result – an excellent job and banks’ leadership position in Ukraine.

What awaits the banking sector in the near future and what is the structure of the banking market today, Tamas Hak-Kovacs, chairman of OTP Bank in Ukraine, told .

: Tamas, you have been working in Ukrainian banking environment for 6 years. And, probably, you are already familiar with pitfalls and not only in this business. Can you assess  this market in “good-bad” terms? Which of them more precisely characterizes Ukrainian banking?

Tamas Hak-Kovacs:  I would begin with specifying that in the market characteristic terms “good / bad”, “complex / simple” have different practical meaning. For example, if the market is a simple business environment, business can easily develop, which means that competition on this market is high, margins are low and making profits is more difficult. If the market has some difficulties or is not developed, then competition on it is usually not very high, you can get a good profit, provided that the entrepreneur knows how to work on this market. For me, as a bank manager who can work in this market, Ukrainian market difficulties are even advantageous in some way. But, of course, for the country it is better if the market is rated as favorable, simple, because it stimulates the development of high competition and choice for the consumer.

: Do you find the banking system of Ukraine stable?

Tamas Hak-Kovacs:  Partly yes. Now in our market there are about 80 banks. Maximum 20 of them give 95% of the assets of the banking system. The remaining 60 actually do not play such a big role for the market. As for the further cleaning of the system, then I would use an example of football. When several players from the second or third minority leave the team, neither the viewer nor the other players notice this, and in general this does not affect the game. The same applies to those banks that can still be withdrawn from the market.

: Please tell me why big banks manage to keep their positions on the market? Is this due to the emergence of new products?

Tamas Hak-Kovacs: There were no fundamentally new products in banking business for over 50-60 years. Therefore, there are quite different criteria here: capital availability, liquidity, risk appetite and the proficiency in managing the bank. Often Ukrainian oligarchs did not take these moments into account, believing that banking business does not differ from any other. And then they faced the problems with purely bank specifics, and were not kept afloat.

: Expand the criteria you mentioned more specifically.

Tamas Hak-Kovacs:

  • Let’s start with capital. Does the bank have capital, depends on the shareholder. Very often you may encounter the fact that the bank does not have a shareholder who can support its activities. Therefore, in the Ukrainian market, this criterion, as a rule, corresponds to state and European banks. They are the main players in this segment.
  • Liquidity depends on the volume of the client base and customer confidence in the bank. The client base needs to be constantly build up, and trust should be maintained. The client should have confidence in the bank, then he will return to it and deal with it.
  • Regarding the risk appetite, it clearly demonstrates the difference between foreign banks operating in Ukraine: the closer the investor country physically is to Ukraine, the higher the risk appetite. Because there is an understanding of what is happening here, how the market works. Simply put, in Budapest know and understand the Ukrainian situation better than, say, in Vienna and Paris, or Tokyo and New York.
  • And finally, in the bank’s formula of success, very important is knowledge in bankmanagement, proper risk management is very important. It seems Warren Buffett said: “The risk arises when you don’t now the work you are doing.” We know. Incidentally, this is another point in which commercial foreign banks are different from government ones. The difference is not in a management (sure, both have professional risk managers), but rather in the approaches and horizons of planning. There is already a long tradition and the history of European banking. Risk management for foreign banks is like a lawn for the British, whose secret of perfection is simple: “crop and sow, sow and crop – do it two hundred years like this.”

: Can you say that all the foreign banks in Ukraine, which are leaders in the market, are managed by the expats?

Tamas Hak-Kovacs: Even our bank is managed not by expats – in the management of our bank I am the only foreigner. I believe that Ukrainian management is highly skilled. And the bank’s success does not depend on one person. It is a corporate culture that has been built for years. In some banks, it is absent, and this affects their work, regardless of who manages the bank.

: When you came to OTP Bank in Ukraine, did you form a team for yourself?

Tamas Hak-Kovacs: There was a certain transformation of the team, but it was not a big change. I did not bring new people with me. Even the opposite – we have less Hungarians (laughs).

: According to your observations, the notion of a culture of doing business is rooted in Ukraine?

Tamas HakKovacs: Honestly, my opinion may not be entirely objective, because we work with clients whose level of business culture is significantly higher than average. Probably, it is not necessary to judge business as a whole in such an elite sample as our client base. The fact is that after the crisis of 2008 we made the right conclusions, in particular, regarding the filling of our client base, which we can now be proud of. At that moment, we clearly understood whom to work with, and whom do not.

: How do you find Mr. Smoliy’s recent appointment as head of the National Bank of Ukraine?

Tamas Hak-Kovacs: We all were looking forward to the appointment of a new head of the National Bank of Ukraine. The whole year the regulator stayed without a legitimate leader. It must be admitted that even under such conditions the National Bank did its best to handle its functions. Now, Mr. Smoliy simply has a lot of tasks to do.

: What tasks?

Tamas HakKovacs: From the part of business, the main expectation is lower interest rates and cheap financing.

Everyone wants a discount rate of 10%, and better – even lower. Assuming a 5% inflation rate and a bank margin of 3%, the real rate should fall to 2%. Agree, this is a very strong decline from the current rate. It seems that some superhuman forces are needed to achieve this goal. Although, in fact, there are real levers for this: improvement of the investment climate, responsible fiscal policy and structural reforms. The problem is that these levers are not under the authority of the NBU. It is the duty of politicians. So, in addition to the tasks already being mastered by the National Bank in the field of banking supervision and inflation targeting, the new head will need to deal with a completely different, new and very difficult task. It is necessary to persuade and bring to the minds of politicians that the implementation of these levers is their duty and responsibility.

: What do you think the state should do first of all to attract investors to the country?

Tamas Hak-Kovacs: Firstly, all commitments made to international partners and investors should be met. One can not promise to undertake a radical reform, and then try to close this commitment with some formal change only on a paper.

In addition, you need a little PR for Ukraine (smiles). Many foreigners think that here is much worse than it really is. It is necessary to close this gap, to explain that it is difficult here, but not so much as it is customary to consider. And PR, which I’m talking about, should not be ashamed. This is just the right international policy.

: How do you find the current banking system and its perspectives?

Tamas HakKovacs: Today, the situation is such that the main players in the market are, on the one hand, 4 state banks that work mainly with the state sector, and on the other hand – 5-6 commercial banks, which focus on the private sector. Such, I would call it, segregation reduces competition. And if for market players this is basically a good idea (easier to work and earn), then in general for the state and the economy – this is not good, because it is healthy competition that leads to lower prices, improvement of conditions, technologies, etc. I think this situation needs to be changed.

: Tamas, what does Ukraine and Ukrainians lack?

Tamas HakKovacs: Lacks faith in their country and optimism (smiles).

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