Restructuring plan set for April approval
Hellenic Bank is undergoing a major transformation with a shake-up of procedures and culture as its new CEO Makis Keravnos starts to put into place a detailed and comprehensive restructuring plan.
“This may be the first time that Hellenic Bank is undergoing such a profound change at all levels of operation, as well as a change in culture as to how the bank approaches clients, its role, objectives and targets,” Keravnos told the Financial Mirror in an exclusive interview.
A broad-based organisational structure plan has been readied, drafted in compliance with Basle II, the CSE Corporate Governance code and Central Bank directives, which will be implemented immediately after the board gives its approval in early April.
Changes drafted by Keravnos are already underway in Greece and some have been partially implemented in Cyprus. But the main emphasis is to provide clear and transparent guidelines to all regarding their responsibilities, their role at the bank and generally how they will proceed to implement the targets set by the board and management.
“Some may call it a manual of procedures, but the plan is crucial to allow us to meet our goals to make the Hellenic Bank Group an efficient organisation,” Keravnos said.
The shakeup will also touch the sensitive issue of management changes at all levels and will also affect group subsidiaries, some of which may be merged, their structures changed or a decision taken on their future role in the group.
A previous practice of having the same people sitting on the boards of various subsidiaries, while at the same time also being responsible for decision making, will be scrapped.
Targets
As the restructuring plan gets underway, Keravnos will push forward the finalisation of Hellenic Bank’s strategic plan, with specific targets for the cost-to-income ratio, return on capital and other key data.
“The first draft of the strategic plan should be ready by the end of March and we will hopefully be in a position to inform our shareholders of the main objectives during the AGM or the latest by June.”
Keravnos stressed that HB is a bank just emerging from crisis, which is why he asked for understanding both from shareholders and investors.
“The worst is behind us, but a lot of hard work is needed.”
Boost income
Keravnos said one of the reasons for HB’s poor performance last year was that as income grew 7%, expenses increased by 11%. “This year, we shall do our outmost to reverse that ratio,” he said, explaining his target of lowering the cost-to-income ratio from 72.4% in 2005 to 69% in 2006.
Another handicap acknowledged by Keravnos is the fact that while Bank of Cyprus and Laiki Bank increased total advances by 15%, HB increased its loans by 3% in 2005 even when total deposits increased at about the same level as the two larger banks.
“The only explanation is that our people refrained from taking any initiative to give out loans, lest they be accused in future if the loans went bad. The situation is now different after we drafted clear procedures as to how loans are issued,” said Keravnos.
He said that part of the culture change is to train staff to become the their customers’ friends, their consultants and spot problems before they become more acute.
Referring to problematic loans and the herculean task of recovering such loans, Keravnos said that his restructuring plan envisages merging two divisions at the bank involved with recoveries into one, in order to produce better results.
Since all previous provisions were marked to the P&L account, any recoveries in future will head back into the P&L account as profits.
On whether he prefers writeoffs as a way to reduce provision levels compared to total loans, Keravnos said the new plan also covers this aspect as to when a write-off should be executed.
Keravnos is also keen to cut costs at all levels. The bank’s fleet of 54 cars is being slashed, first class air travel cut back, entertainment spending reduced as the message is conveyed that unnecessary expenses will not be tolerated.
On the other hand, Keravnos, well experienced in matters of management and human resources, knows that results will be delivered with the right incentives, which is why he has improved incentives to branches and the Treasury Department that meet and exceed their targets.
Break even in Greece
Keravnos is confident that the Hellenic Bank operations in Greece will break even in 2006 after costing CYP 10 mln in losses in 2005 of which CYP 2 mln were at the operational level and CYP 8 mln in bad debt provisions.
“The past confusion as to what we were doing in Greece is over, as we are now shifting to retail banking and consumer loans as opposed to the previous strategy of offering mostly financial services.”
Citing the low debt ratio of the Greek public, only 72% of GDP compared to the 182% debt to GDP ratio of Cyprus, Keravnos said there is a lot of potential for growth in Greece, especially in retail banking and housing loans.
“We are studying new methods to expand our network in Greece, not necessarily through branch expansion,” said Keravnos, though he would not rule out the closure of some branches and the opening of new ones if the need arises.
While Keravnos would not be drawn into discussing why the market has priced the HB shares at a low price to book value of 1.4 times, whereas BOC and CPB trade at respective P/BV levels of 2.75x and 2.5x, he said that as Hellenic improves its operations and hence, its profits, the investing public will spot the mistake and close the gap.
“I call on people to give us a little more time and judge us based on our results, and not on what they heard on the street,” concluded a confident Keravnos, who is determined to deliver one of the biggest turnarounds in the corporate history of Cyprus.
