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Hellenic Bank Pcl (HB.CY) is not ruling out takeovers in Greece or in Russia to accelerate its expansion drive overseas with HB CEO Makis Keravnos revealing that the Bank considered two small banks in Russia for acquisition, but turned down the offers since the candidates did not meet its criteria.
“There are a number of small banks still available in Greece that may fit our profile and even more opportunities in Russia for consideration. We are not in a rush and money is not an issue, but we need to be careful about the strain on our human resources, the culture fit and other relevant issues that always need to be considered before such an important decision is taken,” Keravnos told the Financial Mirror in an exclusive interview.
Irrespective of takeover developments, HB is in the meantime proceeding with its own organic growth plans both in Greece and Russia.
In Russia, the Bank is now awaiting the final permit from the Russian authorities, with Keravnos confident that three months after the final permit is secured, Hellenic Bank will be in a position to commence operations.
The Bank has hired a General Manager, Financial Controller and proceeded with other staff hiring and has its own advanced IT system in place. At first, HB will target the Russian companies already banking with it through Cyprus as its first customer base, after which it will target other corporates and then offer products aimed at the public.
Greece turnaround
Keravnos insists that the Russian operations will not face the same problems as those encountered in Greece, adding that all procedures are in place for a smooth launch and expansion in the years to come.
“In Greece, the original action plan was not the best and was not designed to support a smooth expansion of activities. Since I joined the Bank in 2006, we have managed to proceed with a thorough restructuring of our operational procedures, systems and staff training to support a bigger operation,” said Keravnos.
Hellenic Bank currently has 28 branches in Greece, with 3 more planned for this year, but Keravnos says the Bank has not yet reached the critical mass for him to state without any doubt that the Greek operations will be able to make a steady and continuous contribution to profits.
“The critical mass for me is 35-50 branches with a good geographical presence.” In the meantime, Keravnos is frustrated at the impatience of analysts and the financial press regarding the profitability of the Greek operations.
“Last year we spent a lot on laying the foundation for the new expansion drive and recently we started leasing operations. We are getting there. You need to be patient,” says Keravnos, who adds that for the first time the operations in Greece are organized in the way that he likes, such as Corporate, Commercial and Retail.
In the first quarter, the Greek operations lost EUR 4.4 mln at profit before tax level compared to EUR 0.6 mln profit in 1Q07, with Keravnos explaining that at operational level, the improvement is being felt on a month-on-month basis, but adding that results were negatively affected because of Treasury operations in Greece.
Targets feasible
Hellenic Bank reported a 6% decline in net profit to EUR 23 mln in the first quarter of 2008 with ROE at 16.4% compared to 30% end of December 2007. Similar to the situation at other banks, the net interest margin worsened, but the 0.5% hike in the bank’s base rate in April is expected to improve the situation.
The 88% YoY increase in the provision charge, with the total of provisions at 0.7% of gross loans from 0.3% end of December is not a worrying factor for Keravnos who is confident that HB will meet its 2008 targets as set in its 3-year Strategic Plan.
“We continue to improve the quality of our loan portfolio.”
Athena restructuring
Athena Investments (ATH.CY) in which HB holds a 78% stake is widely blamed for the disappointing performance in Cyprus as it contributed EUR 9.4 mln in 1Q08 losses in contrast to bumper profits in 2007 when HB secured control of the company.
“We are aware of the distortion on our results from ATH, which is why we formed a new investment committee and proceeded with a thorough restructuring of the portfolio with more diversification in an attempt to limit the downside risk from a further decline in equity prices, while allowing us to benefit from any potential rebound.”
Market share
Group loans in the first quarter advanced by 25% to EUR 4.4 bln while deposits advanced by 13% to EUR 6 bln, yet unofficial data show HB losing market share, a view not shared by Keravnos who says the source of the data is not reliable and the comparisons not correct.
“I would have expected the Central Bank to issue such figures but they are not doing so. And the market shares secured by the media are distorted and not reliable since they include foreign currency loans with loans made in euros and also mix the loans made to non-residents with those made to residents,” says Keravnos.
In euro terms and loans to residents, Keravnos says HB recorded 6% growth, compared to 5.6% industry average. As for loans given in foreign currency and to non-residents, he says HB has tailor made schemes available for developers but up to strict internal ceilings and only when borrowers meet its own terms, and not the other way round.
“We insist on not taking undue risk.”
Foreign investors
From practically zero levels only two years ago, foreign fund participation in the Bank’s capital has now reached 15-17%, which according to Keravnos is another confirmation that things are moving in the right direction.
“Foreign fund managers invest only after a careful scrutiny of the underlying investment, and the steady increase in the percentage holding is very satisfactory.”
More help and attention is on the way following the hiring of an Investor Relations Manager who will spearhead the campaign to attract even more institutional interest and undertake international road-shows, which were successfully held recently in Athens and London.
