László DIÓSI: Foreign investments come to Moldova due to banking system stability
Interview by InfoMarket Agency
Mobiasbanca - OTP Group ended its first year as part of a Hungarian financial group with a profit of 143.5 million lei. OTP acquired Mobiasbanca in July 2019, making 2020 the first full calendar year for this Moldovan financial institution under the umbrella of the Hungarian international group.
During the annual general meeting of shareholders, held in mid-May 2021, it was decided to use 97,5 million lei of the profits received in 2019 and 2020 to pay dividends, after receiving the approval of the National Bank. After the shareholders' meeting, President of Mobiasbanca - OTP Group, László DIÓSI, told InfoMarket that foreign investments come to Moldova due to banking system stability, investors have the opportunity to pay dividends to shareholders, and this is a good sign for Moldova.
InfoMarket: As of the end of 2019, the total profit of the system amounted to 2257.5 million lei, while the depreciation rate of loans was 2193.8 million lei. As of the end of 2020, these indicators amounted to 1650.4 million lei and 2523.2 million lei, respectively. Is this not a sign that as of the end of the last year the banks “hid” part of their profits by increasing risk funds?
László DIÓSI: I cannot speak for the entire market, only for the bank I lead. Everyone has different motives. For example, we increased the loan security fund back in May-June 2020, in accordance with the provisions of the International Financial Reporting Standards (IFRS) applied by the OTP Group. Based on the experience gained from the previous international financial crisis (2008), we assumed that there might be some problems with loan repayment and increased collateral. When banks increase their collateral, it speaks of their prudence. The stability of the banking sector by increasing the level of collateral is much more important than profit.
InfoMarket: The bank serves both small and large clients. But financial problems due to the pandemic have more affected small businesses. What kind of support did Mobiasbanca - OTP Group provide to small and medium-sized enterprises? After all, many banks only declared it...
László DIÓSI: Yes, big companies have more opportunities to withstand the crisis. In our bank, medium and large businesses held out quite well, while small businesses faced more serious problems. In general, as far as the crisis scope is concerned, the current crisis was easier than the previous one in 2008-2009. At that time, the level of unfavorable loans in European banks exceeded 30%, this time we did not come close to this indicator.
But in Moldova, the crisis turned out to be twofold: the pandemic and the unprecedented drought with half of our clients engaged in agriculture. If in Romania and Ukraine, on average, the situation was relatively normal, then the territory of small Moldova was almost completely covered by drought. We tried to help companies and we expect that this year will be better for agriculture, for this we already have all the prerequisites.
InfoMarket: How exactly did you express your support?
László DIÓSI: For the clients, who really needed help, we provided an opportunity to restructure loans, we granted deferral of payments to someone, and we canceled someone’s sanctions and penalties for non-payment until the end of the year. The bank does not need pledges; we have to cooperate with clients. There are very few cases when the client and the bank could not find a way out and solve the problem.
InfoMarket: As of the end of 2019, the bank announced that it is going to expand its activities in agriculture. And this sector was hit hardest last year in 2020. How were these plans implemented?
László DIÓSI: We have acquired the bank in July 2019; it took some time to transform it, to define the strategy. We have created a separate department specialized in agriculture. When the crisis came, we were only at the beginning of the process of issuing agro-loans, so there were not many of them. This year, I hope this segment will be very successful.
InfoMarket: Big business circles say that while Moldova does not have a program with the IMF, no institutional foreign investor will sign any new loan agreements. Is it true? What about your bank, which has always had credit lines from partners?
László DIÓSI: In April 2021, Mobiasbanca signed a new 15 million euros contract with the EBRD to support small and medium-sized businesses in Moldova. This is part of the EU4Business-EBRD Credit Line, under which the EBRD provides financing to SMEs through partner banks. Companies that have successfully implemented projects under this credit line are entitled to receive additional equipment grants from the EU.
InfoMarket: The signing of this contract seems to be an extension of the previous loan agreement, is it so?
László DIÓSI: Yes, we have extended and increased funding as the former resources had a high demand and have been distributed to our clients.
InfoMarket: The EBRD has been working with your bank for a long time, how much financial assistance did it provide you for the entire period of cooperation, how many projects received financing through this line?
László DIÓSI: Since the beginning of cooperation with the EBRD in 1996, Mobiasbanca has funded import-export enterprises, (Trade Finance Program), after 2008 - SME, including from the resources of the EU4Business program, which financed projects totaling 33 million euros. Projects worth another 2 million euros are in the process of approval. This year, Mobiasbanca is focusing on green investments.
InfoMarket: Last year, all banks and other industries were forced to increase their online presence. What about the IT transformation of Mobiasbanca?
László DIÓSI: Last year we have launched a project to modernize IT systems. At the beginning of 2021, we have completed the selection of a contractor and we have decided to use the system that is applied in the OTP Group bank in Ukraine. We expect to implement a new information system that meets the OTP Group's standards in March-April 2022. For the implementation of this system we will also attract specialists from Romania - all types of insourcing within the group, as well as develop in-house - to grow our own specialists. One of the first areas that we want to improve will be card service. Now it takes a week to issue a card, we will reduce this period to two or three days in the near future. We have already launched a new mobile-banking application; we are improving internet-banking.
InfoMarket: OTP Group acquired Mobiasbanca for 75 million euros in 2019. Have you already elaborated the investment plan after the audit? What new investments should we expect in the near future?
László DIÓSI: Immediately after we have purchased the bank, the management of the OTP Group approved an investment program totaling 25 million euros for a period of 2.5 years. As part of this program, we will completely update computer equipment, we will change all 100 ATMs across the country; they will be replaced with modern multifunctional ATMs, with Cash-In and Recycling. We changed the vehicle fleet and the modernization of Mobiasbanca branches across the country is in the process. And, I repeat, the largest volume of investments will be directed to IT - from mobile-banking to the modernization of SWIFT transfer systems and reporting systems.
InfoMarket: Does such a large bank only need 100 ATMs? There is a lot of competition in this segment.
László DIÓSI: Every bank has its own policy. We invest in technology, development of internal culture and personnel. According to our experience, it is not necessary to expand the physical presence.
InfoMarket: Last year, many banks revised their infrastructure, which was manifested mainly by the closure of branches and agencies amid the development of online services. How has the Mobiasbanca infrastructure changed?
László DIÓSI: It remained at the 2019 level - 52 branches and agencies. As I have already noted, we have modernized some offices and improved the location of other ones. In general, disputes about infrastructure against the background of the development of online services in the world have been going on for a long time. I remember well that at my previous place of work (we will omit the bank name) 18 years ago we proposed to open 10 new branches. The management then did not agree with this, referring to the transition to the Internet. But when I left, this bank ended up opening another 150 new branches.
The development of banking systems is different in different countries; each culture has its own approach. For example, as far as northern European countries are concerned, a bank does not need to have many offices there, except in large cities. Their customers are almost 100% served online, and the culture of the people is such that they avoid unnecessary contact. In southern European countries, on the contrary, people love physical communication, sometimes just to chat. The OTP group actively uses Internet banking. For example, in Hungary and Romania, services are automated at 95%, corporate services at 98%. This will be the case in Moldova, where both technologies and infrastructure are very well developed.
We should be our clients’ financial counselor; we should advise them and be a kind of “family doctor in terms of finances”. This is how I see the role of the bank. Last year we have created a special foundation for financial education. After all, many people still do not make budgets; they do not analyze income and expenses, etc. And with the financial literacy of the population still underdeveloped, 50 Mobiasbanca branches across the country are just right.
InfoMarket: I often ask bankers, is it possible to combine the card systems used in Moldova through the international VISA and MasterCard into a single national system so that when making domestic payments and using ATMs, we do not pay large commissions for the services of foreign processing centers? Could four systemically important banks of Moldova do this, or is there too tough competition among them to come to an agreement?
László DIÓSI: The competition is quite strong, and banks have long had their own systems connected to international ones. Where national systems exist - in Italy or Bulgaria - they were created before international ones came. That is, the network was already developed when such operators as VISA and MasterCard came. But Romania and Hungary, there was no national system, as well as in Moldova, so the niche was occupied by international ones. And each country has its own tariffs, depending on the market capacity. The creation of a national system should be a commercial decision.
InfoMarket: The Mobiasbanca Groupe Societe Generale served almost all companies with French capital. With the arrival of OTP in Moldova, have companies with Hungarian investments come to you? Can you describe the client portfolio today?
László DIÓSI: It has not changed much since our arrival, and we are satisfied with the client portfolio quality, the presence of blue chips. The quality of services under the leadership of Groupe Societe Generale was at the proper level. Our strategy is to preserve and develop it. It was a little difficult to revise the lending criteria that differ for OTP Group, and we have changed some of the internal rules. Some clients found it a little difficult to accept the new rules, but we tried to keep everyone.
InfoMarket: Now in Moldova, a practice is already being used, when, on the basis of the borrower's data, almost a robot-consultant makes a decision on what conditions it is possible to lend to this or that client.
László DIÓSI: People have to decide. But of course there are lending solutions that can be automated. Today we can make a decision on a credit in 15-30 minutes, but so far all decisions remain centralized.
InfoMarket: Even before coming to Moldova, Groupe Societe Generale Mobiasbanca was one of the pioneers and leaders of mass retail lending, but from a banking point of view, this type of lending is very costly, in terms of amounts and volumes of work...
László DIÓSI: It is retail lending that dominates in the OTP group, but we also support the development of corporate business. Half of our clients are legal entities.
InfoMarket: Many reforms have been carried out in the banking system of Moldova over the past decade. And the introduction of Basel-III standards generally makes the country one of the leaders, since not all states are determined to quickly implement them. How do you rate these changes? Aren’t we "running ahead of the locomotive" too fast?
László DIÓSI: I think the banking sector reform is a success story for Moldova. If in 2014 the banking system worked to ensure stability for the country, today it is the foundation on which the country can build. The banking sector is under good supervision, almost everything is computerized, large foreign investments have come - all this is very positive for Moldova. And all the initiatives of the National Bank are carried out at the European level.
InfoMarket: The banking sector of the country is 90% owned by foreign shareholders. If you were a citizen of Moldova, would you be confident in the national financial security of the country when all banks are sold to foreigners?
László DIÓSI: I am absolutely sure, first of all, because the foreign shareholder will pay for the solution of any problem that arises. During the 2008 crisis, a foreign shareholder brought billions of euros to Romania to cover losses, and it was not the state that helped the banking sector out of the crisis at the expense of the country's budget, as was the case in several European countries.
For the development of a country, the main sources are budgetary resources, local and foreign investors and the banking market. In Moldova, banking resources are mainly local deposits; there is not a lot of foreign money that would leave the country, for example, in the event of another financial crisis. All this makes the Moldovan banking sector 100% safe.
InfoMarket: This year the Ministry of Finance is attracting local resources to the budget through an unprecedented placement of state securities worth almost 8 billion lei and the National Bank lowers the required reserve rates by 2 percentage points - from 30% to 28% of the calculated base. This frees up more than 1.5 billion lei for the economy. Banks are the main investors in government securities, so it can be assumed that these funds were released just in order to purchase government securities...
László DIÓSI: Banks are usually liquid. Therefore, we intend to use the amount to be released for lending. Moreover, our portfolio contains enough government securities, and it meets the liquidity requirements of the National Bank of Moldova.
InfoMarket: You were elected Chairman of the European Businesses Association (EBA). In this role, can you identify the main problems that investors face and which need to be addressed first?
László DIÓSI: First of all, this is justice. The Law should rule in Moldova – the Rule of Law is essential! Not so long ago, judicial system attacked several foreign investors, the press wrote about this.
Moldova needs to continue the implementation of DCFTA (Deep and Comprehensive Free Trade Area with the EU) - the program has not yet been fully implemented. There are big questions in terms of control over food safety and foreign trade; especially there are many difficulties with the export-import of food products. It is necessary to continue to develop the infrastructure, the education sector and the public sector, which today are not very efficient.
I would divide the financial sector: everything is great in the banking sector, but we would also like to develop the capital market, where everything is very limited. There are no private pension funds in the country, and the insurance market can be developed, with an emphasis on life insurance.
InfoMarket: Are you considering the possibility of purchasing any other assets in Moldova?
László DIÓSI: We are open to good offers.
InfoMarket: According to our observations, marketing activity has been increasing in the banking sector in recent years, which is especially noticeable with the onset of the pandemic. Can we expect more competition in the market in the future?
László DIÓSI: I think so. And this is good. Ultimately, the winner will be the customer who gets the best deals and products for himself. //26.05.2021 - InfoMarket.