Abstract
In this chapter, the background for the valuation of the retail banking launch in Poland will be established.
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References
Leichtfuß, Mattem (1992), pp. 700–701
Leichtfuß, Mattem (1992), pp. 701–707. There are strong parallels with the lean banking concept, which aims to improve both the market orientation and cost situation of banks (Bierer, Fassbender, Rüdel (1992), pp. 500–501; Endres (1993), p. 14).
Customer satisfaction and retention by superior service quality is regarded as the key challenge for current retail banking by Chakravarty, Feinberg, Widdows (1995), p. 15 and Stafford (1994), p. 29.
Leichtfuß, Mattem (1992), p. 705; Bream (1998), p. 160
Bierer, Fassbender, Rudel (1992), p. 504; Kimball, Gregor (1995), p. 5 2i Schroders (1998b), p. 13
For a more detailed coverage of BCP’s retail philosophy and success see Dresdner Kleinwort Benson (1998), pp. 31–32.
A typical CEE definition includes Albania, Belarus, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Ukraine (Essinger (1994)). Sometimes, Croatia and Slovenia as the most developed regions of former Yugoslavia are also included (Podkaminer (1996)).
The program is generally called the Balcerowicz Plan named after its architect, Leszek Balcerowicz, the first non-Communist finance minister in Poland. For a detailed coverage of the measures and their effects see Berg, Blanchard (1994).
The 1997 budget deficit was, for instance, 1.8% of GDP, while the Maastricht treaty stipulates a maximum deficit of 3% of GDP. At 56% of GDP, total external debt also fell below the Maastricht criterion of 60% in 1995, due to a partial remission of external debt by the Paris and London clubs.
Citicorp (1998), p. 46
All three major rating agencies have maintained Poland’s long-term credit rating at investment grade with the following ratings as of spring 1998: Moody’s with Baa3, S&P with BBB- and IBCA with BBB. A forthcoming upgrade of the rating even seems likely (Citicorp (1998), p. 44). Poland has also climbed six positions to number 42 in the Euromoney country risk ratings and is only three places behind Hungary, which is the most highly rated CEE country (Dobson (1998), p. 203).
For an international comparison of GDP and GDP per capita in 1996 see Appendix A. 31 Deutsche Bank Research (1996), p. 20
PlanEcon (1997), p. 133; EIU Tradewire (1997)
Based on Belka, Pruski, Raczko (1995), p. 229; Essinger (1994), p. 227
A difference to the German or French universal banking system is, however, that the brokerage arms of banks need to be separate entities. Such a setup should limit the degree of cross-subsidization between different product lines within the bank. Moreover, it should allow to decrease the potential for conflicts of interest between the commercial side of the bank and its broker unit (e.g. research opinion or investment advice concerning securities of an important client of the bank) as well as the use of inside information.
Bauc, Grabowski, Raczko (1995), pp. 169–170
Polish News Bulletin (August 12, 1997), p. 1; PlanEcon (1997), p. 123
BSK and WBK were the first in 1994, followed by BG and BPH in 1995 and PBKW in 1997.
Bill on bank consolidation of July 1996. Although centralization of activities is envisaged, the banks will retain separate identities and names.
The table refers to the nine regional NBP spin-offs. Based on Essinger (1994), pp. 228–231; Broker reports.
Commerzbank holds a 48.7% stake in BRE and a consortium of JP Morgan, Swedbanken and Zurich Insurance holds 24% in Bank Handlowy.
The number of banks in Poland increased from 18 in early 1989 to 86 in late 1991 (Thorne (1993), p. 967).
For the prerequisites to set up a bank, several laws need to be considered (Bauc, Grabowski, Raczko (1995), p. 170). The minimum capital requirements are the equivalent of USD 2 million for a Polish entity and USD 6 million for a foreign entity, compared to ECU 5 million as EU standard (Belka, Pruski, Raczko (1995), p. 239)
In 1997, BIG SA and BG have merged to form the BBG group.
Based on Bank/Prawo i Gospodarka (1998). The numbers refer to the total banking market, including wholesale and retail. Extending the list of banks to the top 15 adds the following players (market shares in brackets): Kredyt Bank/PBI (3.3), WBK (2.5), BZ (2.4), BRE (2.3), Citibank Polska (1.7), BOS (0.9), Raiffeisen Centrobank (0.7). The fact that the bank, which is ranked on position 45 (Cukrobank) still has a 0.1% market share underlines the strong fragmentation of the Polish banking market.
Over the 1994–1996 period, the top-3, top-5 and top-10 concentration ratios in the banking market have, for instance, increased by 25, 22 and 20% respectively. The broker reports predict a continuation and even intensification of this trend towards consolidation (e.g. Lehman Brothers (1997), p. 16; Citicorp (1998), p. 7).
Citicorp (1998), p. 40. The rate required by the BIS is 20%.
NBP (1997), p. 15
Part of the reserves are actually remunerated. The proceeds, however, go to the Agricultural Restructuring Agency and not to the banks (ING (1996), p. 120).
Kern (1996), p. 77
Price Waterhouse (1997); OECD (1995), pp. 128–129
See, for example, the investments by Allied Irish Bank and ING in the context of the twinning program.
Both Spain and Portugal liberalized access to their banking sector prior to joining the EU in 1986. By that time, their banking sectors were underdeveloped vs. the EU countries. Although there were several successful entries, foreign competition, especially in the retail market never managed to play a leading role in terms of market share. However, they still shaped the form of competition by introducing new products and services, as well as selectively using aggressive pricing (Hoschka (1993), pp. 198–237; Canals (1993), p. 115). Summarizing the experience in EU countries, Vesala (1995), p. 119 states that “retail banking has in general remained national business”.
Based on IFC (1997); Euromonitor (1997). The turnover ratio is defined as total annual trading volume over average annual market capitalization.
Euromoney (1997), p. 7
The Société Francaise des Bourses provided significant technical help in developing the organization of the exchange.
Shilling (1996), p. 455. A total return performance index takes dividends and other cash payments to shareholders into account.
Rynek Gieldowy (1I/1997), p. 13
The number of companies listed on the WSE has risen from 65 in 1995 to 83 in 1996 and 143 in 1997, with the market capitalization almost tripling from USD 4.6 billion in 1995 to USD 12.4 billion in 1997. The average daily turnover increased by 190% over this period (Euromoney (1997), pp. 7–8; Euromoney (1998a), pp. 8–10; IFC (1997), p. 209).
BRC (1996), p. 167. For a similar comment see PlanEcon (1997), p. 126 or Currie (1997), p. 269.
Based on Rynek Gieldowy (Jí/1997), p. 29; Ministerstwo Finansów (1997), p. 56. Only maturities with a sufficiently deep market have been considered.
Reilly (1989), p. 415
Dresdner Kleinwort Benson (1998), p. 4. Bank relationship is defined by the existence of a current account.
Based on GUS household panel (December 1996), own calculations. The savings potential is derived by subtracting average living expenses for given income levels as provided by GUS.
This figure takes into account the negative savings potential of the lowest five deciles. Looking only at the top five deciles, the figure would be PLN 1,260.
Average net interest margins were about 500–600bp (though rapidly declining), compared to 150250bp for banks in developed Western markets (ING (1996), p. 33; Dresdner Kleinwort Benson (1998), p. 7).
provide a reference point: PKO BP, the largest bank in Poland, has approximately the size of a top-tier savings bank in Germany. Compared to Deutsche Bank AG, it is more than 20 times smaller. Ranked by shareholders’ equity, it would rank around number 30 in Germany (based on Euromoney (1998b), pp. 172, 179).
See, for instance, Merrill Lynch (1996), p. 22; Lehman (1997), p. 12.
Reference rate is the 1-year WIBOR at December 31 of the respective year. Based on Bank/Prawo i Gospodarka (1998), Bank/Nowa Europa (1997), Datastream database, own calculations.
Merrill Lynch, for instance, predict in their 1998 publications a decrease in the net interest margin by 20% over the 1997–1999 period.
See, for instance, ING (1996), p. 33
As the cooperative sector consists of over 1600 small, independent banks, mainly in rural areas, a unified expansion strategy is very difficult to organize. Moreover, BGZ carries a significant amount of non-performing loans and has required major capital injections by the government in both 1993 and 1996 (ING (1996), p. 96).
See, for instance, ING (1996), p. 104. Dresdner Kleinwort Benson (1998), p. 4 sees PKO BP and PeKaO SA together at 61% of retail deposits and 45% of retail loans. They do not, however, include the cooperative banks and other smaller banks in their calculation.
Lehman Brothers (1997), p. 7
Business Eastern Europe (08.09.1997), p. 9
The announcements were made in the middle of 1997. Some of the sources are for BSK: East European Banker (May 1997), Euromoney (September 1997), for BH: Financial Times (26.05.1997), Wall Street Journal Europe (19.06.1997) and for BBG: Rzeczpospolita (05.06.1997). The newspaper sources are based on a search in the Lexis-Nexis database.
Based on broker reports, Bank/Prawo i Gospodarka (1998), own calculations.
numbers only, as no audited 1997 numbers published.90 PKO BP, for instance, has been described as a federation of bank branches rather than a real bank (Dresdner Kleinwort Benson (1998), p. 17).
Polish News Bulletin (16.06.1998), p. 1
PeKaO SA, for instance, is the leading card issuer in Poland. 9’ Business Eastern Europe (05.01.1998), p. 9
This is the renamed Lodzki Bank Rozwoju which had been acquired by BIG SA in 1992 under a restructuring agreement with the NBP.
Merrill Lynch (1998e), p. 8 9’ BAI/McKinsey (1996), p. 13
Figure as of end 1997 (Business Eastern Europe (16.02.1998), p. 11)
Annual reports; own calculations
Based on BIS (1997), p. 114, national bank statistics.
Pentor (1997)
Dresdner Kleinwort Benson also stresses the existence of the service gap between the two incumbents and the concepts for market entry by BBG, BSK and BH.
This view is supported by the fact that both BSK and BBG have decided to build a greenfield retail network parallel to their existing network as restructuring of existing branches has been considered too costly and time-consuming (Dresdner Kleinwort Benson (1998), p. 32).
Dresdner Kleinwort Benson (1998), p. 29
The formulation of the new strategy and objectives together with test runs for the actual implementation in a few model branches is probably achievable within the 3.5-year period quoted. However, both banks are slated for privatization, thus diverting management attention from restructuring issues (Business Eastern Europe (02.02.1998), p. 2). PeKaO SA additionally needs to complete the integration of its banking group first. The actual rollout to the full breadth of the branch network, including the conversion of 42,000 and 12,000 employees to a profoundly different way of banking will take much longer. Apart from extensive and repeated training, such a restructuring would also require branch remodeling and modernization of the existing IT infrastructure, which is a lengthy and highly uncertain task by itself. A total of 6 to 8 years before a noticeable change in the organization is achieved, leading to a change in the perception by the customers, therefore appears more reasonable.
Hoschka (1993), pp. 129–130; Neven (1993), pp. 180–181. The transfer of a current account which is generally viewed as the anchor of a customer relationship requires that the account holder individually notifies a multitude of counterparts of the change (e.g. rent, utilities, insurance). Specific functionalities such as standing orders or payment cards also have to be set up again.
Pentor (1997). This survey is probably underestimating the degree of dissatisfaction. At the time of the survey, no example of a better service offer has been available yet in the Polish banking market for comparison.
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Müller, J. (2000). Retail Banking in an emerging market: The case of Poland. In: Real Option Valuation in Service Industries. Gabler Edition Wissenschaft. Deutscher Universitätsverlag, Wiesbaden. https://doi.org/10.1007/978-3-322-99299-4_2
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DOI: https://doi.org/10.1007/978-3-322-99299-4_2
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