Bank prepares for leap into brave new world

Date: 02/10/1997

By Chris Johnstone

BELGIUM's Kredietbank is the sort of middle-sized European bank that is taking the advent of the euro seriously - not only for its customers but also for itself.

Kredietbank, as Belgium's second largest bank, is currently a big player in a small country. However, it will only appear a medium-sized one in a single currency area when the euro sweeps away some of the obstacles which have segmented Europe's banking sector into largely national markets.

Managing director Herman Agneessens admits that it is not a comfortable position to be in, as he surveys the impact the euro could have on its capital markets operations.

“Some banks doing good business in domestic markets could be too small to step up to a European level,” he says. “We are taking that problem very seriously. If there were only ten to 15 players in Europe, we would not be among them.”

With regard to retail banking, Agneessens, is less anxious about EMU and more worried about the impact of the Internet. “It is a bigger threat than the euro,” he says.

Internet banking is already taking off in Scandinavia, undermining those banks which have invested heavily in the bricks and mortar of an extensive branch network.

However, the euro is likely to cut some of the cross-border differences in interest and mortgage rates. “In the Netherlands, the interest on deposits is much higher. In the future we will have to pay more for our deposits or they will have to charge less for loans,” says Agneessens.

Banks in northern France are already following the interest rate pattern of Belgium, although those of southern France are pursuing an entirely different tack.

Little will change on the wholesale banking side, where competition on margins for handling the big corporate and institutional loans and issues is already fierce and the market is already international, adds Agneessens.

Kredietbank is not standing still in its preparations for the euro. It has already diversified its currency trading operations and stepped out of its domestic market to take stakes in Czech, Polish and Hungarian banks.

More exotic currencies such as New Zealand and Australian dollars now feature prominently in the company's trading room, as do the currencies of South East Asia.

“In South East Asian currencies we have seen a dramatic expansion. We would like to expand further in China and other Asian countries. Indonesia is a difficult country to get into at this time,” explains Agneessens.

Kredietbank reckons that it emerged roughly even from the recent period of currency instability in eastern Europe and Asia. “Where there is volatility there is opportunity,” says Agneessens.

The steep fall in the Czech and Polish currencies amid widespread worries about the health of the whole Czech banking sector do not seem to have dulled Kredietbank's enthusiasm for expansion eastwards.

It has a 19&percent; stake in the Czech bank Banka Haná, a 10&percent; share in Poland's Kredyt Bank, and a 57&percent; stake, with partner Irish Life, in Hungary's Kereskedelmi Bank.

Kredietbank has followed a cautious policy, preferring to take a small initial stake and get used to the competitive and regulatory conditions in the country concerned before committing itself further.

Three criteria exist for investment in a foreign bank: a financial system that is dependable, with clear rules; a level playing-field; and a currency that, if not actually convertible, is well on the way to being so and offers the prospects of stability.

Asked where the bank might turn its focus next in the search for new opportunities, Agneessens mentions Slovenia and “some of the Baltic states”.

A level playing-field is something the bank would also appreciate on the EU stage. Germany's insistence on giving its regional banks special guarantees is particularly irksome, says Agneessens.

“Westdeutsche Landesbank is one of the best run banks in the world and does not need those sort of guarantees,” he says, referring to Germany's third largest bank.

On state aid, Agneessens accepts that banks should be allowed by national governments to go bust if deposit guarantee schemes were to be reinforced and customers were informed of the risks they sometimes run in selecting the highest market interest rates on offer.