Bank Technique, an Azerbaijani bank, is a perfect example of how an image of a bank and its ambitions can change so drastically in a very short period. Thus, Global Banking & Finance Review acknowledged Bank Technique as the Fastest Growing Bank in Azerbaijan in 2013. International Finance Magazine awarded the bank in two categories – “Best Internet Bank Azerbaijan 2013” and “Most Innovative Bank Azerbaijan 2013”. In October 2013, the bank received an international IAIR Award in the category “Excellence in Banking Services”.
The Chairman of the Supervisory Board of Bank Technique, Rovshan Ismayilov, speaks of the measures, taken to become the most innovative bank in the country:
– First of all, I would like to say that in the middle of 2012 the bank underwent pivotal staff and structural changes. The bank has been functioning under a new management for over a year now. As a first step, from April through June 2012, we solved the tactic issues of stabilizing the financial-economic activities of the bank. These included ensuring of necessary liquidity level, systematic adjustment of cash flow, loan restructuring, individual regulation of business processes, etc.
As a part of the last stage, we started developing and executing of mostly strategic tasks, targeted at institutional development of the bank. During the next six months, namely until the end of 2012, we carried out large scale projects at the bank, such as elaboration of a new development strategy, rebranding of the bank, migration of the card business onto a more advanced processing, complete migration of our accounting basis onto a more developed computerized banking system, development and introduction of internet and mobile banking. At the same time, we have also established an efficient system of corporate management, motivation and compensation package and many other things.
As a result of the abovementioned processes, the financial indicators of the bank have improved significantly. Liquidity was reinstated and the amount of liquid assets was increased manifold and their share in total assets rose from 3 to 20 percent. The loan portfolio and overdue loans decreased respectively by 28 and 33 percent. In order to achieve an adequate evaluation of bank’s loan portfolio, in the course of 3 months we created additionally over 70 million manats of reserves, wrote off over 20 million manats of virtually accrued, however unpaid interest. We registered over 400 million manats of warranty liabilities that were not taken into account previously, eliminated the foreign exchange exposure of €19 million, which was inconsistent with the financial situation and paid over 70 million manats of debts to banks and investors.
At the same time, while evaluating and restructuring the deposit portfolio, we managed to cut down the resource prime cost by vast 35%, which upped the efficiency of our operations, maintaining the growth rate of retail deposits at 13%. By the way, this number reached 31% according to the results of the second half of the year. Moreover, the traditionally unprofitable card business of the bank became profitable already by the end of 2012 compared to 1.2 million manats of losses of 2011. As a result of all these measures the yearly income grew significantly. Shortly speaking, the bank develops fundamentally. In addition, we see this fundamentality in the quality that in turn generates quantity. According to statistics, the factual everyday interest income in 2011, which was 26.3 thousand manats, has already grown by 40% and reached 37 thousand manats. It means that with a loan portfolio of 314 million manats the bank really started earning more income by 40% compared to average portfolio of 400 million manats in 2011. Additionally we have to note that in 2011 the bank was unprofitable with a real loss of 0.7 million manats and the amount of the cumulative losses according to results of 2011 was over 40 million manats, which is also confirmed by the audit conclusion by KPMG ltd in 2011. Moreover, the level of the expected yearly income is estimated at 4 million manats at the moment and the factual capital assets of the bank increased more than twice, exceeding 50 million manats. Regarding the resource base, I would like to note one more time that throughout the year, we returned over 70 million manats of costly resources and it was done at the same time with increasing liquidity. What it means is that we said no to the practice of attracting unnecessarily expensive resources, despite the decrease in the quantity index. We also discarded the policy of aggressive credit facility “to the first comer” literally, which leads to deterioration of financial situation of the bank. This creates a full dependence on the quality of loans and interest income with inertial risk increase. Having chosen a more balanced scenario for attracting and distributing resources, we managed to save over 10 million manats of yearly interest income. In the end, the entire statistics speaks only of the positive dynamics of financial indicators.
In this regard, I would like to speak of strategic development. The main directions of strategic planning are innovative-technological development of the bank and establishment of full-range remote banking. The demand in such banking increases by every year and the existing classic banking does not correspond to these demands. On the other hand, this is connected to the rather favorable macroeconomic environment in the country. At the same time, the shift to innovative-technological banking fully corresponds to the course of monetary management policy on stimulating cashless settlements, which are especially urgent.
At the moment, we have managed to complete the first stage: we have launched a wide range of technological and remote services, exceeding the services offered by other local banks. By the end of the year, we are planning to finalize the introduction of the most advanced module for internet banking, which will allow us starting a more quality level of remote banking. With this scenario, almost all banking services will be shifted to remote-technological platform. This in turn will increase the speed of money circulation by multiple times. We have quite ambitious plans and only time will show how fast and efficiently we can carry them out.
A quarter of banking customers noted an improvement in customer service over lockdown, research shows
SAS research reveals that banks offered an improved customer experience during lockdown
This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.
The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.
Brian Holden, Director, Financial Services at SAS UK & Ireland, said:
“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.
“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”
While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.
Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.
For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer?
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
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