Banks and the pandemic – actual and future challenges

Christian CANACARIS

Chief Executive Officer

RAIFFEISEN BANK ALBANIA 

1. How COVID-19 pandemic has impacted the banking activity and respective results of your bank, during the year 2020?

Since the beginning of the COVID-19 pandemic in Albania, our primary focus has been to ensure safe working conditions for our employees while providing all the necessary services to our customers, in the light of rules and protocols that must be applied. Therefore, within March we ensured the core bank’s functions to work remotely.On the other hand, our branches adjusted working hours based on the government’s restrictions, while offering our customers digital channels (ATMs cash in/ out, Raiffeisen ON services, call center) to complete their routine transactions.

Like all banks in the market, Raiffeisen Bank Albania suffered a visible decrease in the number and volume of transactions during the lockdown, but the situation slowly normalized in June-July. The pandemic triggered a substantial increase in the number of transactions coming from ATMs, POS, R-ON, Mobile supported by our channel mix, which continued to grow in the following months, proving once again the robust Raiffeisen innovative profile in supporting digitalization of banking services. Both consumer lending and mortgage loans accompanied by marketing campaigns, while introducing faster and agile processing for specific target customer groups, are reaching 50% of the new volumes, originally planned for the year 2020. Banks have been active in accepting loan restructuring applications impacted by the pandemic, where the average accepted application ratio is over 90%.  Like all banks in the market, our bank was impacted by the moratorium. As a result, the bank's profit is expected to decline in 2020 versus the previous year and what was forecast initially in the budget.

The corporate portfolio, on the other hand, proved to have stable quality. We have managed to provide the necessary financing to our customers, despite the economic recession in Albania, and more prudent lending criteria. Being one of the main market players, Raiffeisen Bank Albania had a major share in the sovereign guarantees 1 and 2, as communicated by the Ministry of Finance and Economy. Therefore, we have actively used this opportunity to finance our customers, supporting their immediate needs for liquidity and future performance. The real impacts of the COVID-19 pandemic on local businesses and lending to customers regarding loan performance and NPLs are expected to show by Q1 2021. Nevertheless, Raiffeisen Bank Albania is taking a conservative approach to provisioning based on most impacted industries and macroeconomic factors. 

2. How prepared, the banking sector is, when coping with the pandemic?

The pandemic found the banking sector in good financial performance and healthy enough to cope with it. The banking sector remained healthy, with capital adequacy and liquidity ratios significantly above the regulatory requirements. RoE remained in the double-digit territory (13.45%), although the low rates environment continues to put pressure on banks’ net interest income. At the end of September 2020, a month after the moratorium was no longer in force, the level of bad loans stood at 8.4% of total loans, indicating a relatively good quality level. Nevertheless, we are at the initial stages of the consequences of the pandemic, and next year we will be able to evaluate its full effects. Despite the restructurings, due to the uncertainty caused by the pandemic, banks expect to face declining quality of loans and increase provisions for credit risk. Notwithstanding the recognition of these provisions proactively, the effect of their increase on the result of the banks is expected to extend throughout 2021.

From my perspective, the reforms undertaken by all actors to strengthen the quality of loans and to improve the business climate have had a great impact on coping with this situation. Had this pandemic found the banking sector with a high ratio of NPL and other business impediments the situation could have been more challenging. 

3. How the banking activity will evolve in the near and more distant future?

The model of the bank of the future is taking shape also in Albania. The market is increasingly focusing on innovation and branches are being transformed with a new commercial approach to focus more on high value-added activities.

Now, to answer your question more in detail, I would separate it into two parts. In the mid-term, technological shifts will transform the internal processes of the present banks. There is a whole set of the organization of people and processes within a bank that will be impacted, leading to the transformation of the business lines, channels, and products to achieve greater growth. In addition, the bank will reprioritize its investments to improve the profitability and time to market. Digital transformation will shift the work to lower-cost channels and increased automation will reduce processing costs. Another component of the transformation will be redirecting existing investment plans to better align with the bank’s digital and business needs that will also accelerate time to market through different technology partnerships. To give an idea of the transformation happening now, 1 billion users used a mobile payment app in 2020 and over 50% of Generation Z already use digital wallets. Cash payments globally have fallen from over 30% in 2018 to just over 20% in 2020. Debit and credit card payments are still on the rise, but at a much lower rate than the growth in mobile payments.

The second part of my answer focuses on the longer-term transformation of the banking sektor. The keyword here is “data”. Data-driven value creation is the opportunity in the next round of digital disruption. Retail banks have the potential in the user data they already possess. Learning how to interpret those habits is one of the keys to unlocking the power and the value of data by being able to offer personalized products. That is the revolution that I foresee will drastically transform the banking landscape in the future.

Last, but not least, Raiffeisen embraces the challenge of digital transformation and is ready to be an important player in this new field, opened up by technological changes and new regulations. A demonstration of this is the many initiatives of collaboration with startups and fintech companies. We are now at a consolidated phase of our innovative and fruitful collaboration derived through many programs, such as: Innovation Lab and Elevator Ventures. This commitment to innovative change has been appreciated by our clients. Thus, it is not a surprise that Raiffeisen has been chosen as the most innovative bank in Albania according to our customer satisfaction surveys. We will continue to explore the boundaries of technology even in the future, in order to be the most recommended bank in the country.