Rietumu Banka: Finance is an area that should be regulated
Banks.eu continues a series of interviews with top managers of European banks to tell all the details about the credit institutions in Europe and their future plans. At this time, the representative of the portal spoke to the head of the Latvian Rietumu Bank Alexander Pankov.
Previous interview of the category can be found here: Expobank CZ: A banker must be available 24/7
- How did your banking career start?
- Then (note: in the 90's) it was just the time for speculative trading. Everybody were actively entering the market. There offer margin trading was very wide, when the client could put a small amount of money on his account and trade on a grand scale, speculating on the currency market. Just after the university I had such experience. But not for the purpose of speculation, but exactly with the aim to follow banking positions. It happened at my first job, at the Rietumu bank.
- What is the current state of the Latvian economy and the investment climate in the country? How did the introduction of the euro affect these spheres?
- Latvia is a young country, and Rietumu is a young bank. All we have is in active development, and is only getting better. Although in the course of this development there were more and less attractive moments, because there were a lot of legal and external changes. For example, in the 90s there was one type of financial climate, and then in 2004 we joined the EU, with a completely different level of regulatory requirements for banks, transparency of a business. It also affected the main aspects in the development of the country.
Today Latvia is a full-fledged member of the eurozone. The country has good ratings, I believe we managed to quote worthy pass the crisis of 2008-2010. It was a very difficult time for the country and, in particular, for the financial sector.
To date, the financial and banking sectors, and the economy as a whole, are in good conditions and are ready for further development. I believe that Latvia has all the prerequisites for becoming an attractive country in terms of investment.
Although, when defining the investment climate it is necessary to take into account both external factors and investors' expectations. In recent years we have been facing low interest rates on loans and deposits and the decline in yields. In this connection potential investors are reconsidering their activities in the new environment.
What the authorities are doing today in the EU, on the one hand, is aimed at strengthening the financial system by means of tighter regulations and requirements within the Basel III, the key component of which is to increase the capital adequacy ratio. Thus, in case of possible shocks is the banking sector, it will have a better safety cushion, which does not affect the customer accounts.
On the other hand, these requirements indicate that the new capital should attract external investments. For Latvia it is not such an urgent topic, since the Latvian banks have no problems with capital adequacy, and it is historically explainable that the capital adequacy was at the level of 12-15%, which is a very good level.
For the major players in Europe the figure is 4-6%, which was previously considered normal. Now this is not enough, and we are talking about large sums, which must be brought to the capital. A yield that banks show does not answer the expectations of investors and shareholders. Therefore, it is a difficult time for banks and investors, who are constantly trying to find a good project.
- Rietumu working with many clients. What bank services are mostly in demand?
- First of all, you need to clearly separate the customers who use the bank to keep their money, and those who use it for trading operations. There are also some customers whom we have attracted as investors.
For the latter, we have a program to issue preferred equities. Thus we attract fresh funds to our capital, which is a good basis for growth. The shares have a guaranteed minimum yield of 5%, and now it reaches 9.5 - 10%, and it is only in the form of dividends.
A dividend policy we have, ensures 50%, respectively, the other half provides for the growth of the bank value, and it increases the return on investments.
- How is Rietumu preparing for the expected news about lowering rates on deposits at the upcoming ECB meeting in December? Has the bank got any measures to face it?
- We are ready to all shocks possible, including such small as this one. We'll see, get acquainted with the reasons that will be at the heart of this measure, and will make a decision for further actions.
- How is Rietumu different from other banks represented in the Latvian market? What is your advantage over other banks?
- Corporate customers and business owners are in our focus. These clients can be both from Latvia and other countries.
Rietumu is a “thinking” bank with a very conservative approach. At the same time it is flexible in decision-making. We offer unique solutions, each of which is adjusted individually to the needs of the client.
For example we have no ready standard solutions for issuing loans, to say that something is possible, but something is not. Every project we have is individual. When preparing it, we communicate with the customer to find common grounds, favorable and convenient for both the client and the bank. And in general, all our business is built on relationships between the bank and the client. First of all, we hear our customers; try to be closer to them and to offer them the most convenient option.
- In recent years, bank profits have notably fallen: someone was not able to recover from the crisis of 2008, someone is suffering because of low interest rates and slower economic growth. At the same time, the banking industry is undergoing significant changes due to financial technological startups, crypto currencies and many other technical innovations. What is your opinion about this? Whether these are real threats to the traditional banking business?
- We do not perceive this as a threat. We ourselves are developing this segment. For four years already we hold an international conference on topical issues of e-commerce (note: ECom21 conference in Riga). This is a very promising tendency with a lot of fresh and interesting solutions. As a bank we support many activities in this area, and even participate in some of them. We are closely monitoring the sector and try to develop something similar on our platforms.
After all, what is the difficulty for the bank in competing with financial technological start-ups? A Bank is a very "regulated" organization. Therefore, it is difficult to introduce a new product, which is somewhat different from the existing one; that will be able to attract the attention of customers and have good growth potential. We must be attentive to customer identification and to control of his transactions.
At the same time the environment is changing, technologies are evolving, many things pass into the Internet. And Rietumu does not follow it from aside, waiting until someone "takes away our bread." We are trying to participate in it.
- Can startups in the financial sector be soon expected to get under legislative control?
- Finance - is finance. This is an area that should be regulated.
Interviewed by Evgeniia Komleva, Banks.eu
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