Bankers have started to study more closely the possibility of distributing products through alternative channels as the rising prices of commercial space and the increase in salaries are driving up costs of operating a large territorial network.
It is particularly the medium-sized banks, which need to rapidly strengthen their presence to be able to gain ground on the retail market, that are coping with this situation.
OTP Bank, the domestic arm of the biggest Hungarian financial group, is to focus on expanding its sales on the back of alternative distribution channels over the following years.
"On the medium-term, we want 50% of the product sales to be carried out through alternative distribution channels," Laszlo Diosi, the new general manager of OTP Bank Romania, told ZF. Depending on market conditions, this level should be reached in the next 3-5 years.
OTP Bank is now strongly developing its territorial network in a bid to secure nationwide coverage. The bank at this moment has 72 branches, with a further 30 to be opened by yearend.
Diosi says the network may come to include 200 branches in the following years if the model of expansion through small-sized branches is applied. However, he considers territorial expansion is becoming increasingly costlier, both in terms of location prices and of expenses related to personnel hiring and paying. This happens as intermediation margins are dwindling, putting pressure on the operating revenues of the banks.
Diosi reckons this problem is more serious for the banks that have not reached critical mass. Turkey's Credit Europe Bank is in a similar situation.
OTP Bank has already started collaborating with credit brokers, but has also developed "distance-banking" channels: Internet banking and a call-centre. On the other hand, the bank plans to develop private banking services this year, following the reorganisation of the Treasury department. In the first phase, a unit for private banking customers of Bucharest will be set up, while in the rest of the country such services will be provided through the bank's existing network. Diosi says customers with financial assets worth above 100,000 euros would be targeted, but this will be a flexible criterion.
A subsidiary specialised in providing financial leasing services, OTP Leasing, will soon become operational and the group will also bring the asset management unit onto the domestic market by yearend. Hungary's OTP also operates an insurance company, OTP Garancia, in Romania.
In the first years, the Hungarians made massive investments in the domestic subsidiary, operating a series of capital increases and taking losses for the sake of rapid growth. Diosi says that now the budget is tight and Budapest wants the Romanian arm to step into the black as soon as the first half of next year.
OTP Bank Romania
Has to turn into the black as soon as the first half of 2008
OTP Leasing will become operational in the near future
A subsidiary specialised in asset management is set to be created by the end of this year
Will provide private banking services starting this year
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