Ömer Tetik: "At our size, market share is no longer an end in itself - our focus is on business sustainability, profitability and customer experience."

Ӧmer Tetik, CEO of Banca Transilvania, in an interview with Ziarului Financiar. Here we replay the full interview, which includes an overview of BT's big picture, the bank's growth prospects and expansion plans in different segments. Enjoy 😊.

1. What are the conclusions after H1/2024 results - which divisions were above expectations, below expectations, which economic sectors performed/what didn't, which markets performed/what didn't?

It has been a fairly predictable start to the year for the economy and companies. Although economic growth has been slightly below our and economists' expectations, the context is a relatively normal one for companies and population, driven by the usual and expected economic drivers in Romania. Economic growth has slowed, but the good news is that inflation has come down and we do not see significant stress in any economic sector. Because we have consumption-led economic growth, economic sectors and individual companies evolve differently and are influenced by trends in society and in the consumption of the population. We have sectors that are doing very well, but we also have sectors that are slightly shrinking or stagnating.

All in all, I think it has been a first part of the year without any particular problems and no absolute news - we know the country's problems and opportunities - we just need to act on them.

2. What does the fall of 2024 look like for banks, how is the economy and the business of companies doing, what does the demand for loans look like for both companies and individuals?

The first 8 months are looking good, with new loan volumes significantly above the same period last year - with a consistent contribution from corporate loans, consumer loans and to a lesser extent real estate loans. Of course, at least in the case of companies, these loans are not being fully utilized immediately, so our balance sheet will gradually increase. Also for companies, we see an active behavior, they are attentive to opportunities. Government programs, especially IMM Invest, have contributed to this credit demand. Almost a quarter of new volumes are related to these programs. On the other hand, structurally, at the level of the banking system, we see more working capital and less investment. We are interested in the present, but we also have to work for the future. For growth, you need competitiveness, and that means development and investment. From this point of view we believe that the best option is to encourage those who have ambitions to grow and are looking for opportunities. BT looks for companies that have growth plans and need investment.

In terms of retail, people's behavior is much more based on emotion, but also on the evolution of wages, where, including with the contribution of the state sector, we see increases and this is attracting demand for credit and increasing consumption.

A very good thing for us - and for Banca Transilvania in particular - is that we are also seeing consistent growth in the volumes of operations and transactions carried out through us. We are a universal bank, with over 500 units and all possible banking services in our portfolio. As a result, we are growing by up to 30% in transaction volumes. We are also one of the few banks that have not given up cash and we also work with cash for our customers - this makes us even more attractive to a wide range of customers. Customers feel we are a big bank that can support them with any solution, infrastructure, product or service and they come to us.

In the medium term, the trend will be for BT to grow and for the economy as a whole to grow slightly. Yes, indeed one of the drivers of growth is consumption and this is where we need to generate a transition to other models. This requires investment - by the state and by companies. 

3. How will interest rates on deposits and loans evolve after the NBR's cuts in the reference interest rate?

Interest rates - on loans and deposits - are already on a slight downward trend and this is a good thing, because it stimulates investment, but also reduces the cost of existing financing and makes it easier to service the debt of borrowers. The trend will be accentuated by the interest rate cuts already foreseeable in the US and the EU, but in Romania I do not think we will see an accelerated trend. On the one hand, inflation is still higher than in the West, but on the other hand, financing the budget deficit requires a large volume of money and this puts pressure on interest rates, so they will not be able to fall too quickly.

We will see declines, but they will be neither steep nor accelerated and there will remain a 1-2 pp differential between us and the West (between the leu and EUR/USD). 

4. What is happening to the demand for mortgage lending, what is happening to the real estate market - rising prices, falling transactions, overpricing or not, what impact will falling interest rates have?  

There are several trends reflected in the current real estate market that we see quite clearly. First of all, the figures show us that transaction volumes for the first 8 months have been maintained or slightly increased, with between 50 and 60% of transactions being financed by bank loans. On the other hand, we have also seen a noticeable increase in prices, mainly influenced by a limited housing stock - basically, prices are rising because we have a real demand which is higher than supply. But, obviously, both transactions and price increases are concentrated in a few cities in the country - first Bucharest, then Cluj-Napoca, Brasov, Timisoara and Constanta, followed by medium-sized cities. The market is dynamic, but it is polarized and stock is limited - this leads to price increases - which ultimately limits the number of transactions.

Last but not least, we see that the half of the market that uses mortgage financing is very sensitive to the price of credit. This is in the context of the fact that interest rates on real estate loans in Romania are very low, both compared to the cost at which banks finance themselves (interest rates on deposits or yields on government securities) and compared to other countries in the world or region. This means that customers are always looking for the lowest interest rates and the best lending conditions.

So far, the real estate market has evolved quite correlated with the markets around us and in Europe, the increases have been across the board, and I think that's a trend we can expect in the future. In addition, depending also on the evolution of the economy and in the absence of macroeconomic shocks, we don't see any factors that could affect the real estate market in the short or medium term.

5. In which markets, cities, areas, sectors does Banca Transilvania want to gain ground?

From the outset, I want to mention that precisely because we are a universal bank and the largest and most integrated financial group in Romania, we do not have preferences. We look at the market as a whole and we look for both opportunities for BT - areas where we are not ideally represented - but we also look to support the opportunities that Romania has, so that it catches up with the West or other global markets. We need to cover well and represent all geographies and all segments.

We are keeping our focus on the healthcare market - doctors and private medicine, because this is an area where a lot of investment is needed. We are by far the biggest player, but the potential is big and we want to help bridge the gap.

The agro sector is experiencing temporary difficulties, but it is another area with maximum potential for our country - both because we have tradition and because we are a large country with a favorable geography, and that means we have an obligation to invest, too, to close the gap with other global markets.

Traditionally we have covered retail, SMEs and medium-sized companies very well, but recently, with the bank's growth, we are allowing ourselves to enter much more aggressively into the large corporate market and we are an increasingly relevant player - both for local and international companies.

In retail, we are a popular bank, we work with all categories of customers and we have all the products. We are now starting to strengthen our infrastructure to better serve the middle segment of the market, the urban, slightly above average income customers. We call it the premium segment - the area between retail and private banking customers. The fact that we have the strongest Group helps us a lot in this area - we have in the Group all the services that such a client needs - from brokerage services to asset management, leasing or pensions. These are unique skills in Romania - we are now working to integrate them and build on them the customer service layer.

The BT Group companies are another area of growth for us, but here we have completed a substantial round of acquisitions and we are now focused on integrating them and bringing these services to the BT customer base - the 4.5 million BT customers - and thereby increasing synergies. We will grow nicely here because we have the opportunity to take all these services to our entire customer base.

The potential is huge, also because in Romania we are very low in terms of financial literacy and banking literacy, and these services (offered by the companies in the Group) can help us to increase the level of financial inclusion in our country. 

6. Where is the growth in NPLs localized?

We are bankers and the uncertainties mean we see challenges and problems every year. But the numbers are good and the cost of risk is low. We see more fragility in small and medium-sized firms, where there is also an increase in insolvencies, but it is a structural issue, it has been and will always be by the nature of these businesses, which need to grow and accumulate.

Considering that NPL is actually an indicator that measures risk, and we are in an emerging market with multiple risks, but also the fact that we, as a bank, are basically managing the risks, at the moment, we consider that the level of non-performing loans is good, expected and reflects good financial health, both at the population and corporate level (all segments).

We are not aiming per se for a fall in NPLs from their current level, not least because that would mean that we may be too selective in lending and the economy needs financing.

7. How is lending on government guarantee programs going?

They are very popular. To borrow a fashionable term, they are sold out, each edition has meant demand outstripping supply. Entrepreneurs seek these benefits. They can influence their behaviors and their decisions, and from that point of view, I would like to see a stronger focus on the necessary investments in the economy. We are in permanent dialog with the authorities and we see the same concerns. From a logistical point of view, the effort is great every time.

8. How is the agribusiness market doing, which is being hit by drought, price pressure, locking crops in stocks at higher prices, export problems?

It's a difficult year for farmers. Both because of price uncertainty and this year's drought, which came after two other problematic years. The outbreak of war in Ukraine in 2022 created movement in the grain market, and 2023 brought fertilizer prices and logistical problems.

Our bank has been supporting agriculture for many years and we know that we need to look long term, be patient, encourage farmers to invest for higher yields. We need to accelerate investment in irrigation. This is both an individual farm issue and a national strategy. In fact, we are trying to put the subject as much as possible on the public agenda, including through our partnership with Ziarul Financiar, where we have been together for two years to discuss investment opportunities in agriculture in different places around the country.

This year, cereal prices are relatively low and this is a problem for vegetable crop farms, but it is an opportunity for Romanian livestock farming, which can have fodder at an acceptable price. We are in contact with our customers, we look for solutions where it is needed, and we believe that solutions adapted to each situation are the most appropriate. We are looking confidently to 2025 and we are present in all government support programs - Farmers' Credit, APIA, etc.

The problem is also drought, but also lack of investment in irrigation and structural modernization of agriculture - which makes us even more vulnerable to drought and natural phenomena, and this means even more seasonal crops.

The most important thing is that BT has a large team of people who specialize in agriculture and that's all they do in BT - these people are always on the ground, in contact with farmers, discussing all the problems and finding solutions for customers. We have a very good framework through which we find good individual solutions for customers and I think this is the best approach to the current unfortunate context.

9. How and when will the OTP acquisition be reflected in the bank's balance sheet? What does the integration process look like, what is the reaction of OTP customers who have to move to OTP in both the retail and corporate areas?

The integration plan is going well, it's in line with what we've set out so far. We have started a few weeks ago, we are at the stage where we know the products, services, procedures of OTP Bank and, of course, the colleagues there. Our teams and the OTP teams are interested in the customers and the business, and that's why even these days we are trying to meet as many OTP Bank customers as we can, all over the country. Their questions are very constructive, from what we have seen so far, and the main interest of the customers is how BT can support them in their business.

Since the integration is ongoing, the two banks have separate activities, so OTP Bank customers still work with their bank. We really came in very quickly with the first facility for them, extending access to our ATM network, so for basic operations they have the same cost conditions as with OTP Bank Romania. For these customers it means access to 1,900 more ATMs in 350 localities. The way things are looking now, I think we can expect to see the OTP Romania portfolio on BT's balance sheet somewhere in the first quarter of 2025.

10. What is the next market share, business target for BT after the takeover of OTP?

At our size, market share is no longer an end in itself - our focus is on business sustainability, profitability and customer experience. Right now, the bank has over 20% market share, and once OTP Romania is reflected on BT's balance sheet, we will be close to 24%. In addition, as we mention on every occasion, our plan is to grow significantly and organically - above the growth of the Romanian banking system and above economic growth.

BT's growth will be a mix of organic growth above the system average, M&A, Financial Group growth, and an increase in the degree of banking in Romania. In addition, I would like to mention that we are taking an increasingly close and focused look at the diaspora and are working to refine our approach to win Romanians abroad.

Last but not least, we will only grow aggressively if we manage to remain the best bank in Romania and adapt to today's challenges - from digital services to the evolution of the pricing model. If we remain the best and agile bank in the country, we will grow and that will be reflected in the balance sheet.

So the fight in BT is two-fold - we fight commercially for our customers, but we also fight internally to optimize services and products to increase efficiency. 

11. What is BT's target for number of employees, branches?

The number of colleagues and the number of branches is not a goal in itself for us. We have an integrated banking model, we are the largest bank, but also the only large bank that has a very good vertical integration, from units, to ATMs and cash processing, to the Financial Group.

Our hybrid banking model - the best network, vertical integration, but also the best apps (which we either have or are developing) is producing results and it shows in BT's numbers. We don't want to change that.

We remain with a large network, at least as large as it is now, and our model also means that we will have more employees than the system average. Our efficiency comes from the way we serve customers and the fact that we are close to them and build a symbiotic relationship together. 

12. How will BT support the economy, companies and the state budget next year, given that financing needs will increase, but with higher risk?

Indeed - it has been a challenging year, and next year will probably be even more challenging, not least as elections are coming up in many parts of the world and markets are waiting for a result. But even looking back, we have had challenging years.

The financing needs are high from all points of view - the State also needs more and more money to finance the deficit, but wages are also rising, so the population is also eligible to take out more and more loans, but companies also need money (wages are rising, inflation is rising, so more working capital is needed) and, in addition, investment is needed to catch up the gap we keep talking about between us and the West.

On the other hand, the growth rate of savings is very good - overall, savings are growing by more than 10%, well above the growth of credit, and this creates reserves to finance the State, businesses and the population.

Of course, we are also watching with concern and receiving more and more questions about deficits (both budget and trade) and we are constantly pointing out that we need to be cautious - especially because we are going through a good moment in the markets, but this can change and it could be painful if such a change catches us with excessive vulnerabilities.

We will maintain a balance - as before - we are the main funder of the State, of companies and of the population, and this will remain the case - we will grow proportionally and in a balanced way in all segments.

I have seen that other players - not only in the banking sector - have pointed out that the turnover tax (bank tax in our case) should be abolished as soon as possible, as it is also mentioned in the legislation - because companies and banks need resources for investment and development. In our case, we need the profit, which to a large extent we reinvest and thus increase our ability to finance the economy (especially in a highly regulated market where capital buffers are significant). Practically, in our case - because we increase capital with a large part of the profit, every leu of the profit we capitalize can be returned as 5 leu in financing the economy.

In addition, large firms, not just banks - they play an important role in the economy also through indirect effects - they employ a lot of people, and these people consume further. Large firms have suppliers who provide services, who deliver products, who do maintenance. Any tax on turnover makes these large firms try to be more and more efficient (so they can pay turnover taxes) - or that means they tighten the screw and stress the whole ecosystem in which they operate, from employees to suppliers and so on. It's a subject that we need to pay attention to from all perspectives and have certainty that these taxes will be eliminated (I repeat not just for banks, but in general).

13. How is BT managing the sustained growth in consumer credit, a growth considered too high by the NBR?

I think we are extremely cautious in our lending policy - including our consumer credit policy. And I think that the whole system in Romania is cautious and well checked and regulated.

Yes - it's probably temporary, also driven by rising wages (both against the backdrop of the electoral context and the demographic problem), but I think that this increase will moderate over the next year. In addition, if the economy grows as expected next year and if there are no external shocks, this increase in indebtedness will be absorbed quickly, because personal loans are still short-term.

14. Asset growth, lending growth, deposit growth, overall bank growth comes with higher capital requirements, how is BT doing in this respect?

I would say that we are doing very well in terms of capital and capitalization, and the market has confidence in us - this is seen both in the evolution of the shares and the overall valuation of the bank, and in the evolution of the MREL bonds issued last year on the secondary market, where the yield has continuously decreased.

As we want to grow above the market average, we will obviously need capital and this will be a mix between earnings capitalization and market operations (MREL eligible funds). We are also helped by the general market backdrop and this is something we are quite comfortable with. Just very recently we did an operation in the market, we are very pleased, both in terms of investor interest, the mix of names that decided to fund the operation, but also the level of returns. We manage to set new benchmarks in terms of yield and investor interest for an independent bank in our region and we are happy about this, which also shows the interest that Romania's economy has for foreign investors. 

15. What are BT's plans for the investment division - new products, new funds, a bigger presence on the brokerage business?

Investment and in general the companies that operate in the financial markets (BT Asset Management, BT Capital Partners and BT Pensions) is a subject where we have very big plans and ambitions to reach as many people as possible. In general, we are seeing that now the population and particularly people who are saving and the premium segment are looking very closely at yield and looking for yield. We have plans to scale - we are working on technical solutions so that we can put the investment on the handset of all BT customers.

In general, we see a tendency of Romanians towards stocks with well-known names in the international market, attention to yield and even towards working with foreign online brokers that they cannot check well (from a safety or regulatory perspective of the market where they are registered). It is an approach that can generate risks and we recommend clients to stay in regulated, nearby markets (that they know) and to work with safe intermediaries, located in large markets or also registered in Romania.

That's why we are now working on - and have just launched - solutions through which clients can access funds and investments - regulated in Romania - in the safest possible way.

At the same time, I am glad that, after almost 35 years, the Bucharest Stock Exchange is starting to gain traction from all points of view - both companies available for investment and steady increases in the number of investors. A very important role is played by pension funds and the stability of private pension legislation in our country and I believe that it is good that the State encourages this in the future as well - because capital accumulation is the main generator of wealth for the population and companies, both in the long and short term.

16. Is the takeover of OTP, BRD Pensii, the bank's growth reflected in BT's share price on the stock exchange?

In theory, the price includes expectations related to an issuer, but relevant for us has always been the success of the post-acquisition integration. We have a relevant track record on completed integrations, about ten, if I'm talking about banks and companies complementary to banking, and in each case we have been able to generate synergies beyond market expectations. In many cases the difference is integration and we are a best practice in terms of integrations.

17. What are BT's plans for digitalization, new products and services?

Fundamentally, our plan is to have the best apps in Romania - for retail and business.

We started a little late with this plan, but now we have a stable and clear roadmap - BT Pay will be our app for individuals and BT Go for businesses. We're working on them to be the best and most complete apps in Romania and I believe that in 9 months maximum, this will be clear to all customers.

The traditional banks - started offline - like us - had a slower start in adapting to digital - i.e. the inertia was high. But, once we are up and running, I think that inertia is also working in the opposite direction, i.e. we have major advantages - advantages given by our size and the confidence that we can combine online with the physical network and offer all the services and all the support. Frankly, I don't think in 9-12 months' time BT will have anything that differentiates us negatively from the fintechs or digital-only banks. Otherwise, as I said, we are looking very carefully at investment products and the premium segment.

18. How much did BT invest in the acquisition of the 4 banks - prices, total costs/investments?

I think an exact figure is difficult, if not impossible, to calculate because they were complex deals with multiple components - from the price itself to the financing lines and subsequent investments. What's more, we also saw immediate gains from all the bank deals. We certainly exceeded €1 billion. But I think two things are important here - banking is a volume business, you can't do a good job for customers and shareholders if you're not at the top, if you don't have critical mass. So we couldn't have gotten here without these acquisitions. Then, as I said - the acquisition may or may not create value. Integration is probably more important and we here have managed to create value every time. In addition, through our integrations we have gained a unique competence in the Romanian banking market - which I think no other bank has.

19. How much can be gained through organic growth, how much more can BT gain through new acquisitions?

We start the year with an aggregate share of almost 24%. I have mentioned it in the past and Mr. Horia Ciorcilă - Chairman of the BT Board of Directors - also mentioned it - it would be good to reach and remain comfortably above 25% in the short to medium term. That would produce even more synergies for customers as well as for the bank and we could better serve all categories of customers. Banking is very expensive right now - it needs massive investments in capital, IT and regulation, and for the small ones also in promotion - for that we need big banks that can dilute the cost of these investments and offer a low cost of funding to customers - only big banks can do that. Moreover, in Romania there is the potential for the share of banking assets in GDP to double in the long term - this is another factor that we need to consider and that will contribute to the growth of BT Group.

I believe that the stakes of big and strong banks are important for the country and for the economy - big banks have the strength to finance the economy at low costs and in large volumes and volumes. Or the cost of financing or even the existence of financing itself is a key element for the competitiveness of our firms and our economy in the global market.