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Raiffeisen Bank leading the digital transformation

Raiffeisen Bank S.A.

What is your consideration on the bank's performance during 2020? Which are the most significant achievements to be highlighted and the main challenges faced during your banking activity?

Notwithstanding the consequences caused by the pandemic situation, Raiffeisen Bank managed to maintain a sound financial performance, with a net profit of ALL 2.1 billion (or about EUR 16.9 million) by the end of December 2020. The bank's assets in 2020 marked an annual increase of 6.2%, ranked as the third largest bank in the country with 15.3% of the total volume of market assets. The bank also increased the level of deposits by 8.3% from year to year and maintained a leading position in the retail segment lending with 20.5% of total loans allocated to this segment. Raiffeisen Bank represents a well-capitalized bank with an excellent liquidity position. The bank's capital adequacy ratio significantly increased above 24% at the end of 2020, well above the market average of 18.6%. On these grounds, we started 2021 with a sound balance sheet, which served to cope with any possible decline in credit quality in the coming year.

The main challenges are similar to those faced by the entire European banking industry. The banking sector continues to operate in an environment characterised by low interest rates that puts pressure on the financial income. Furthermore, the increased competition, the urge to adapt to new regulations and the rapid pace of moving "the bank of the future" forwards represent additional factors that have constrained banks to operate in a more challenging environment, despite the pandemic.

Moreover, the immediate lockdown of the country during the second quarter brought about the need for our employees to adapt to the new normal, especially those who work in the bank branches, by prioritizing their physical well-being as a prerequisite for any further going concern of the business activity. Over the past year, Raiffeisen Bank has provided and guaranteed professional services to its clients by mobilising the entire branch network and digital channels, and I think this represented the biggest challenge to us. I avail of the opportunity to thank each of our staff working in the branches and the head office management who have diligently worked to provide an excellent service, acting in compliance with all health safety protocols.

Furthermore, with the reopening of the main activities in the country and in adaptation to the pandemic conditions, Raiffeisen managed to be productive with the engagement of a part of the in-office staff. In the future, 70% of the staff will permanently work from office and 30% of the staff will work remotely. The Bank maintains a leading position in innovation and 2020 has only driven it to make progress in this area.

During this year, Raiffeisen has further developed the digital platform Raiffeisen ON by adding new features. Additionally, we have already achieved a penetration of 50% of the customer base. Raiffeisen ON is the most downloaded digital platform in Albania that provides technological innovations and enables the performance of online banking services.

Despite the sharp economic recession during the first and especially the second quarter of the year, the bank has been prudent and carefully managed any occurring risk by ensuring a decrease of the non-performing loans share. In my opinion, the reforms undertaken by all stakeholders to strengthen the quality of loans and improve the business climate have had a major impact on coping with this situation. In a scenario where the pandemic found the banking sector with a high NPL ratio and other business hurdles, the situation would have been more challenging.

In your perspective, what were the most important changes brought about by the pandemic as regards your operations/or pursuant to the business model of commercial banks?

The pandemic urged the exigency to move towards faster digital transformation and the need to work pursuant to an "agile" working model that generates faster decision-making in terms of the necessity to improve and automate processes responsive to market needs. Without innovations, improvements and all the technological investments we have undertaken during the recent years it would have been difficult to overcome such an unexpected challenge as the pandemic. The market is increasingly focusing on innovation and branches are being transformed adapting to a new trading approach highlighting any core value-added activities.

Raiffeisen has embraced a development model based on technological and innovative transformation and aims to represent a key stakeholder in this new approach that derived from technological changes and new regulations. The participation in many new initiatives in collaboration with start-ups and fintech companies obviously demonstrates this approach. We now stand in a consolidated phase of our innovative and fruitful collaboration stemming from many programs such as Innovation Lab and Elevator Ventures. This commitment to innovative change has been highly appreciated by our customers. We will strive to explore the future frontiers of technology, in order to become the most recommended bank in the country. This will be feasible by providing a range of new, advanced products to our customers and also by promoting the best innovative and technological-entrepreneurial ideas in the market. At Raiffeisen, they will always find their ideal partner, to nurture and generate their ideas in remarkable services.

The model of the bank of the future is taking shape in Albania as well. In the midterm, technological transformations will change the banks’ internal processes. Organizing people and processes within a bank will lead to the transformation of business lines, channels, and products to generate greater productivity. Digital transformation will shift work towards new banking channels and increased automation will reduce operating costs. Another component of transformation will be the redirection of existing investment plans to better integrate with the bank's digital and business needs. In time. this will anticipate the launch of market innovative products through various technological partnerships. It will lead to increased competition for certain services. Based on a survey conducted by PwC, almost 40% of bank account holders are willing to share transaction data with other financial institutions and third parties to receive customized offers for financing and other services.

To illustrate the idea of the transformation that is about to happen: 1 billion users used a mobile payment app in 2020 and over 50% of Generation Z already use digital wallets. Cash payments worldwide have dropped from over 30% in 2018 to just over 20% in 2020. They are expected to drop further, to 17% in 2022. Debit and credit card payments are still on the rise, but at a much lower level than the increase in mobile payments. This transformation occurs at a time when banks will continue to face limited revenue growth. Therefore, measures should be undertaken to enhance the digital capacities of banks and enable more flexible operating models that will enable better customer service and greater reinvestment opportunities.

Regarding the long-term transformation of the banking system, "data" is the key word here. They represent a great opportunity for future benefits in the next round of digital transformation. Banks have a great potential with the user data they already possess. Data has become a priceless commodity that can be used to provide knowledge on the use of banking services by customers. Their interpretation represents one of the keys to unlocking the power and value of data by being able to provide customized products. This is the revolution that I predict will drastically transform the banking landscape in the future.

Last but not least, Raiffeisen is not afraid of new digital competition. On the contrary, we embrace the challenge and express our readiness to become an important player in this new area unfolded by technological changes and new regulations. The numerous cooperation initiatives with fintech companies are an illustration of this initiative. We now stand in a consolidated phase of our innovative and fruitful collaboration stemming from such programs. Indeed, the outcomes achieved by this transformational journey are positively appraised by our customers as indicated by our regular market surveys. It is not surprising that Raiffeisen is selected as the most innovative bank in Albania.

Which sectors or segments credited by your Bank have been most affected by the economic crisis? Do you expect a deterioration in the quality of your loan portfolio and, if so, when is it expected to happen?

Almost all sectors faced financial issues due to the economic crisis caused by the consequences of the pandemic. The most credited sectors of the economy are services, construction, manufacturing and energy, where services maintain the dominant weight. As already known, this industry was more affected as human contact is more prominent. It must be highlighted, however, that government intervention to support businesses and individuals affected by the crisis brought about by the pandemic as well as sovereign guarantee schemes helped to cope with this situation and at the same time supported the growth of lending in 2020.  

The moratorium on deferral of credit instalments until August 2020, credit restructuring by avoiding the deterioration of the creditors’ status (postponed until March 2021) and credit growth in 2020 has improved the level of non-performing loans in the banking system from 8.4% in 2019 to 8.2% in 2020. An increase of non-performing loans ratio is expected throughout 2021, but with the advancement of the vaccination process that will bring about the recovery of the economy, such increase will be weak.

The main industries affected by the crisis and which may impact the most on non-performing loans at Raiffeisen Bank are Hospitality & Tourism, Retail sales of fuel and transportation. Considering the measures undertaken by the authorities, we do not anticipate any concerning deteriorations in the loan portfolio.

What are your main expectations and goals for the business performance during 2021?

We expect expansion of the banking activity and lending. On the other hand, we are focused on being the most recommended bank in Albania and therefore, we are working to improve the internal processes and move towards digital transformation. Raiffeisen's goals will continue to focus on customers. We are willing to change the way we operate by raising literacy and educating our customers to use digital channels similarly to the countries in the region. Furthermore, as emphasised several times during this interview, the bank is strongly associated to innovation and technological developments, which is expected to enable the increase of service quality and the introduction of new products in the market.

Our expectations are that this year will be accompanied by a new economic growth and Raiffeisen aims to keep the pace of the same growth rate in the market. We aim to maintain the leading position in the banking market for retail lending, particularly as regards the "housing loans" product. We will continue to fund strategic sectors of the economy and their relevant projects. In this way, we are further contributing to the development of the Albanian economy, its approximation with the EU standards and improving the well-being of the population. If we all walk together in this direction, I am convinced that an optimistic perspective awaits Albania.

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