After several years of talk of strengthening the domestic banking sector, the massive merger has taken off. In the coming months alone, many financial institutions will gradually disappear from the market, and according to some experts, competition will decrease dramatically. What does this mean for clients and what changes await them?
The Austrian banking group Raiffeisenbank has acquired Equa bank. A merger is being negotiated between Moneta Money Bank and Air Bank.
ING Bank’s permanent clients in the Czech Republic are now part of Raiffeisenbank, as well as clients of the Austrian regional bank Waldviertler Sparkasse, whose Czech activities were acquired by Česká spořitelna at the turn of the year, will fulfill the bank’s new logo.
Last year, the Czech National Bank also agreed to merge the Moneta Money Bank and the Wüstenrot mortgage bank, which ceased to exist in January of this year.
“This probably doesn’t end with the list of transactions within the domestic banking sector,” says Michel Koykava of Patria Finance. “There has been long speculation in the media that buyers for their Czech activities are looking for Expobank and Sberbank owners, for example.” Both banks currently have Russian owners.
What does bank consolidation mean for clients – should they fear or look forward to it? Would it not endanger the services provided or could it improve them?
According to the Czech Banking Association, there are 49 banks operating in the Czech market, 25 of which are branches of foreign banks. Of the remaining 24 banks, the vast majority also focus on retail (that is, they operate branches and provide banking services to regular customers).
If we focus only on natural and non-entrepreneurs, then according to the Czech National Bank, individual banking services (deposit and loan products, especially mortgages and consumer loans) offer only 12 banks, five building societies, and one branch of a foreign bank.
So it is interesting to compare the number of banking institutions with European countries. “The analogue country size behaves very differently, as evidenced by the Statista.com chart for 2019. Austria had more than 500 banks, Belgium developed 95 banks. The country with very efficient and advanced banking services, the Netherlands has 41 banks: Poland has 600 banks On the other hand, in Hungary 41, and Slovakia 27. There are more than 1,500 banks operating on the German market, says Vladimir Stawra, senior advisor to the Czech Banking Association.
According to the highly diversified structure of banks in Europe, he adds, he is convinced that no number of banks is the “right” bank in terms of economy size or population. “In my opinion, the number of banks in our country corresponds to the size and needs of the economy. At the same time, it is large enough not to jeopardize competition in the market,” says Staura.
Digitization and regulation – small bank broom
According to economists, there are several reasons for the merger. “Banks are looking to gain more customers and more market share to distribute the costs. They may also lose a significant portion of the market or business. Consolidation has recently doubled through the digitization of services and the ever-increasing demands for data and service security. This brings the need for significant investment, which is what It leads again to a search for savings, “explains Stachura.
ětěpán Křeček, chief economist at BHS, responsible for bank consolidation.
“There are two strong trends in the banking market. They are digitization and gradual regulation. Digitization allows more and more operations in banks to be managed centrally. The importance of branches is declining as more and more things can be bought online. Consequently, the economist said:“ Gradual regulation makes the sector The banker is less open and less open, and the banks will need to grow to critical size to pay for them to implement new regulatory requirements. ”
He does not see much advantage: “An oligopolistic structure will be created in the market, which will divide customers. This will be accompanied by deteriorating conditions of individuals and companies. We should not be surprised to see mergers that will suppress competition. In the market.” It is difficult to predict how this will happen. Everything in the end. Interpersonal relationships of actors, policy decisions of bank management and pure market arguments in the form of predictions of future market developments may play a role, ”Křeek adds.
According to Vladimir Stakura, consolidation services may deteriorate, but only for a short period. “The biggest risk facing banks in mergers and acquisitions is the merging of banking information systems, different cultures and values in bank merging. Any merger and acquisition is a very complex process that may initially lead to a deterioration in customer service, but in the long term, this should be in better services. , Lower fees or rates, or a wider range of services provided by the bank, so I see consolidation as a beneficial process that will lead to better customer services, and not the other way around, ”Staňura adds.
Tomash Koykava from Patria is also optimistic. “I don’t think that consolidating the domestic banking sector should harm bank customers through a possible deterioration in the quality of services,” the expert says.
She points out that the competitive environment in banking is not limited to pure banking entities. “Banking houses, not only in the Czech Republic, are facing increasing competition from fintech companies and global technology giants, who will want to gnaw at a portion of their instincts in the market. I think the local banking entities are aware of this fact, and therefore they do not threaten their side, it falls asleep. On their laurels, ”Křikava adds, noting that a stronger competitive environment undoubtedly contributes to raising the performance of all competitors in the market.
Who will guard the low fees
Smaller banks have always been referred to as being more flexible. Its important role in the form of competitive pressure on the prices of basic banking products and services cannot be denied. It was small banks that in the past, for example, offered to keep an account for free. It is true that the banks behind the “lead group” always do their best.
“However, in my opinion, they were not the main drivers of innovation in the market. Retail customers for local banks may benefit from consolidating banks into larger units in the future. A larger customer base and the resulting larger volume of interactions, the data allows banks to better understand customer behavior and needs. And personalize offers, products and services to best meet these customer needs, ”Křikava adds.
Marcela Harda, partner of Moore Consulting in the Czech Republic, had a similar opinion. “The original need to create competitors that bring to customers more modern and more efficient opportunities in such a conservative field as banking, is progressively meaningless. The response to modernization has already been fulfilled by traditional banks, which have experienced significant developments with synergistic effects, such as economies of scale, increased Efficiency, greater customer interaction, as well as improved access to the new generation of customers, ”says Hurda.
However, some economists – pessimists – argue that the belief that the big banks will “try” more is a pious desire. Instead, they expect to maintain positions and strategies, including an important offering of fees to clients. According to them, the new services will slowly emerge and be very similar.
Czech banks are doing well. Until now
But what most experts agree on is that the domestic banking market has entered the Coronavirus pandemic in excellent condition, and despite the slowdown in economic activity, it has not lost it even after a year.
“The capital adequacy of local banks is exceptional at the European level,” adds economist Kikava. “Despite initial concerns, there is also no significant increase in the share of non-performing loans, although some selected sectors are still severely affected. Loans.”
This is confirmed by the data received from the Financial Market Guarantee System, as they do not record any signs that any of the banks is facing “bankruptcy”. However, it is a good idea to remind regular customers that banking institutions are legally insured, and therefore clients have a deposit insurance guarantee in the event that one of these financial institutions fails – 100,000 euros per deposit per depositor.