International Banker’s Simon Hughes interviews Johan Thijs, CEO of KBC Group.
Today International Banker is in Belgium and joined by Johan Thijs, CEO of KBC Group, to discuss the bank’s flourishing performance in banking and insurance, its expanding presence outside Belgium and the business culture which has made the group successful. Nice to be here today.
Great pleasure to be your host today, and welcome to Belgium.
Now with strongly consistent performance metrics over the last few years, KBC has managed to flourish at a time when much of the European sector has found it hard going. And what are you doing well that other regional banks are simply not?
That’s a very difficult question to answer. I don’t know what all the other peers are doing. But what we have been doing in particular, and perhaps for a good understanding, we had been having a rough ride in 2008, 2009, during the crisis. But since then KBC has actually been focusing extremely on the stuff we are good at, and that is banking and insurance and combining the two together. And in doing so, we have been actually extremely focusing also in our way of execution. And last but not least, I think what we did extremely well is the combination of creating a strategy and creating a company culture which underpins the execution of that strategy.
And with your model, business model, covering both banking and insurance, does it mean the majority of your client-facing staff need to be versed in both disciplines? Or do you prefer to have separate specialists?
So when we’re talking about the implementation of the bancassurance strategy in our distribution networks, intrinsically we work through relationship managers. So the client has actually one single point of contact, and that single point of contact is the relationship manager. He can deal with the basic requests of customers. Once the request becomes a bit more complicated, when it becomes a little bit more complex, the relationship manager is actually directing the customer towards a specialist—be it a banker, be it an insurance guy, so always somebody who is fully committed, fully able to dive into the details of the main need, as we call it. So the customer actually has access to a single point of contact and via him he can have access to let’s say the 16,000 people in Belgium or the 38,000 people worldwide.
Now you mentioned earlier the kind of tough times that you’ve had to come through. And you’ve managed to repay the financial support you received from both the Belgian national government and the Flemish regional government. You did that five years ahead of schedule. How severely would you say that you had to adapt your business plan in order to deliver such a swift repayment?
I would compare this as follows: if you would compare KBC today with KBC where it was, let’s say in 2009, it is a completely different company. It is no way the same. It is no way comparable. And that is because not only the type of business we are currently involved in but also the size, the culture, everything was completely readjusted after the crisis. KBC has become in terms of risk-weighted assets 40 percent smaller, in terms of balance sheet 30 percent smaller. We have been divesting more than 30 companies across the world. We have been refocusing our activities. We have been defining our strategy to what it is today. A bank-insurance group, which was also the case before the crisis. But a bank-insurance group dealing with retail customers as in mid cap, and that’s it. We have been introducing a new company culture which is completely different to what we were used to. And we have been emphasizing, really emphasizing, customer centricity as the core of our activity, of our being. That is a fundamental change.
And thinking about change, one of the biggest impacts in the banking world generally has been digitization. How have you kind of accommodated that in your business model?
So we were well aware that despite the fact that we have indeed been state-aided back in 2009, and that was a major blow-up in confidence. We were well aware that that was one issue to tackle. But in the meanwhile, so let’s say since 2011, 2012, it’s become very apparent that digitalization was the next big thing. And I always said that I consider the change or the impact on our business model of the new digital era is of a greater impact than the banking crisis was. Seems to be a bit odd, but really I’m convinced that’s a given. So when we were in 2012 announcing our new cultural change, we immediately added to that that digitalization was the next big thing. And in 2014 we announced a big investment program in that respect, which completely changed our business model. So the implementation of that part of our strategy now is ongoing for let’s say two years and a half. And I would say in terms of the front end, the customer-facing side of our activities, we’re almost there. The next big thing is now what I call the digitalization of our back-end, and that’s big. That’s huge.
Now thinking about kind of innovation and changes, one of your ways of monitoring long-term performance is using KPIs, key performance indicators. And one of those links directly to innovation. How are you able to materially measure in the real world changes and improvements in innovation? How do you do that?
You will be surprised, but actually we are not measuring it. We know innovation is key in what we’ve been doing. But in KBC, innovation is as such not a target. Where we have a single target is improved satisfaction of our customers, and in order to do so we need to be proactively anticipating what our customers’ needs are. Also the changes in their needs. Now what we do in order to facilitate that anticipation is use technology as a driver or as a means to an end. And innovation is part of that. So to become innovative, we don’t have a team of let’s say 10, 15, 20, whatever people. But we actually ask our whole staff to become part of that innovative way of thinking to improve the customer experience. So actually what we are doing is if we have issues on the table, we just pitch with our 38,000 people and let them come up with the idea. And that has been extremely successful in the past. They can give you plenty of ideas, which actually come out of our staff, which we were pitched for and which ultimately brought it to a business idea, which we implemented—which have been winning prizes over the last couple of years and amongst others. That’s the reason why you are here today. You gave us a prize for the most innovative bank. We are very proud of that one as well.
And again reflecting on change, you have launched the Start it @ KBC project, which I think was a couple of years ago. An interesting way to promote business startup activity in Belgium. How successful has that been?
And it’s nice that you reflect about this example because that was one of those pitches which was made by one of the members of my staff somewhere in a Belgian business unit. And to be quite frank, it’s quite funny to know that that idea didn’t make it to the final round, so they didn’t become the winner of the pitch game. But it was number five or something. I picked it up because somebody put my attention on it and said, “Please, Johan, could you consider granting some money, some budget to this one”. We did in 2010. In the meanwhile, Start it @ KBC, which actually is a platform for people who have a good idea, don’t have facilities, don’t have a company. But would like to establish their own startups. We created a platform in which we enabled them in an atmosphere or an environment which does not create hassle so that they can be busy with the development of their ideas. In the meanwhile, it has become the biggest incubator in Belgium. We do have on the platform 430 startups today, which is big.
Now thinking of those startups, are there any specific digital products that KBC has launched recently which you would care to mention?
We have been launching quite a lot. When I only look at Belgium, it was already in 2009, 2010, we were launching one of the first bank, mobile banking apps, which has made it to the most innovative app in most countries in which we are currently present, not only in Belgium but also in Central Europe. We have been launching recently, very recently, a collaboration with another peer of ours in the payment area, where we already anticipate the PSD2 directive, which is a directive dealing with the payment area. So we are already, let’s say, 2018 compliant in that respect. And another one, and that’s also an idea which has been worked out by our staff themselves, and we are quite proud of that one as well. In Ireland we are the only bank which can fully digitally onboard a customer. And that is, let’s use the term again, that’s quite innovative.
You mentioned Central Europe. So what have been some of the main features of countries such as the Czech Republic, Slovakia, Hungary, Bulgaria that have encouraged you to expand your presence there?
So if we could understand the merit that KBC is in in a lot of countries in Central Europe. I mean, we are in Czech Republic, Slovakia, Hungary, Bulgaria. That merit is actually for my predecessors because the decision to expand our business in that area of Europe was taken by my predecessors back in let’s say the early years of 2000. The reason why we have been doing so is actually twofold. First of all, like many other European groups, we were thinking about expansion. We were present in Belgium; we were present in all the countries in Western Europe; we were present in Asia, in the United States, in the UK. But what about Central Europe? And what about expanding our activities in Western Europe as well? Now always supply and demand, prices go up. Obvious conclusion became your best year becomes very expensive. There is a big opportunity rising in Central Europe, Eastern Europe, so let’s look into that. And when we were doing so in the early days, it was not always granted by the financial markets to be a successful move. But history has shown that we were right. And now, I’ll give you one example, the Czech Republic has become the second pillar of our group. It is standing next to Belgium as a very important profit contributor, stability contributor to KBC Group.
Now in a world of acronyms, you’ve got quite a good one, I think. PEARL, which stands for performance, empowerment, accountability, responsiveness and local embeddedness. How do those qualities help your employees better serve your customers?
So it’s indeed a very interesting one. I think that’s one of the main contributors for the success of KBC. It is intrinsically the way we implement our culture. When we launched this back in 2012, in the midst of the crisis, we were still state-aided; it was not on. If you talked to analysts at that time, they were only expecting us to talk about ROE, income growth, etc. And we started to talk about cultural change. It wasn’t always well received in the beginning, you know. But after a while they started to understand why we did it. What we have been doing—that is, intrinsically aligning the whole mindset of the group in one single go and one single direction. And the combination, for instance, the R and the L combined—responsiveness and local embeddedness—actually means local responsiveness. And that means that you only take into account the fulfillment of local needs of your customers. So you’re fully customer centered. And that reflection, which has since 2012 actually aligned the full group in one single direction: let’s serve our customers, and let’s do it better.
Another of the stated principles upon which the business strategy rests is this idea of meeting responsibility to society, and as you were just saying, local economies. What are some of those responsibilities, and how do you ensure that they’re actually met?
So again we have learned a lot out of the crisis, you know, and one of those elements I think all banks have been taking up since 2008 was we as financial institutions—be it a bank, be it an insurance company—we have to fulfill our role in society. Now our role in society obviously, I mean, when you talk about a bank or insurance company, everybody says, “Yeah, it’s lending”—because the European economy is financed, let’s say, 80 percent by banks, or on the insurance side it is granting cover for the entrepreneurial ideas, whatever, but that’s the obvious part. So when we were dealing with what is our role in society, exactly as I just said, is we have to do other stuff as well. We need to be aware that we have impact on the environmental issues. We have a role to play in the financial literacy of our customers or our potential prospects. And we need to support also the entrepreneurial behavior in our world because that’s the step preliminary to granting loans. And that role, our definition, was an added with what about health and what about longevity, which are two particular issues in their respective markets in which we are currently present. Combining them all together, that is what we consider as our role. And that is something which we can take up, which we can influence; and for that reason, it became part of our strategy.
Now you’ve mentioned the financial crisis. How important is it to you that since that, your customers really do understand the products that you’re offering them?
I think it’s key. I’m quite convinced also with new regulation, which is coming up. We have been confronted over the last couple of years with AML, anti-money laundering. We have been confronted with Know Your Customer. We will be confronted with MiFID II. We already have MiFID I. Which is always in the same direction—that is customer protection, consumer protection, and it makes a lot of sense. On that, I mean, on that same note, we were indeed also confronted with the increasing complexity of products. And as a consequence, customers—which are unknowing, not necessarily knowing what they’re buying—that our role is indeed to explain to them very well so at the end of the day, they were not surprised by the outcome. And for that particular reason, we took that part, that particular part into our strategy, into our role in society. And therefore it’s key.
Now you mentioned earlier how the Czech market is kind of supporting what you’re doing. And one of those stated goals is to look for market leadership, top three banks, top four, insurance in core countries by 2020. Which of the core countries would you say you’re currently furthest away from achieving that goal? And how are you setting about remedying that?
Actually, you should make a distinction between banking and insurance, because there is not quite equilibrium everywhere. We are market leader in Belgium in both domains, banking and insurance. We are market leader in Czech Republic on the banking side. And in Hungary, where we are in both number two. We are market leader kind of in Slovakia, we’re number four, close to the number three position. But on the other hand, in banking in Bulgaria, for instance, we only have a position number three. And in Ireland, where we are present, our position is also lower than the market leadership. So there we have room for expansion. On the insurance side it is a bit more complicated. I already mentioned Belgium, with its market leadership. Bulgaria the same—we’re number two or three, depends on how you calculate it. In all the other markets, we are as a market share lower than the top three. So where we are furthest away, I mean I can give you examples on the bank side, insurance side. But we have countries where we need to expand our current abilities. And that is currently what we are doing. We are looking into some opportunities to strengthen our positions.
I like that, the way you are doing it. Because what you’re saying is that it’s opportunity. It’s not a challenge, it’s opportunity.
I mean we always consider—and that’s true for the digitalization as well—we consider this to be an opportunity. It is triggering something in us, and it actually, I mean it forces us to think differently and to act upon that. And that is how we made KBC into what it is today. And that is what we are going to do for the future.
You’ve been in your post for four years as group chief executive officer. What’s been the one achievement of which you are most proud?
I know plenty of achievements which I could mention. Paid back state aid much earlier than planned. Perhaps the following would be the one we would want to consider because it’s not an easy one to copy. We created an atmosphere in KBC, an environment which allows us to make our people to become more entrepreneurial so that they can put all their skills, all their talents into KBC, to become the reference in the bancassurance market. And that environment which we created with a lot of people, which is built upon the acronym PEARL, I think it’s the major contributor. I’m very proud of that one.
Johan, thank you indeed for your time today.
It was a great pleasure. Thank you very much, Simon.