Mr. Simon Hughes, International Banker, and Mr. Anders Bouvin, President and Group CEO of Handelsbanken, discuss the bank’s recent positive financial results, its strategy and growth.
Today, International Banker is joined by Mr. Anders Bouvin of Handelsbanken, and we’re going to discuss the bank’s recent positive financial results, its strategy and its growth. Anders it’s very good to have you here.
Now, the 12 months of 2018 saw some strong growth figures being recorded by Handelsbanken, compared with the same period in 2017. And among them was the 5-percent rise in net interest income. What do you think are the main factors that you attribute this growth to?
It’s very clear that the growth in the net interest income comes almost entirely from increasing business volumes rather than margins. So, we are growing in all of our home markets, in our six home markets, and that’s the reason.
Are you also satisfied with the 12.8-percent ROE posted by the bank for this period?
Our goal in Handelsbanken, it’s been around since the beginning of the ‘70s, is to have a higher ROE than the average of our peers. At the same time, we want to grow, and we have a growth model that allows us to grow. So, if at the end of the year, we’ll have to see, when all of the competitors’ results are in, if we’re above average—which everything points towards that direction, with the growth we’re having. I’m reasonably satisfied.
According to the most recent interim report published for January-September 2018, the bank’s current project portfolio implies measures that generate improved efficiency equivalent to at least 1,600 full-time equivalents.
How are such efficiency gains measured?
It’s quite clear that digitalization gives a bank like ours huge possibilities. We are a branch-led bank. In Handelsbanken, the branches play a key role compared to many other banks. However, digitalization allows us also to work more efficiently internally, which means that we can free up time. As you mentioned, we have calculated this, done a bottom-up approach, and we believe that we will over the next four years be able to free up time to the equivalent of 1,600 FTs, which we can use to grow the bank to more business and/or reduce costs.
And how, then, will the bank capitalize on those gains as far as your business strategy going forward?
I think, it depends, as I say, if you introduce these efficiencies, you reduce time. I mean, and I think in some of our home markets, not least the UK and probably the Netherlands, I believe my colleagues in these countries will probably use that freed-up time to do more business because we have such growth opportunities in these countries. While as the more mature parts of the bank, for instance, Sweden, probably a majority of those efficiencies will be, so to speak, taken home by cost reductions.
And thinking of your kind of legacy, Handelsbanken represents the largest institution for new savings in the Swedish mutual-funds market. Why do you think the bank is so successful in this particular area?
This has been the trend for a good number of years now, very consistent, that we are taking market share and growing, especially within the wealth-management area. That’s not least the case here in the UK. But it’s consistent throughout our home markets, actually. And obviously you’ve got to have good products, and we have good products. Morningstar and all that, but that isn’t enough. Instead, I think the key reason is again the opportunity that customers of Handelsbanken have to meet a branch advisor, a trusted branch advisor, to help them make decisions or to confirm some of their own thinking within this area, because these are big decisions for people to take when it comes to long-term serving. So, I think it’s the combination of good products, good digital support functions and the role of our branches and the role that they play.
Now, there’s one big imponderable hanging over a lot of people at the moment, which is Brexit. And the bank recently announced that it’s converted its British branches into a subsidiary that would operate as a standalone business.
That’s helping shield it from a potentially disruptive Brexit in March. How does such a conversion project protect against the impact of Brexit?
Well, first of all, I would like to say that the UK is our second largest market, and yet our market share is very, very small, so the prospects of us being able to do more business and welcoming more customers both private, individual customers and corporate customers is huge in the UK. I think by having now subsidiarised our business here, which was, you know, a pretty large task to do, but we’ve done that now. I think that we are protected from all the possible outcomes of these negotiations, and we are now British, a full British bank. British licensed, British regulated in the UK, and we have the British deposit-protection scheme. So, I think that we are now fully a PLC in the UK and therefore immune, if you like, to any disruptions that could come from these negotiations.
Can you provide further details regarding the recent initiative the bank launched to provide full advisory services to customers in Sweden and Finland with the aid of digital support, as mentioned in your recent interim report? What kind of development is taking place under this project?
Well, these days customers like to, prefer very often to gather information themselves and do research, etc., etc. And what we have done is provided a tool for them where they can gather and collect information that is necessary for us in order to give them proper long-term advice in a digital system. They can do that at home or whenever, wherever they like. And at some stage, if and when they want to cross base and talk to a trusted advisor in the branch, they can visit the branch and they can start the discussion where the customer ended the information-gathering, if you like, in that digital system. So, it’s a seamless system that can be used by the customer on their own and in the branch together with an adviser.
It’s a topic we often talk about in these sessions. Many of the world’s major banks have launched digital-transformation strategies in some form or another. In your opinion, what’s the single biggest factor that differentiates your digital strategy from the competition?
I think digital transformation of Handelsbanken would be very unlucky because we have, we believe, a well-functioning model that, as I said, for 46 years now we’ve reached our goal of having a higher return on equity than our peers. And we are one of the strongest banks in the world. So, we’re not talking about a transformation of Handelsbanken. Instead, I think it’s all about us using our comparative advantage, which really is our decentralized way of working, the branch’s role, the branches of the bank, and building good digital tools into that system. So, that’s what we are doing in Handelsbanken, because our customers want both. They don’t want to choose between a digital meeting, meeting the bank digitally, and having the opportunity when they so choose to meet someone in the bank that they trust to get confirmation, as I said, of their own thinking or to get proper advice. There’s no conflict between the two in the eyes of the customers. And we always follow what our customers want.
And one of the kind of tools in the suite of digital products is AI, and you’re reportedly using it extensively.
In terms of re-examination of investment-advisory services, which specific aspects of advisory services is AI being deployed in?
Well, exactly the digital-advisory tool that I spoke about before, which is then supplemented with, if the customer so chooses, a conversation. This is all documented and results in the recommendation of, you know, how the customer should invest their money. This, of course, is checked afterwards that the recommendation has been gaining on solid grounds, is compliant with everything. And here we do use AI-augmented intelligence to conduct these quality reviews.
So, to play this back to you, as I understand it, your strategy is a combination of one, providing kind of local, personal services via the bank’s branches, and two, functional digital support. Does the proportion of each of these two factors vary across location and client type, with some requiring more of one and less of the other? And how is the relative proportion of each determined?
We don’t really look at things that way. The way we look at it at Handelsbanken is that our customers want to meet us in different meeting places at different times, different situations. It’s up to them. We should be available to meet our customers in all the meeting places that our customers choose to meet us on. So, we have no view or second opinion if it should be this or that. Our customers decide. What we are seeing increasingly is, of course, that customers want to do more and more things digitally. However, we also see that every now and then, they do want to check and talk to someone in the branch. So, we offer both. So, we look at this from a customer point of view. Customers want to do both, and we offer both.
Now, in October 2018, you announced your retirement as CEO of Handelsbanken. Was there any one particular factor, or was it a combination of factors that led you to making that decision?
Any particular factors besides age? [Laughter] No, obviously I’ve been 35 years in the bank. Fantastic years. Worked in five different countries for Handelsbanken. It’s a fantastic organization. However, you know, I will turn 61, and there are other things in life to do also. So, we’ll have to see what exactly turns out.
Now, in a recent interview with Bloomberg, you said that Handelsbanken is growing like wildfire in the United Kingdom. Were you mainly referring to the branch network in the country, or were you referring to something else?
Well, actually the business in general. If we look back here in the UK, I mean we are, we’ve grown our lending 23 percent these last two years. If we look at our deposits, they are up about 41 percent. If you look at our assets under management in our wealth-management arm, they are up 23 percent. So, there is in the UK a clear demand for our way of banking. After all, we’ve built the business here in the UK organically to what we have today. Two hundred and eight branches, and they’re doing very, very well in the UK. We believe in Handelsbanken that we can continue to grow in the UK for a very, very long time.
Thinking about those kind of measures that you’ve deployed, have you experienced any occasion when the business objectives have conflicted with your sustainability targets? And if so, what are some examples of this? And how did you go about overcoming such conflicts?
I can honestly say I can’t think of any such situations. I mean, if you think about it, I think our model is, you know, that we’ve had in place since the early ‘70s is fundamentally sustainable. It’s all about being an asset and never a burden to society. It’s always about doing what’s right for the customer. It’s always about being long-term. It’s always about, you know, low, low, low risk. So, I think the model is very much, you know, includes what we today, you know, talk a lot about within sustainability. It’s just we started this 50 years ago. So, I don’t think so. And, of course, the other areas, important areas, and sustainability, and that is, you know, how we invest and which companies we lend money to. Those are, you know, we have clear policies for this also. But I would like to say that I think the model in itself is based on a very clear sustainability thought.
And Handelsbanken’s financial goal is to have higher profitability than the average of its competitors.
Through having more satisfied customers and lower costs including loan losses than its competitors. Now, although this goal has been achieved for 46 years consecutively, do you feel it could be more challenging over the next few years than was previously the case?
Forty-six years is a long time, and the economy goes up and down, and there have been many challenges over the decades. So, I think we are well prepared and to adapt to new challenges. That’s nothing new in the bank. So, I certainly believe we can continue for a very long time to achieve this goal.
And it seems that some media outlets have recently been questioning Handelsbanken’s insistence on maintaining its extensive branch network. Do you expect the bank’s branches to survive over the next few years as the global banking system delves deeper and deeper into the digital realm?
Well, media is one thing, we care about our customers. And our customers clearly tell us the opposite. And we can see that in our business. You started off by asking about the growth we have both in net interest income and commission income. That’s driven by new volumes. These are customers voting with their feet, leaving their existing banks, going to Handelsbanken, because we still offer them the human touch when they so want it. So, I think people sometimes mix up. Maybe the frequency, the number of times customers today feel they need to visit a branch has gone straight down due to digitalization. But that doesn’t mean that the few times they do want that the importance of that has gone down. And I feel that, you know, personal service and being able to deliver the human touch is becoming a scarce commodity in the sector. So, I think we are very well positioned for the future.
Well, we’ve come full circle. Thank you very much for your time today.
Thank you very much for asking me to come.