AIK Banka of Serbia has over the more than four decades since its establishment gained and maintained its reputation of being a reliable, stable and efficient financial institution and become a symbol of trust to a large number of corporate businesses and individual citizens.
Throughout the years, even during trying times when Serbia’s macroeconomic conditions were less than ideal, AIK Banka has sustained its steady growth trajectory, in large part because it is viewed as a solid, strong, secure but flexible bank completely focused on satisfying customer needs through high-quality retail and commercial products and services, thus cementing its position amongst the country’s top ten banks. This financial institution is continuously searching for new ways to do what it does better and has gone all out in digital deployment, offering electronic and mobile services 24 hours a day, seven days a week. AIK Banka is the first Serbian bank to have established a presence in the European Union market through its acquisition of Slovenia’s Gorenjska Banka.
The bank is guided by its values, which stress dedication to its customers, recognising that it exists because of its customers and tailoring its product and service innovation to better meet their needs and requirements with enhanced speed and flexibility while also ensuring the security of their finances. AIK Banka’s commitment to its community is as strong as its overall service delivery. By partnering with entrepreneurs and small businesses, it has helped keep Serbian commercial enterprises afloat during challenging economic times. Over the years, the bank has also invested faithfully in areas such as sports, culture and education.
Ms. Jelena Galić, the bank’s chief executive officer and chairman of the Executive Board, recently joined International Banker to describe the bank’s recent activities and successes.
Ms. Galić, welcome. We’re pleased that you were able to speak with us today….
How has the recent acquisition of Gorenjska Banka in Slovenia benefited AIK Banka in terms of both its overall market position and geographical reach? Do you expect the Slovenian market to deliver strong growth to AIK Banka?
The acquisition of Gorenjska Banka has opened the door for AIK Banka to enter into the EU (European Union) market. The decision to acquire Gorenjska Banka was made based on the fact that it is a locally distinctive and stable bank. This, in turn, provides us with a means to conquer not only regional but international markets as well.
Gorenjska Banka has already recorded significant growth in income and profits, thereby strengthening its position in Slovenia. In the first two quarters of 2019, its net operating income recorded a growth of 28.3 percent in comparison with the same period in 2018, while operating costs have remained roughly at the same level.
Otherwise, Serbia and Slovenia enjoy a long-standing tradition of good business relations. The total market exchange between the two countries is worth EUR 1.5 billion. One thousand five hundred Slovenian companies currently operate in Serbia, and Serbian companies also invest in Slovenia. With the extensive commercial interests and noteworthy volume of market exchange between the two countries, banking support was also needed.
For this reason, my answer is a definite yes. The Slovenian market is showing an upward trend, enabling growth to both of the two banks, and the acquisition has already had a positive impact on market position as well as geographical reach.
What was the most challenging aspect of your leadership of the bank in 2019? And what steps did you take to address this challenge?
Taking into consideration that the interest rate is at its historically lowest level and that estimations are that it will remain there for a while, the greatest challenge is to grow organically in this highly competitive environment. Hence, our strategy of growing through acquisition has been shown to be very rational and justified.
With the latest acquisition of Gorenjska Banka, AIK Banka became the first Serbian bank to enter the EU market. At the same time, with this acquisition, we became a new banking group with almost EUR 4 billion of assets and more than EUR 900 million in equity, which efficiently and effectively operates not only in markets in Serbia and Slovenia but also within the whole region. With this larger market presence, there are more business opportunities for growth. On the other side, becoming a banking group in Europe demanded that we satisfy all regulatory requirements for obtaining consent from all institutions in both countries and in the EU as well as establish needed capacities for regular regulatory-consolidation reporting and monitoring on the banking-group level. On the one side, it was a challenge; but on the other, it was a great experience.
How do you expect the Serbian banking sector to change over the next few years? Do you see much consolidation activity taking place?
The consolidation of the banking market is a process that is by no means lagging in Serbia. And it is my expectation that this process will continue to unfold in the coming period. Currently, a state decision on the privatisation of the country’s second-largest bank is expected. Should this bank be put up for sale, one of two things will happen—either a certain number of existing banks will significantly strengthen their positions, or new players will enter the market.
In addition to consolidation, banks will need to adapt to current trends. This means digitalising their operations, increasing collaboration with the fintech (financial technology) sector, providing 24/7 availability to clients 365 days a year and employing an obligatory individual approach to each user.
Serbia has managed to deliver strong economic growth over the last five years or so. Do you anticipate this strong growth to continue for the foreseeable future? If so, do you think AIK Banka is ideally positioned to capitalise on this growth?
The old adage says that there is no economic growth without the support of banks. For Serbia in 2019, GDP (gross domestic product) growth is estimated to be between 3.5 and 3.8 percent. Economic growth of 4 percent is expected in 2020. And with this, the declines in the unemployment rate and the share of public debt to GDP as well as the increase in the average wage have all had a positive effect on economic trends. According to the National Bank of Serbia (NBS), in September, total domestic lending accelerated annual growth to 10.4 percent, after excluding the effects of exchange-rate changes—driven by an increase in the number of corporate and retail loans. In September, an increase in investment lending resulted in the accelerated growth of corporate loans to 11.6 percent as well as the slightly slower growth in retail loans of 9.3 percent. AIK Banka capitalised on commercial growth while contributing to it at the same time, and this trend is expected to continue.
You have been CEO of AIK Banka since 2015. During this time, what do you consider to be your greatest achievement for the bank?
Over the past four years, AIK Banka has substantially improved its operations, strengthened its capital base and acquired two banks (one domestic, one foreign). At the end of 2018, AIK Banka’s net profit more than tripled in comparison to 2014’s year-end. The bank recorded an increase in net profit of 210 percent (on average EUR 60 million annually), and in terms of net assets, the bank recorded a growth of 20 percent from EUR 1.4 billion to EUR 1.9 billion in the same period. With the latest acquisition of Gorenjska Banka in Slovenia, we expect to achieve net profitability of EUR 90-100 million on average annually. At the same time, AIK Banka has significantly improved operations through digitalisation and introduced new online services to our clients, which we plan to also utilise through Gorenjska Banka within the EU market. Not to be boastful, but we admit that these are considerable results over the previous period.
AIK Banka seems to have made considerable progress in developing innovative customer solutions, particularly in regard to customer use of public transport in Serbia. What have been some key, specific innovations that you have introduced in this field? And for what specific reason(s) has the bank decided to focus so heavily on public transport?
AIK Banka sees great opportunity in the entire “smart city” concept and an economic model based on various types of public-private partnerships. In this regard, we have implemented a project making it possible to pay for public transport via payment cards in Belgrade—the capital city of Serbia. It is important to highlight here that every day almost a million people use public transportation in Belgrade. A similar project was implemented in the city of Kragujevac, Serbia’s administrative capital.
In addition to being able to pay by card, the bank is interested in the development and issue of the City Card, which would give the inhabitants of these cities the opportunity to enjoy various advantages in their everyday lives. This is an innovative technology that allows the users of a certain internationally recognised card (Mastercard) to pay for public transport in Belgrade via PayPass technology, regardless of the issuing bank. This project has introduced Belgrade to the world of digitalised smart cities and has provided Belgraders and tourists visiting our capital with the easiest and fastest method of paying for transit tickets. In addition to PayPass Mastercard, paying for public transport can be done by those who own digital cards installed on their mobile phones. These innovative solutions fit in well with the bank’s strategy of meeting the needs of its users, without waiting for a gap to arise between what our clients want and demand on the one hand and what the bank can offer on the other.
How much opportunity is there for AIK Banka, and Serbian banks in general, to collaborate with the fintech sector to develop innovative solutions for customers?
There is significant opportunity. The fintech sector should be regarded as an ally and not the competition because without the application of modern technology, there is no way to survive the competitive market environment. Why? Because today’s clients differ completely from the clients of a decade ago. Today’s clients are always online; they get their information online; they are actively involved in social media; and they want everything to be available now, immediately. Time has become a valuable resource. A key question here is: How can banks, as conservative players on a highly regulated market, best utilise their advantages—security, reliability and sound risk assessment—to compete with fintech companies characterised by speed and adaptability to innovation? The bank that finds the “sweet spot” and is deliberate in making use of the advantages of both sectors for the benefit of its clients can be described as a bank that has found the right strategy for further growth and even stronger position on the market.
I think that AIK Banka masterfully balances the advantages of both of these sectors. We are always open to new ideas and new users while remaining a secure and reliable anchor for our existing clients. With this in mind, the bank plans to establish certain partnerships with fintech companies in the area of online lending, and we are testing the possibilities provided by blockchain technologies in KYC (know your customer) and other areas. It is important to emphasise that AIK Banka, with a few other banks, has been the first to successfully implement PoC (proof of concept) on a closed blockchain network, linked to the use of simple KYC in establishing contractual relations with our clients, thus enabling more efficient on-boarding of new clients. This project was also realised in collaboration with a fintech company. For some time now, we have enabled our clients to purchase insurance policies through e- and/or m-banking in collaboration with insurance companies. When we talk about banking in the coming period, the concept that cannot be overlooked is the concept of partnership—not only with fintechs but also with other players, from insurance companies to GAFA (Google, Apple, Facebook and Amazon). Our aim is to achieve the full commercialisation of these initiatives and to broaden the scope of our services to our clients.
As far as AIK Banka’s digital-banking development is concerned, which of the bank’s offerings have been the most popular with and well received by customers?
We have made an effort to ensure that all of our clients enjoy some benefit from digitalisation, within their own spheres of interest and within the group of services they use. Retail clients are demonstrating a high affinity toward e-banking (electronic banking) and even more so toward m–banking (mobile banking). Using payment cards goes without saying, and an increase in the use of PayPass technology has not gone unnoticed. Anything that makes things faster and more comfortable will find those willing to become consumers. We want to offer most of our services to our clients 24/7 through developed applications that are available through electronic and mobile banking, 24/7 zones equipped with self-service devices and cards digitalised via HCE (host card emulation) projects. We will go live through online channels to test the possibility of offering loans to clients without the need to visit a branch, where the entire documentation is digitally signed by the client and the bank. In practical terms, we want to be available to our clients 24/7, offering a full range of various products. Next to the advantages of electronic and mobile banking and the various types of business cards, more and more focus is on e-commerce, which is on the rise in the Serbian market, and we are expecting significant growth in this segment.
It certainly appears that AIK Banka itself is guaranteed much more significant growth in all of its worthwhile activities. Thank you very much for talking with us today, Ms. Galić.