ING Bank revised its economic growth forecast for Romania from 5.5% to over 7% for this year, in the context of a very robust return in the first quarter, which is also reflected in the bank’s financial results, Mihaela Bitu, CEO of ING Bank Romania, states in an interview for Economedia.
The bank ended the first three months with gross results of 183 million lei, 11% above last year’s result, a slight increase of 2% in revenues, despite a decrease in interest rates, and a 2% increase in lending , given that the bank now expects an increase in credit demand, given the easing of restrictions. Instead, there was a spectacular 20% increase in savings in the first quarter.
Mihaela Bitu considers that, in what concerns interest rates, the lower threshold has definitely been reached, and the question is whether an increase in the interest rate of monetary policy during the year would be justified. Instead, lending conditions are on a relaxing trajectory.
ING Bank sees a stability of the exchange rate and the real estate market, with a level of prices on a level of a slight increase for this year.
According to Mihaela Bitu, if in 2008-2010 the financial system was one of the causes of the crisis, in this crisis, instead, the banks were not part of the problem, but were part of the solution. The CEO of ING Bank Romania considers that this crisis has shown a prudent and responsible behavior of customers.
The long-term transformations triggered by the pandemic in banking are the acceleration of digitalization trends and the change in the way of working, according to Mihaela Bitu.
Elena Deacu: Let’s start with the latest financial data of ING. What does the first quarter of 2021 look like and what signals does it give you?
Mihaela Bitu: We have a good evolution since the beginning of the year. Of course, everything is put in the macroeconomic context which is also a positive one. For a few days now, we have had the first figures at the level of the first quarter, which brings a pleasant surprise, even above our expectations. We had a macroeconomic forecast of GDP growth of 5.5%. This growth in the first quarter makes us increase our forecast by 5.5% and we are now looking at over 7% as an expectation of economic growth. We have practically overcome the loss of gross domestic product last year. We build from here on. The return is a very robust one and we are very pleased with it.
Our evolution in the first quarter is in line with this positive trend. Revenues increased slightly, by 2%, compared to the same period last year, also against the background in which interest rates decreased significantly in the market compared to last year. A 2% increase in revenue is a satisfactory result.
Loans have increased slightly, we have a portfolio of around 6 billion euros, an increase of about 2% compared to last year.
Instead, the phenomenon that we still observe and that is related to the pandemic context is the sustained growth of savings. The increases are very noticeable compared to a year ago, at almost 25% increase in funds saved.
Here, of course, we also need a sustained demand. In the retail area for of individuals, the demand for mortgages remained robust even in 2020, with a small decline especially during the lockdown, but later the demand for mortgages was very healthy.
However, the demand for personal loans suffered; people were more cautious, more responsible, which is to be expected in such a period. On the contrary, I think it is very healthy for people to take a prudent approach and save more during a crisis.
Now, however, as the pandemic context is on a positive trend, last year’s economic effects are also almost erased – of course, not for all companies – we hope that the confidence of the population and companies will be stronger. We believe that we will see an increase in credit demand.
And in the demand for personal loans we have now reached the pre-pandemic level. I think consumption will pick up.
What are the financial results for the first three months?
The gross result is 183 million lei, for the first three months, an increase of 11% compared to the result of the first quarter of last year.
What is the weight for each types of loans in the total loans you have granted?
We have a share of 60% of loans to individuals and the rest are legal entities, about 40%.
Have you noticed any change in use of the loans requested by legal entities ?
Last year saw more caution in the investment area. But SME Invest helped in this perspective, so there were investment plans that still took place. This year I think we are returning to normal and then I think we are returning to the purposes of lending as they were before the pandemic.
What is the dynamics of funding applications for green projects?
We are trying very hard to encourage investments and we plan to launch a product this year to encourage the green financing area.
At the level of the ING group we have the so-called Terra approach which aims to harmonize ING’s loan portfolio with the ambitions or guiding directions of the Paris agreement. This is what we propose in ING Romania. Obviously, more emphasis is placed on loans granted in sustainable initiatives, we have customers and loans granted in this area. Definitely we intend to increase this share.
SME Invest has already started. What does it look like in the first trimester?
Demand has been evident even before the extension of the program was made official this year, as we had already received about 500 requests.
For now, we have almost 1,000 registered applications, compared to the 7,500 for all of last year. Part of the demand has already been met since last year, so we do not expect the same number as last year. It seems that we still have a pretty good interest in this program, facilitated by the fact that the access base of companies has expanded a bit. For example, wine producers could not access this program last year, but they can this year.
We don’t have any favorite sectors. We look at viable companies in all economic sectors, but I think that those in the trade sector of any type and manufacturing are predominant.
Out of the total requests, how many companies are actually accepted?
If we look at the percentage of SMEs that manage to obtain credit from the total population of SMEs, the percentage is up to 10%. And in SME Invest the degree of acceptance of SMEs in lending is significantly higher, over 20%, maybe almost 30%.
What do the figures look like in the first quarter for the mortgage and New Home segment?
The demand for the New Homes has increased significantly, we have over 150% more requests this year than last year. We also have a consistent demand in the area of mortgages as a whole. We have a large share – around 60% – of fixed interest mortgages.
How do you see the interest for the real estate market from the perspective of these figures?
Last year there were fears about falling prices in the real estate market. This has however not materialized as the prices were constant, with small fluctuations depending on the areas. This year I do not expect to see a boom in the real estate market, but neither for things to go down. The prices will probably be on a slightly higher level or will remain on the rise, varying depending on the area, and the interest of the population.
What does the repayment behavior look like for of the people who benefited from the loan deferral program?
There were fears last year that we would reach an unemployment rate of 10%. It turned out not to be so. Given that the unemployment rate is at a very healthy level, I would say that it has positively influenced the behavior of those who resorted to this option. We have a slightly higher percentage of non-performing loans, but it is by no means a dramatic increase. The level of the non-performing loan rate increased by about 0.5%, so it is quite insignificant.
In light of the new macroeconomic conditions, how do you see the evolution of interest rates and the exchange rate? Do you expect a change in the monetary policy for interest rates?
I said some time ago that we do not expect interest rate cuts, the bottom line has definitely been reached. But if economic growth is so robust and inflation exceeds expectations, the question arises as to whether an increase in the interest rate during the year would be justified. Our forecast remains for interest rate stability at the current level and a growth step more likely to take place in 2022.
Regarding the exchange rate, we have already seen that a psychological threshold of 4.9 has been exceeded. We expect some stability, we do not think that major pressures or fluctuations will occur.
Will the new lending conditions be tighter or more relaxed?
During the pandemic, we all tightened our credit conditions a little, because it is a natural reaction and the correct conduct. But we kind of went back to pre-pandemic conditions, with a few exceptions. Lending conditions are on a relaxing trajectory compared to last year. I think that especially in the current context of liquidity with increased savings from the population and of the of legal entities, it is our duty and mission and responsibility to put these resources to work and to be able to encourage lending.
Can you draw a parallel between how the previous crisis was for ING and the current one, in terms of preparedness and adaptability?
They were very different. From the perspective of preparation and adaptability, it is not even comparable, because the crisis of 2008-2010 was practically a very important lesson for all of us: and for ING, but also for the whole society, including the authorities. There were many lessons learned and a lot of experience gained in the previous crisis. There were differences in the nature of the crisis. For example, in the previous crisis, one of the clear causes was the health of the financial system. In fact, the crisis began with a crisis in the financial system, if we remember the collapse of the Lehman Brothers.
Now the financial system has been caught in a very good, robust state, which is why the banks were not part of the problem, but were part of the solution.
From a training perspective, we have much more experience, including the way we approach non-performing loans, the way we approach restructuring.
Also very important is the behavior of customers, which also proved to be a prudent and responsible one, and which proves that people have learned to adapt. And especially for companies, a change of approach was very clear. During the previous crisis there may have been a certain denial of reality, both in the private sector and with the authorities, there was somehow a denial of the importance and magnitude of the crisis. Last year it eas remarked that everyone took things very seriously. Entrepreneurs, including local ones, have adapted extraordinarily well, they expoited new opportunities when they had the chance and were able to adapt their businesses to the new conditions, they reacted quickly on a cost basis. So they adapted very quickly and this behavior was seen by everyone. This was also seen at the authorities, who also had to learn from the previous crisis and now came up with consistent support measures which brought many positive effects.
What long-term transformations do you think the pandemic triggerd in banking?
There are the most obvious one. One is the acceleration of digitalization trends, and the second is related to the work environment and the way of working, which is a more widespread phenomenon.
What do you see as the working model outlined after the pandemic?
Even before the pandemic, we approached the way of working within the institution with great flexibility and we had the possibility of teleworking in a proportion that was not formally limited. However, I had a telework rate of 12%. Obviously, when the pandemic came, we reached almost 95% of telework.
Now we can ask ourselves which is the optimal model for the future. Obviously it will be a hybrid model. We have announced since the beginning of the pandemic that we will not return to the percentage of office work we previously had. We had initially announced a 60% office – 40% telework, but we are flexible.
Employees’ expectations have changed substantially, because it is clear that we can work from home productively. We are trying to find the optimal balance, the intention would be that somewhere in the summer, maybe towards the end of the summer we will return to the office in greater numbers. We are now 95% still working from home.
In terms of digitalization, what customer behaviors have become commonplace?
Payment by card, definitely, we have a lot of cards enrolled on the mobile phone, we have the Apple Pay solution, we have for Android ING Pay and Google Pay from last year. We also see that there are many customers who no longer use the HomeBank platform except on mobile. From a base of 1.4-1.5 million, there are 800,000 customers who connect with the bank only on mobile . In the last four years, on both HomeBank desktop and mobile devices, traffic has increased fivefold. And on mobile, traffic has increased eightfold. We believe that this is the future: less and less desktop, more and more the use of mobile devices.
But this does not exclude the human relationship, the visits to an ING Office, in the agencies, where of course when we have important moments and financial decisions to make, for which we need advice, this is the time when the human relationship remains very relevant and we believe it will remain relevant for years to come.
In this context, what would be the future of bank branches?
We do not have an excessive network compared to other competitors of our size. We have a network that is already optimized. We did not have to reduce the number of locations during the pandemic. We approach the territorial coverage dynamically, but the current number of units is one that we believe covers the territory well.
Also from the point of view of digitalization, what is your relationship with fintechs – friend or foe?
Fintechs have certain attributes, certain qualities that help them, they have a higher reaction speed, they have certain innovative ideas that can be taken to a new level of realization faster than in a larger institutions. Banks have other advantages, they have a very clear regulatory framework that gives customers comfort. They have complementary attributes, so I think that banks and fintechs do not position themselves as enemies, but I think they have something to gain from collaboration. ING is actually engaged in collaborative relationship with many fintechs globally. We have an innovation center that has various projects engaged with over 170 fintechs. We see an opportunity to work with fintechs. And where they are competitors, like Revolut, this does not bother us. The competition is healthy, it is beneficial for customers, it accelerates certain plans, it makes us faster and bolder in certain initiatives.
What do you think about the fact that Romanians have started to reorient their savings to more volatile areas, such as stocks, but also in markets with many unknowns, such as cryptocurrencies?
Against the background of low interest rates, I think it is a natural step for those who have some savings to try to invest them in more dynamic, or newer areas, including cryptocurrencies. I think we can try anything, as long as it is legal and as long as we do not invest more money in high risk areas than we can afford to lose.
The field of cryptocurrencies is very effervescent, it is a very volatile field, you can also see Bitcoin, so we don’t have to invest more than we can lose. It is up to everyone to make their decisions.
The capital markets present opportunities, and the degree of investments in securities is very low, compared to other more developed economies. So there is a lot of room for growth there and here we have more and more local companies that dare to list on the stock exchage. The AeRo market is expanding quite a bit at the moment, there are interesting investment opportunities. It is good to have more and more investors.
But you need to have a balanced outlook and a diversified investment portfolio.
What is ING’s position in relation to this market?
We have clients who invest in cryptocurrencies, and we don’t have a problem with that. But we do not actively offer the possibility to buy cryptocurrencies from our electronic platform, nor do we intend to do so too soon. It is an area with high volatility, with a high degree of risk, and we as a financial institution are rather focused on an area of prudence and responsibility. At the moment, we are not actively engaged in any approach in the area of cryptocurrencies.
Are you still planning an organic growth or do you forsee possible acquisitions?
We are following our path of organic growth. We still believe that we have opportunities to develop in the Romanian market. Of course, a possible acquisition is never ruled out, but it must be an opportunity for us that makes a lot of sense from a strategic perspective and possible synergies. So far we have not had such an opportunity, which is why we are following the path of organic growth and we believe that we have enough space to grow.
Translated from Romanian by Service For Life S.R.L.