Generation Y Pushing Banks to Change Standard Approach
The FINANCIAL — How to manage banking during a crisis, how to restore lending and respond to generation Y demands that are currently entering the market – these are the main concerns of the banking sector in Georgia and its neighbouring countries.
The representatives of banks from over ten countries gathered at SME Banking Club’s conference in Tbilisi last week. It was stated that innovation is the only answer that can guarantee the future prosperity of banks.
“The most important topic of SME banking for our region right now is how to build this segment under crisis, how to make it profitable, how to restore lending and also how to implement innovations under current conditions,” said Alexey Sayapin, Business Development Director at SME Banking Club.
As Sayapin explained, the conference allows participants to estimate global trends, listen to how various projects are developing in different companies and later decide whether it is worth implementing them in their banks.
The number of participants at the conference increased this year. Speakers and participants of over 10 countries attended the conference in Tbilisi. The FINANCIAL was the exclusive media partner of the event.
Managing in a Time of Crisis – Importance of Strengthening Risk Management
Garth Bedford, Program Head, CEU Bank Advisory Service at IFC, World Bank Group, talked about strategy and risk management implication.
“Overall, the banking system in Georgia is matured. However, there is still a long way to go in terms of the capacity of the system. The banks need to continue to strengthen their risk management capacity. Many banks have to take responsibility for all areas of risk. Operational risks are not always properly managed. So, this needs to be strengthened. This is not just Georgia but for many other countries in the region. There is a good capacity at the operational level in Georgian banks. There are very good people in the risk departments. However, sometimes it is not communicated up and down throughout the bank. Very few banks have a strong risk appetite. So it will be a good action to be an early adopter and start putting in channel capital adequacy, methodologies within the banks and use this as the bases of the banks’ strategy”.
As Bedford said, the challenges Georgian banks are facing now are not as big as in its neighbouring countries.
“To some extent it is because Georgia had a dual-crisis back in 2008-2009. It made Georgia be more prepared than its neighbouring countries. The banks went through it and learned lessons and strengthened to some extent. We are never to go back to the years of 2008-2009. It is probably going to be an era of lower growth rate. As for the banks, they have to adjust to that. They can just keep adding the finance, to deepen their relationship with their existing clients, to focus on some segments in which they have not worked before. This is going to be where the growth will come from.”
The Main Lessons of the Crisis – Real Banking Knowledge is a Must-Have
The main lessons that we learned since 2008 is that you do need to have real banking knowledge at the senior, board levels, said Bedford, IFC.
“Historically the knowledge was not at this level. Committees on the board level were developing the strategies for the banks many times without professional bankers. Now we see the composition changing, where they really understand the needs of the banks and are understanding a little bit more of the risks that the banks are facing and how to have a strategy which accepts these risks. They are really looking at having a proper testing of different scenarios. This has really made banks professionalize. They no longer think to continue making money just by existing. This ultimately makes the system stronger. Georgian banks are more resilient to different types of shocks. Stronger back offices have contributed to the fact that the Georgian banking system had a lower impact than its neighbours.”
The ongoing situation will help neighbouring countries to become more resilient to shocks, believes Bedford. “Other lessons are not just relying on old-fashioned banking. They look at innovation. Every country in this region has a unique aspect of how to reach the agriculture sector and how to lend to it well and profitably. Banks are part of what the economy is doing and where it is moving. They really help to support not only start-ups but also ongoing enterprises.”
Key Factors for Developing the SME Sector
“SME business is booming in Poland and plays an important role in the economy. Meanwhile we cannot say the same regarding other countries. SME has fewer resources than corporate. Accordingly, they require support from the Government and financial institutions. Another important issue that supports the SME sector is its flexible legislation system and simplicity of starting business,” said Olena Hrynyuk, CEE Regional Manager at SME Banking Club.
In Hrynyuk’s words, the current requirements of SME clients are considering banks as partners.
“There are lots of innovative companies, like Fintech and many non-banking organizations that offer payment and other services much faster. So they can take a huge part of the banks’ customers. Accordingly, in order to remain and succeed in the market the banks should offer innovative services,” she added.
“There is a lot of room to go in the Georgian SME sector. One of the areas IFC has been working on is helping the banks train their SME clients. Something like this is extremely valuable not only for SMEs in terms of helping them understand how to run a business, how to develop their own financial plans, but also for the banks in terms of showing them they have a role in developing the whole SME sector. It is a win-win for everybody. Banks can see their SMEs growing to large corporates and also the SMEs are stronger overtime. The main complaint of SMEs in this region is lack of access to finance. The banks feel that one of their biggest problems is finding good, bankable SMEs. It is important to somehow bridge this gap with more innovative types of lending products, which are not specifically collateral-based,” said Bedford, IFC.
Disruptive Innovations in SME Banking – What Generation Y Expects
“We have generation Y, which is this year coming to the market. They have completely different expectations of their lifestyle. This generation wants to be financially independent. They want to work whenever they can. Ideally, they do not want to report to anybody and to be their own boss. It means that there are lots of freelancers in the market. There are lots of people who are establishing their own companies, start-ups. So, these are people who are becoming SME clients. That is why banks need to understand what has been on the market and deliver what has been expected. That is the reason why the whole SME proposition is being changed in recent years,” Lukas Dzuroska, Country Manager Baltics, Nordics, Poland, Turkey, Georgia at Efma, told The FINANCIAL.
During 2015, Efma received about 500 innovative projects from different institutions. “In terms of quantity it was quite a similar number to in previous years. It means that the banks are not ‘sleeping’. Once they introduce something new they are not waiting for several years to see the outcome. At the same time they are working on many projects. These figures mean that the banking sector has realised that it is really important to bring something new to the market. They understand the importance of having a look at the customers and trying to deliver what customers need at the moment. More than 5,000 times the bankers mentioned the word customer with their innovative projects. It means that it is something that they really want to focus on. In regard to quality we see that in many cases the quality of the projects that we are receiving is increasing. The banks realized that it is better to market and to better sell their ideas across. At the same time the ideas that the banks are trying to develop are somehow a good response to already established expectations by the technological giants or retailers globally, that are setting the trends in the industry. Customers are expecting the same from the banks and banks have to respond. So we are witnessing an increase of quality and finally the banks have managed to offer what customers were expecting.”
Poland, Turkey, Spain and Italy had been the most innovative in terms of retail banking. One of the reasons is that these countries like to present themselves. Secondly, all these markets are really competitive.
Efma is in close touch with the biggest institutions of the Georgian banking sector. “I see a huge interest from them to be a part of the huge community and to learn from the best. At the same time we cannot expect two institutions, which have the major share in the market, to immediately follow the trends. I visited both of the institutions. Despite their market leadership, they do not just want to compete with each other as banks but want to be recognized as a partner for clients. That is something most important. I am very convinced that Georgia, with the innovative projects of these banks, could be very well recognized in the whole of Europe and all over the world, with the mindset of the people that they have at the moment”.
“TBC Bank has always been focused on improving existing products and also the implementation of new ideas, which will have a positive impact on your environment and clients,” said Nikoloz Kurdiani, Deputy CEO at TBC Bank.
According to Kurdiani, strategically it is wrong to think only about the customers which you are serving today. “You should think about those whom you were serving yesterday, serving today and will serve tomorrow. Of course, the Bank receives profit not from generation Y or millennials. However, we put a big accent on them, including our start-up and other projects, which are investments for our future customers. It is a common strategy of each brand. They always make one step forward over the existing generation,” Kurdiani told The FINANCIAL.