Erste Group: Eastern Promise – Christian Steinberger
CFOs are keen to implement cash management tools in Central and Eastern Europe, but the region has a fragmented and misunderstood financial market. Christian Steinberger, head of cash management at Erste Group, shares with FDE his insight into local and EU banking.
Central and Eastern Europe (CEE) is sometimes thought of as the EU's poor relative, but many of its component countries have navigated the economic downturn in a way that many member states would envy. Its initial recovery has attracted attention from finance directors and businesses across the world. However, there are few global banks that are committed to the region.
Erste Group is one of the leading financial service providers in CEE. Operating out of Austria, Erste Group serves 17.5 million customers in the Czech Republic, Slovakia, Hungary, Croatia, Serbia, Romania and the Ukraine. Its services also extend to Bosnia and Herzegovina, Montenegro and Slovenia via a link with savings banks.
The group is also a major player in the corporate financial services sector, as evidenced by its share of corporate loans reaching up to 24% in Romania and 23% in the Czech Republic. As for the outlook in the region, market research with corporate customers indicates that business confidence in CEE economies is increasing in 2010 compared with 2009. Christian Steinberger, head of group corporate cash management at Erste Group, points out that CEE is nothing if not unique.
"By contrast, Western European countries are relatively homogenous," he says, adding that the most important information about a CEE country is whether it is part of the EU or not, and whether it has aspirations to join.
"Corporates who want a banking partner in CEE should look for a country that they are interested in," he continues. "They should note the differing characteristics of the various countries and select somewhere that they feel suits their business. CFOs must understand that regulatory regimes are different between the two sides of Europe and they must select a partner who can advise them on these differences and help establish business operations there."
He advises companies to look for a banking partner such as Erste Group, which can demonstrate global expertise and local knowledge.
Steinberger confirms the assumption that CEE prefers to work in cash. "There's a lot of cash in the economy, especially from these who are collecting small value amounts from, for instance, retail customers," he says, "and, from a historic perspective, some individuals prefer it." It's also important, he believes, to find a banking partner who has a multi-channel approach in each of the countries that the business operates in.
An example of Erste Group's flexibility in this aspect can be found in Hungary, where direct debit is not widely used; instead, people pay their bills at their local post office because of its large branch network. Erste Bank Hungary can advise and support coporates to access this special Hungarian postal cheque clearing system.
Partners with a plan
CFOs operating in the region should look for an experienced banking partner that understands the differences and details of CEE cash pooling possibilities. There are many pitfalls in liquidity management and cash pooling in an unfamiliar banking environment. The most important thing for corporates is to have a clear implementation plan for a liquidity structure.
The first prerequisite for anyone looking to concentrate cash, according to Steinberger, is to have an overview of account balances. Speed is key and transfers should be fast; if they can be done on the same day, all the better. Banking partners should also offer transfer services at a low cost. The critical issue, Steinberger says, is to get a clear commitment from the CFO.
"When corporates enter the situation, they establish a local enterprise, which operates in a de-centralised way," he explains. "You need to convince the local subsidiary to join your cash pool: bring them onboard, show them the advantages and get their support." Implementing a cash concentration system requires committed support from sponsors to ensure it runs smoothly.
Besides strong implementation and an account overview, Steinberger also encourages companies to make sure their integration capabilities match existing systems. "Cash concentration always happens towards a holding company that probably already has an infrastructure in place," he says. Even if its core bank lies outside CEE, integrating with existing infrastructure should be a priority.
Erste Group's product corporate FILE.SERVICE helps corporates in this respect. It can collect account statements from all Erste Group entities but also from other banks. It also handles fully automated file transfers based on a range of standardised bank-to-client communication protocols such as SWIFT, sFTP or EBICS. It's a multi-bank platform within the group that works on a worldwide scale.
Corporate payment processes will always face delays, costs and security risks, but the implementation of centralised payment factories, SWIFT services and single-channel electronic banking can make processes more efficient. Erste Group's corporate PAYMENT.FACTORY services provide multi-platform solutions to revitalise payments, collections and transfers.
Its corporate MULTI.CASH programme is a multi-bank platform that allows customers to retrieve and combine account balances and oversee transaction details from local and foreign accounts on a PC, a solution that appeals to CFOs who want to get rid of bottlenecks in the supply chain.
Erste Group's raft of electronic banking services also includes the corporate PAYMENT.WIZARD, which makes global transactions easier by combining a range of functions - including mass and individual payments, currency conversion and account reports - through a single web interface.
A major concern for anyone making international transfers in or out of the EU, especially of low-value amounts, is the effect of SEPA. A recent breakthrough for CEE banking on this front was the launch of the payment service directive in November 2009.
"This was a big step for corporates," Steinberger says, "and has definitely increased efficiency in the market." Now payment transfers arrive on the next day following the payment order at the beneficiary's account if there is no currency conversion between the two.
Only when a country switches over to the euro will all SEPA rules apply. At the moment it is EU accession that makes more of a difference to CEE countries' financial regulation. When CEE countries want to join the EU, Steinberger explains, they tend to harmonise their framework to fit with the rest of the union, which will eventually make international transfers easier.
In Croatia, for example, there are restrictions about transfers, non-residents opening bank accounts and Croatians opening accounts abroad but, with accession talks, these rules may change. Post-downturn politics will also alter tax regimes as governments look to smooth over their respective economies.
Thanks to its established position in CEE, Erste Group can inform on tricky relevant tax issues such as country specific thin capitalisation, withholding tax, transfer pricing and cross-border capital movement.
Erste Group also understands the complexities of country-specific issues, such as withdrawing cash from Serbia, and the legal problems regarding cross-border cash pooling in Croatia.
The company has a strong sense of social responsibility, offering services such as mobile banking to isolated communities in Romania. Innovative local projects such as this show, on a small scale, the commitment to the region and a practical approach combining local knowledge with an attentive response to customer needs.