Banka Kovanica – From ugly duckling to swan!

Source: Jutarnji list /

Author: Marina Klepo / Published on January 7th 2019



Nicola Ceccaroli: „We are using savings of German citizens, because they have longer terms, and therefore are more cost effective”


In 2012, a total of 32 banks operated on the Croatian market. Since then, 11 banks have left the market, almost 1/3 of the total number. They were closed or sold. Banka Kovanica (kovanica=coin) originally from the Croatian town Varaždin, one of the smallest banks in Croatia with a market share of 0,30 % has left behind hard time of losses and under-capitalization. But the Italian owner of the bank, Cassa di Risparmio della Republica di San Marino, is determined to keep its position in the bank market despite the fact that the business conditions have never been more challenging. On how the bank overcame a period of declining business and how he sees the future, the Croatian newspaper Jutarnji list, spoke with Nicola Ceccaroli, Chairman of the Board since 2014 and an expert with 20-year experience in the finance sector, especially in private banks and investment companies in his hometown San Marino.


Is such decreasing in number of banks in the Croatian market surprising for you?

N.C.: The number of banks will continue decreasing in the near future. Banks all over the world are undergoing a process of consolidation due to the increasing competition, more demanding regulations, technological changes as well as due to the changing Business terms on micro and macro level. Looking at the most developed countries in the world, we see in USA for example that two decades ago they had more than 10.000 banks and nowadays there are less than 5.000, and the declining trend ruthlessly continues. The already competitive surrounding has got even more competitive due to the opening of the payment system of Europe towards large technological and fintech companies. Nowadays, if you want to buy a laptop on Amazon, you are offered a personal loan.  Big American companies such as Facebook, Apple, Amazon, Netflix and Alphabet’s Google, so-called FAANG, have unlimited possibilities to invest money because they possess large amounts of personal data. To conduct business in such a surrounding is very challenging. But I believe firmly that also in the future there will be space for small player, for agile and smart, goal oriented banks.


Where do you see the potential for small banks?

N.C.: They cannot claim to be universal banks, offer a large number of service, like a one-stop shop banks, but they have to search for their niches, specialize in a limited segment, and strive to be the best in it.


What niche did Banka Kovanica found?

N.C.: Since I took the lead of the Bank we have focus on retail banking. Our basic business and our competitive advantage are non-purpose loans. Also, in the corporative segment we have decided to focus on working assets short-term loans. When the client decides to take a long-term loan, the price is the key segment for his decisions, even the slightest change in the interest rate. If they decide on a short-term loan, then time when in which they receive the money is even more important than the price. The fast delivery is critical for success, and Banka Kovanica can provide them short-term assets in less than 48 hours.


That approach in which the fast delivery is the most important factor holds also certain risks where clients can find themselves in a situation where they cannot return loans?

N.C.: Risk management is rigorous, and the assets for the authorization of working capital is based on revolving within the set deadline, and for short-term needs like financing of factors. Also, most of the time, the short-term financing is secured in accordance with insurance companies for risk transfer. In the end, over time you gain more experience and knowledge, you become better networked, and you learn more about the players in the market; who pays whom, how the client’s portfolio grows, and you have greater amount of data based on what you estimate the exposure.


Who are your clients in the corporate segment?

N.C.: The focus is on small and mid-sized companies, and sometimes on large companies. Nowadays, the conditions for this type of granting are very good. Banks have money in abundance, but that money doesn’t reach the companies. Along with that, we have a rising economic cycle, the level of employment rises as well as the salaries, and with that we have a larger market because more and more people are able to request a loan. Corporate loans are stagnating, the state sector successfully finances itself abroad, and the retail loans are left to the banks.


Still, if someone were in doubt to choose, why would he go to Banka Kovanica?

N.C.: If you go look at the comparative list of the Croatian National Bank, you will notice that Banka Kovanica has the lowest interest rate for cash loans. We have to most favourable loan conditions, and we are careful with the risk. Second, we listen to our clients. In large banks clients are often just numbers. In our office they can take a seat and talk to us, we have a more personal approach and offer even free consulting. Generally, our ‘manual’ rather than automated approach to credit approval, respects client’s personal circumstances more.


When we are talking about deposits, you have turned to German savings depositors. They take up to 1/3 of your source of funding. How come?

N.C.: We took advantage of the European regulative, and in 2015 we started to work with Savedo, a German fintech company. It is a small player compared to large deposit platforms and is more open to smaller banks. Germany has the largest deposit market in Europe, we are talking here about more than two trillion EUR.


What is the difference between deposit prices in Germany and Croatia?

N.C.: When we started deposit were more favourable in Germany, around few tens of basis points, from 0,10 to 0,40 points. However, due to the decreasing interest rate in Europe that difference disappeared.


What is then the advantage of German savings?

N.C.: The whole financing price that includes interest rates and fees for intermediaries is mostly similar. However, in Germany you can get deposits that are termed longer, from 3 to 5 years, while in Croatia the average term is less than a year. You have to keep in mind that when the deposit term is longer the price is higher, because the people willing to deposit savings for a longer term want higher interest rates. The aim of the bank is to diversify the client base and make the deposit structure stronger.


The bank made a profit of 14,2 million in the first 9 months of 2018, but behind you is a restructuring process in which the costs were reduced for around 40%?

N.C.: In 2014 Banka Kovanica was an ugly duckling among comparable banks in Croatia, and today it is a swan. It is still a small bank today, but with good results and 15 percent return on equity this year, while the average for the banking sector in the EU is 7.2 percent. Once you start restructuring, lowering costs should become your top priority since day one. We started with the IT Sector, questioned our key providers, and have hired a new provider ABBA-Mbanq. We have reached double digit savings while improving the quality and efficiency of the system. We lowered the number of branches, closed those that were too near to each other. Due to digital banking, clients don’t go that much to branches anymore. But we still have physical offices in all larger cities in Croatia.


What happened with the employees?

N.C.: The bank went through major organizational changes. A large number of people worked in the back office. They were mainly executing routine, manual work while those who worked with the clients at the counter were overloaded with work. We have automated a large part of processes, not only to reduce expenses but to better conduct risk assessments. It is like a person with 20kg overweight– when he loses weight, he easily becomes fit.


In comparison with the beginning of restructuring, how many employees do you have today?

N.C.: Earlier we had 135 full-time employees, now we have 95 employees, and 75 % of them are women. We tried to minimize the social consequences. But, reducing the number of employees does not mean in any case a reduction in activity, rather their increase. After the stagnation period, this year we will increase our assets by nearly ten percent.


The capitalization of the bank used to be below the legal minimum, and now it is above?

N.C.: Capital adequacy is 16.5% and thanks to the profit we will keep it will reach 18%. We have very ambitious plans for this year, to continue with the above-average turnover growth, with return on assets above 10 %, and we want to achieve a significant increase in loan volume. We have the capital and what is most important- good staff that is serving our clients. Good management can really make a difference.


Banka Kovanica d.d. is powered by ABOS Digital Core