INTERNATIONAL SUBSIDIARY BANKS DIVISION

Banking Industry: What next?

Silvio Pedrazzi, Head of CIS area, Intesa Sanpaolo, Italy CIS Bankers, 2nd International Banking Conference & Exhibition Kiev, June 4th, 2013

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External forces inducing critical choices and structural changes

Bad and damaged reputation triggering customers’ hostility

Political instability in too many key

countries

2009 crisis inheritance

Shareholders asking to increase the level of dividend pay-off

Still lack of trust in financial markets, limiting funding

ability

Shortfall of capital: Raising new capital or

deleveraging?

Regulatory constraints

(Basel III)

New disruptive

technologies

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Banks are struggling to manage a number of major issues

Ø  Insufficient level of capital (regardless of the opposite daily statements), mainly caused by quality of Loan Portfolio and disputable coverage of NPLs

Ø  Still deteriorating (or at least not improving) Loan Portfolio quality

Ø  Decreasing, in absolute terms, Performing Portfolios volumes

Ø  Significant pressure on Net Operating Profit

Ø  Need to improve risk management systems and tools

Ø  Majority of banks are EVA® negative

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How the banks are (really ) reacting?

q  Ongoing aggressive G&A costs reduction

q  Layoff plans

q  Reduction in CAPEX that become mainly devoted to regulatory and risk management needs

q  Trying to squeeze more value (money ) from clients (so called «pricing optimization»)

q  Risk appetite reduction

q  Moving towards or enhancing low risk businesses, possibly without (or very low) credit risk (i.e.: wealth management, bankassurance, part of investment banking as well as large corporate)

Where is the so praised Customer Care?

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Expected consequences on branch networks

Once you look at the P&L of single business segments, most likely you will find that «branch networks» are not profitable or, at least too expensive... taking also into consideration the dramatic fall of clients’ physical presence (unfortunately, Brett is right ....!!!!!) driven by new customers behaviors and new technologies.......

q  Strong reduction of # of branches

q  Development of alternative sales channels (but not enough due to budget constraints)

q  Trying to preserve multi-segment branches (affluent, SB, lower layer of SMEs) also with innovative layouts

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New competitors and … Who else will come?

q  Today, more than ever newcomers are advantaged in «stepping in» leveraging on new technologies and not being conditioned by legacy

q  Possibility to target only profitable business, limiting as much as possible credit risk

q  Possibility to design sales channels from the scratch

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…So what?

Once again (as during the last 20 years) banking industry seems to be «short-sighted» .... or is forced to be! ...But this time the risk is much higher: mistakes are not allowed any more! since..... Ø  Sovereigns could be not so willing to intervene (...for free...)

spending money of the already upset householders Ø  Disruptive technologies forcing to huge, quick, as well as

expensive, structural changes

…Conclusions

q  The main barrier for technological development could be the traditional banking industry itself

q  In any case, the network “революція” has already started q  Actually, banks have to suffer from and to limit damages, using only the

next few years to upgrade themselves

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Food for thought

=> Do we (bankers) really want this scenario? => Do we (bankers) really fit to this scenario? => Do we (bankers) really think we can manage such a “Революція”? => Are we (bankers) ready and willing to move forward???

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