Ivan Vrhel, CEO of Citibank Romania: "I think that it will take 1-2 years to see the real impact of the crisis on the increase in the cost of lending"

English Section / 29 martie 2021

Citibank - 25 years of operation in Romania

"Banks are currently at a time where they are going through a reinvention"

(Interview with Ivan Vrhel, CEO of Citibank România)

Banks are feeling the impact of the pandemic on their loan portfolio, rising reserves and volatility, according to Ivan Vrhel, general manager of Citibank Romania. He believes that the "new reality" of the banking system means a series of fundamental transformations that have happened faster than we could have ever expected. He told us in an interview: "This is certainly a time of reinvention for banks, to accelerate end-to-end digitization processes and to restructure operational procedures so as to reconcile agility with an effective risk management, to operate in a digital environment".

Reporter: What is "the new reality" of the banking system in Romania?

Ivan Vrhel: The "new reality" of the banking system means a series of fundamental transformations that have happened faster than we could have ever expected. This is certainly a time of reinvention for banks, accelerating end-to-end digitization processes and restructuring operational procedures so as to reconcile agility with effective risk management in order to operate in a digital environment.

The pandemic has also changed the structure of the industries our customers operate in, and banks must act in sync with the dynamics of their needs. In this period of increased instability and volatility, companies' needs have concerned repositioning in the context of the pandemic, ranging from adapting operational procedures for remote working, digitization of documentation and signatures, better control and visibility over liquidity, to flexible financing - especially of suppliers or of working capital - and access to capital markets, with an increased interest in value-added prospects and consulting.

In their role as funders of an economy that has suffered a sudden recession, banks are feeling the impact of the pandemic on the loan portfolio, rising reserves and volatility. At the same time, I believe that the role of banks is very important in the post-pandemic economic recovery process. Banks are in a solid position and, unlike the crisis of 2008, we are not talking about a liquidity crisis now, but about a health crisis doubled by an economic crisis. There is liquidity available, injected into the system by central banks, by governments, and banks have an important role to play in supporting economic recovery, through financing, by facilitating transactions, by partnering with governments and central banks.

Reporter: What was the sentiment that the banking sector began the year with?

Ivan Vrhel: I think we started this year with a dose of optimism and hope, mainly due to the availability of vaccines and the running of the vaccination campaign. However, the overlap between the health and the economic crisis, the dynamics of which we cannot yet accurately predict, will continue to be a challenge. The data shows that volatility will remain very high in 2021, and the elements related to the evolution of the pandemic in general will be translated into a high-risk economic evolution. Banks are now focusing on operational resilience and defining a long-term sustainable and profitable business model that responds to changes in customer behavior and goals.

Banks must also support the recovery not only from the perspective of financial markets, but also from a human and social perspective. I believe that banks have the opportunity and responsibility to support the sustainability agenda (ESG - environmental, social and corporate governance factors), which has grown in the context of the pandemic.

Reporter: What are the prospects for 2021, in your opinion?

Ivan Vrhel: The pace at which companies will recover from the crisis and define their new normalcy will vary greatly by sector. It is expected that sectors sensitive to consumer attitudes towards social distancing - such as HoReCa, tourism, leisure and offline entertainment - will experience the slowest recovery, as they were also the first to be affected.

The health crisis continues to put pressure on the quality of companies' balance sheets, which can result, over time, in a higher cost of credit. I think that over a period of 1-2 years we will see the real impact of the crisis on the increase in the cost of lending. However, those companies that are adaptable, with a business model that is resilient to external disruptive forces will be able to overcome these challenges and become even stronger in the long run. Adaptation is not just a matter of creating new products or services. To be winners, companies need to transform their mindset and culture. They need to question how they operate and re-evaluate their structure and strategy.

Reporter: How has the health crisis concretely affected the activity of Citibank România?

Ivan Vrhel: Even before the pandemic, Citi's strategy was already focused on technology and a strong partnership with our customers. Fundamentally, the business objectives have remained the same: to continue to be a strong partner for multinational companies in Romania, for large private companies and state-owned companies, as well as for a select category of SMEs that need customized banking solutions, cross-border, giving them a uniform experience in several markets. We will continue to support them in managing volatile markets, streamlining their supply chains and accessing short- and long-term liquidity. We also want to continue the partnership with the Romanian Government in order to support the external financing needs of the economy and to be there with the global institutional investors for accessing the local stock market.

At the same time, the last year has also provided us with a favorable context to start shaping a longer-term vision of the company, focused on operational resilience, flexible ways of working, a better balance between professional and personal life. These are not new topics, but they have certainly become much more important in the context of the pandemic.

Furthermore, in the context where approximately 80% of our employees in Romania still work from home, we are focusing on finding better solutions for communication and collaboration, remote motivation, learning and development, team cohesion and preservation of the organizational culture we all appreciate.

I think that Citi's mission has never been more important. Citi's efforts since the last financial crisis to strengthen its capital and liquidity mean that we are in a strong position to overcome the pandemic and have the resources to continue to support our customers, employees and the community.

This year, Citi is celebrating 25 years of operation in Romania - it was one of the first international banks to enter the local market, supporting the liberalization and progress of the Romanian economy - and we are keeping our commitment to the market and the local community.

Reporter: How many applications for delayed loan repayments did you approve?

Ivan Vrhel: We had a small number of requests to postpone loan repayments, most of them under the government program, and we approved them all. Given the specifics of our portfolio of corporate clients, we have maintained an individualized approach and held timely discussions with our clients about their needs throughout the period.

Reporter: How have the interest rates evolved at the bank you represent and how do you estimate that this segment will evolve in 2021?

Ivan Vrhel: We have seen an increase in the level of deposits. In general, in times of crisis we see an increased preference of customers for safer assets (flight to safety). In terms of deposit interest rates, the local market continues to have excess liquidity and reference interest rates continue to fall (even going negative in the Eurozone), and this has been reflected in the interest rates offered to depositors. In Western Europe, we see that taxation of Euro liabilities has begun to become a market practice.

Reporter: How do you see the IMM Invest program?

Ivan Vrhel: Citi is not part of the IMM Invest program, and this decision is related to our specific business model, in correlation with the relatively small number of clients in our portfolio that would benefit from this program.

Citi has a different SME classification than other local banks. In our portfolio, SMEs have a much higher turnover than the market average. The needs and sources of financing of this segment are different from those of smaller companies, which fall within the typical definition of SMEs on the local market. We also look beyond static indicators and have three main questions that interest us when it comes to loan approval: 1) Is the company's management able to overcome the crisis? 2) To what extent will the product and the respective industry be disrupted by the crisis? 3) Does the company have enough liquidity or does it have the capacity to increase its liquidity?

The pandemic has harmed the financial profile of many companies, so we are now mainly analyzing the long-term viability of the company and decisions are made based on forecasts of what the company will look like after the pandemic. Of course, most companies will be more indebted, but we are assessing whether and how the company will be able to escape this crisis.

Reporter: How quickly have you adapted to the forced computerization process?

Ivan Vrhel: Digitization has been one of the pillars of our strategy since before the pandemic, but it is true that the transition to digitization has been much accelerated. Citi has a number of competitive advantages, being one of the first banks to adopt a network with a small number of physical branches, investing heavily in alternative digital channels. Especially in the context of the pandemic, we have seen our customers' interest in digital solutions grow. For example, more and more companies are looking to simplify the structure of their accounts, while maintaining the flexibility to make payments in different currencies, including exotic ones. We have seen an accelerated trend of full integration with banking systems for the execution of payments, the reconciliation of account statements and also for the automation of the entire foreign exchange risk management process. In general, we see our customers opting for solutions that eliminate time spent with repetitive operations, such as implementing an automatic conversion of an account balance to another currency or adopting solutions that ensure a success rate of over 90% for the reconciliation of receipts.

Through our digital cash management and FX platforms, customer company representatives can trade anywhere and anytime with advanced connectivity. We have seen an increase in the rate of adoption of these solutions and we expect this trend to continue. We are also focusing more on systems to increase payment security and cyber security. In terms of revenue, automating their processing and reconciliation has certainly been a central issue, as have integrated solutions - such as those offered in collaboration with Fintech companies - that can improve customer performance in terms of reconciliation rates.

We continue to add new innovative solutions to our offer for customers in Romania, one of the most recent being to send instructions for the issuing of letters of credit and guarantees through the online banking platform. We focus on creating flexibility for our clients, many of whom still work from home.

Reporter: How affected will the Romanian banking system be by a new economic crisis?

Ivan Vrhel: There are differences between Romanian banks, but I think most banks have entered this difficult period well prepared and well capitalized. Banks continue to have strong balance sheets, but I believe that asset quality will need to be closely monitored. The banking system is well positioned to support the economic recovery and help the whole community progress.

Reporter: Thank you!

Recorded by Emilia Olescu

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