These events should lend credence to BRE's shift from a more investment driven firm to a universal service bank.
Wojciech Kostrzewa, BRE Bank's chief executive, anticipates that his firm's somewhat novel retail business model will be able to pilot the division to prosperity.
"All other banks, even those that developed their networks and business plans in the 90s, followed the more traditional retail banking approach," Kostrzewa said.
The conventional strategy among retail divisions draws customers through a dense network of branches, providing customers with the advantages of face-to-face communication.
"For us, we're a latecomer and to achieve some kind of advantage [the answer] was to try to take a new definition of what retail means," Kostrzewa explained.
In that light, BRE chose to launch largely internet-based retail operations, eschewing the idea of a traditional retail branch. This strategy began in earnest some two years ago. Given its lack of physical banking outlets, the bank has more flexibility to react should the market turn in the wrong direction, he pointed out.
The bank is continuing to chase this strategy on the heels of its announcement last year to move up two places to number three on the ranking of Poland's largest banks, overtaking both ING BSK and Citibank Handlowy. A potential share issue is in the offing to boost its assets.
Andrzej Nowaczek, a London-based analyst at Credit Suisse First Boston, said the BRE retail model is relatively untried, but noted that the firm has made commendable strides in procuring customers and amassing pools of deposits.
"In principle this is a good strategy," Nowaczek said. "But the bank may still need more scale to become profitable."
Nevertheless, on Kostrzewa's terms, BRE will be in the black next year, despite recording zł.100 million in losses last year. And by 2006 he expects retail to provide as much as 30 percent of the revenues of the entire bank. Retail operations include mBank, Multibank and Multiport.
Those revenues, he expects, will provide a safety net for the firm's corporate banking business - one that has been at the core of its operations from the very beginning. Corporate banking, he explains, is a very cyclical business in which the financial highs are higher and the lows are lower. Having a steadier retail banking revenue stream will enable it to better weather economic storms.
In addition to luring new customers with more mundane products such as savings accounts, BRE is also pushing asset management and mortgage products through its retail channels. Industry-wide, these two products have garnered growing interest.
"The mortgage bank will certainly remain one of the engines for commercial and retail bank as well," he pointed out.
Rheinhyp-BRE Bank Hipoteczny is the country's largest specialized mortgage bank. Kostrzewa said that mortgages in general will become more attractive because they will become more interesting for investors.
"Mortgage bonds are seen as a substitute to treasury bonds because they offer higher spreads at a comparable level of risk," he said.
BRE Bank is not alone in its pursuit of the enlarging pool of retail revenues, with such close competitors as Citibank Handlowy, PKO BP and Pekao SA doing the same. Moreover, like other banks, BRE is also keeping a careful eye on the corporate sector. It's even parlaying some of its retail products onto the corporate stage.
"With the creation of our retail division we are also increasingly entering the sector of small and micro enterprises where the difference between being a private customer and being and entrepreneur is very small," he said. Corporate customers can use the same products as retail customers, including mortgages and asset management.
Though majority owned by Germany's Commerzbank, BRE plans to use its position as a local bank to continue to win local corporate customers across various industries he said. At the same time it will use its parent company as a catalyst to service German clients planning to conduct business in Poland.
BRE will perform all the services of a universal bank in the country, he said. But it would definitely avoid becoming a more active investor in the country's developing companies.
Roughly eighteen months ago the firm adopted a more cautious investment banking strategy. Aggressive investing was one of BRE's fortes as recently as two years ago. It made a name for itself through such highly touted deals as the 1999 sale of a stake in Polska Telefonia Cyfrowa (PTC) to Elektrim yielding some zł.500 million. But as the market turned sour and dragged down BRE's investment portfolio, the bank's investors seriously questioned the wisdom of its strategy.
Never again, says Kostrzewa.
"The heavy exposure to private equity is not accepted by the market," he said. "We got the message; we took the lesson."
Timothy Sifert
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