Romania a banking network puzzle.

Voicu, Andreea Raluca ; Ionescu, Alexandru

1. INTRODUCTION

The regular image of a champion is nothing else but a sportsman whose efforts allow him to go further or faster, or to sustain victorious campaigns.

Such principles of competition should stay at the base of economic relationships among the developed countries and less developed countries. Each competitor has weaknesses and strong characteristics, so the intellectual and leadership capacities of being aware about such aspects finally lead to or make the difference between success and non-success both on the international and domestic markets.

2. THE HISTORIC EVOLUTION OF FREE ECONOMY

There are some lucky countries those historic evolution toward free economy covers a time period of hundreds of years, but for the others that period is no longer than few tens of years or just few years.

Such an example of a non-continuous path on the free market principles could be considered Romanian economy that has kept going through economic and political reforms since the 1989's revolution.

The normal expected effects of the last years' reforms consisted in orientation toward a free market competition, political democracy, control of inflation, restructuring trends, free social strakes, and so on.

But there are still areas requiring work to be done because of the lack of performance or deregulations, all these being underwritten tasks according to European guide of economic integration.

It is no secret that the structure of Romanian economy is still far away from a targeted economic performance (e.g. of non-fulfilled tasks: a commercial surplus on foreign trade, inflation rates below 5-6 percents, total independence of justice).

3. THE BANKING SYSTEM

Under those circumstances, I will talk about a domain of Romanian economy: the banking system. The banking sector has known till year 2007 a high concentration as there were around 28 authorized banks covering demand and offer coming from a population around of 22 millions people. Under such financial conditions the investors used mainly as financing tools the banks loans.

That trend was sustained by the economic conjuncture on the Romanian market: higher and higher government expenses, adjusted commercial balance deficits, domestic falling down of interest rates but still far higher than European average. Thus it was no doubt that the banks' portfolio of assets and liabilities could do nothing but to flourish.

The essence of banks' activity is to make their network to pay back the investment having been done on each branch, agency, office or outlets (Ahmad & Hoffman, 2008).

Among the previous banks, there was one the most important: Romanian Commercial Bank (BCR). It was a stateown company being under the process of privatization toward a strategic investor as part of the I.M.F. funding conditions for Romania, but it has been delayed for several years. Privatization was likely to bring in a strategic partner or a strong consortium, of which the bank's development should benefit.

As a first step in this direction a share of 25% of the shareholder equity was sold toward I.F.C. and E.B.R.D. Its high level management consisted of one chairman and the four deputy-chairmen followed by the department managers and deputy-managers.

The bank acted both in the field of corporate business and the retail markets, offering a wide range of financial products and services of deposit and lending.

It had continued to be the largest bank in Romania with almost 31.9% market share of banking assets, 28.9% of total customers' loans, 33.9% of total customers' deposits (or available resources), but only 17% of all available Romanian customers, meaning that its portfolio had the characteristics of "golden eggs".

The territorial activity was based on a 280 offices network. The bank also had several 100% participation in abroad subsidiaries in countries like Germany, United Kingdom, France, Russia, so on.

The overall number of bank employees was around eleven thousands related to a market value estimated over USD 1 billion and an ascending rank for 2007 year, from 397 up to 387 among the most powerful world banks according to The Banker, being the 4-th among the Central and East European Banks.

Considered as the second important competitor according to the criteria of market share and aggressiveness, Raiffeisen Bank SA (former Banca Agricola SA) was a private operator (RFZ-Romania).

The bank had almost 3500 employees and a network consisting in 210 offices. As it can be noticed, this bank had only one third of BCR employees' number and a comparable network size.

4. HOW WAS THE BUSINESS CONDUCTED UNDER SUCH PRIVATE OWNERSHIP CONDITIONS

For example into a BCR branch it could be count up to 30 people, instead of 15-20 people for RFZ one.

Was it wrong? Yes vs. no--because there were advantages and disadvantages related to the number of services a branch could offer, the time of decision, the professionalism of human contact man-to-man, the IT system performance, customer preferences.

As an example it could be mentioned the card issues: BCR had almost 1,338,461 issued units while RFZ came with only 431,356 units, where the main influence factor had been the sale forces that according to the number criteria were in favor of BCR even though the card issuing time was favorable to RFZ (several days instead of a week).

What I wanted to pinpoint there it was the use of network potential as strategic tool on retail market: while the BCR preferred mainly the structure of big-size branches (167 branches) with manager + deputy manager + financial director + law adviser + heads of division + even more executive and control employees +/- security, its competitor RFZ had lower its wages cost by setting up mainly the agencies (132 agencies) having a less complex structure than a branch, but a strong IT communication channel between agencies and head office.

The decisional decentralization was in favor of RFZ. Another argues into that direction consisted in the presence of RFZ almost in every supermarket chains being built around the country capital--Bucharest, while BCR had only one or two agencies in such business areas.

But that strong points in favor of RFZ were balanced by the fees, commissions, and selling forces that were in favor of BCR. So that the clients used to chose their opportunity cost based on three criteria: ways of being contacted, timing and operating cost.

Under recession business periods their choice was definitely in favor of the lower operational banking fees (favorable to BCR), otherwise (in case of economic boom) the choice was oriented toward the operational timing (favorable to RFZ-Romania).

But the most important aspect it proved to remain the traditional human contact of doing business, and BCR by its superior number of employees remained the leader in doing that.

On Romanian market, there should be noticed the third important operator, by using the criteria of network structure, and that was Romanian Development Bank (BRD-GSG). Its branch network was smaller than that of previous two banks, but with a countrywide geographical spread, its strength was related to the shareholder reputation--Groupe Societte Generale (France).

In fact, on a Romanian financial market dominated by BCR with a market share higher than 30%, the competition among the RFZ-Romania and BRD Groupe Societte Generale was for being ranked "the second in rank" as operative importance, where BRD showed both a decisions' decentralization and lower fees.

Another banking operator being very active on Romanian retail market due to the network structure was Banc Post. Its top position in issuing debit and credit cards (1,059,150 units--second rank, behind BCR but in front of RFZ or BRD) was due to a focus on distribution by small outlets and a reliable IT channel in area of timing on card issue, although its capitalization was less important than BCR, RFZ or BRD. Thus that bank has succeeded to overwhelm the competition on the card market share.

The retail activity was intended to be the base of its activity (e.g. on December 31-th, this medium size bank had an average number of issued cards of 6,580 units per outlet/office compared to 4,712 units per office for BCR or 5,410 units per office for BRD:

5. CONCLUSION

All previous banks were offering full services for corporate and retail market, each of them with different structure on network management, but all having as common target the profit and shareholders wealth (Arkin, 2007).

On Romanian market although the banking sector was under an ongoing process of European integration and reform, the dominance of network size remained undeniably the factor that offered the premise of success in the case of a retail or corporate approach (Bussler, 2007). Until present days there has been a continuous growth of bank network, the Romanian banking sector not knowing the shutting down of working branches on large scale.

Sales forces are focused on human being participations, so the contacts with customers are done face-to-face. The implementation of automatic teller machine has still free market niches, e.g. invoices of utilities, account administrations.

Thus, in this particular perspective, the future impact of E.U. integration is interesting to be found out.

Especially when the technology and dedicated software platforms come with a better efficiency than the traditional employee (Andrews et al., 2007).

The reality shows that the sale forces have and can be allocated successfully from the back office activities.

6. REFERENCES

Activities of the EU (2008), SCADPlus: A modern policy for SMEs, http://europa.eu/scadplus Accessed: 2008-03-05.

Ahmad, N. & Hoffman, A. N. (2008), A Framework for Addressing and Measuring Entrepreneurship, OECD Statistics Working Paper. Washington D.C.: OECD, p. 10, Available from: http://www.oecd.org/std/research Accessed: 2008-01-24.

Andrews, T., F. Curbera, H. Dholakia, Y. Goland, J. Klein, F. Leymann, K. Liu, D. Roller, D. Smith, S. Thatte, I. Trickovic, S. Weerawarana (2007), Business Process Execution Language for Web Services, Version 1.1. OASIS.

Arkin, A.: Business Process Modeling Language, San Mateo, CA (2007), BPMI.org, Proposed Final Draft

Bussler, C. (2007), P2P in B2BI, A paper delivered at the Proc. of the 35th Hawaii International Conf. on System Sciences (HICSS 2002), Waikoloa (HI)

Table 1. Card market share

 Card/net
 Aggregate Issued work
 network Card office ATM

Romanian
Commercial 284 1,338,461 4,712 579
Bank (BCR)

Raiffeisen 204 431,356 2,114 358
Bank
Romania (RFZ)

Romanian
Development 177 957,251 5,410 368
Bank (BRD)

Ion Tiriac
Commercial 50 137,161 2,743 125
Bank (BCIT)

Banc Post 161 1,059,150 6,580 451