Czech lenders at the forefront of post-COVID-19 digital evolution of the European banking sector

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When COVID-19 first swept across Europe, Ceská sporitelna knew she would need to improve her ability to sell products and services to customers through online and mobile channels, said Josef Boček, strategic analyst at the second largest lender in the Czech Republic in terms of assets, said S&P Global Market Intelligence.

The bank launched an exercise it called a “new normal”, adjusting existing targets to rapidly changing customer demand and setting new targets for digital sales and interview for the next 18 months. In 2021, Ceská sporitelna knows exactly how many digital products he wants to sell and how a lot the services are expected to be available online this year.

“All of this has already been integrated since the first wave of the pandemic. … We, of course, were not the only a. He has been a similar exercise on the other side the together Czech banking sector ”, said Boček.

Czech banks stand out

While digitization on the continent has been led by the countries of Western Europe – mainly the Nordic countries, the Netherlands and the United Kingdom – the economies of Central and Eastern Europe have caught up in recent years and the Czech Republic is one of the fastest growing markets in the region.

The country ranked third, behind Denmark and the Netherlands, in the European Investment Bank’s 2019-2020 Digitization Index and was the best performing country in terms of “investments in software and data as well as in improving the organization and business processes “.

The nature of their domestic market, along with the right combination of consumer demand, competitive pressure, infrastructure and financial strength, places Czech banks at the forefront of CEEC banking digitization in the post-COVID years. -19.

The Czech banking sector is highly concentrated, with the top three lenders – Ceskoslovenská obchodní banka as, Ceská sporitelna and Komercní banka as – holding a combined market share of 61% at the end of 2020, said Cihan Duran, credit analyst at S&P Global Ratings, in an interview. This has given banks sufficient pricing power to maintain profitability while investing in digitization, Duran mentionned. Higher interest rates in their domestic market also supported Czech bank profits in the years leading up to the pandemic.

Despite the negative impact of the pandemic, Czech banks are more efficient and profitable than many credit institutions in Central and Eastern Europe and Western Europe, recording the sixth lowest cost-to-income ratio and the seventh-highest yield of highest equity capital in the EU and Europe. Economic area in the fourth quarter of 2020, according to data from the European Banking Authority.

Banks in other Central and Eastern European countries, such as Romania, Hungary and Slovenia, also ranked among the best in terms of profit and efficiency. This has been a key driver of faster digitization in Central and Eastern Europe, as higher profits have allowed many banks to invest more in IT and digital than some lenders in the West, according to S&P Global Ratings.

Adapted to digital

Like many central and eastern European banks, Czech institutions have often adopted new technologies more quickly and easily than some of their western peers. After the political and economic changes of the 1990s, banking operations in Central and Eastern European countries “started almost from scratch”, making it easier for lenders and their clients to embrace innovation. , said Pawel Rychlinski, president of the EEC division at Mastercard Europe, in an email. “This is why in the countries of Central and Eastern Europe, contactless technology, among others, has been so quickly and perfectly adopted, and why bank customers have started to use the advantages of online and mobile banking services. so seamlessly. “

The recent study on the evolution of Mastercard banking services found that 57% of Eastern Europeans are interested in new financial solutions, compared to 44% of Western Europeans. After COVID-19[FEMALE[FEMININE 50% of CEEC respondents said they would use online and mobile banking more frequently, compared to 39% of consumers in the West.

LMajor Czech and Polish banks are among the most digitally advanced in Europe and are well prepared to offer product innovations in the future, according to S&P Global Ratings, while warning that this will require heavy investment.

Insistent customers are a major driver of rapid digitization as they pressure banks to innovate, says Duran. In 2020, the Czech Republic ranked 10th in the EU in terms of share of online banking users, ahead of all Central and Eastern European countries and most Western economies, according to data from Eurostat. The Czech Republic is ahead of almost all Central and Eastern European countries in terms of overall internet use with 84.7% of adults online, while its 4G coverage is well above the average for Europe. ‘EU.

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Bank branch density in the Czech Republic was lower than most major EU economies and the bloc average in 2019, and lenders accelerated downsizing their physical networks during the pandemic in 2020. Given the Already low branch density, “the whole industry is pretty much optimized,” said Boček de Ceská sporitelna.

Future efforts, at least in his organization, will focus on adapting branch services to the new digital paradigm and giving customers a reason to bank in person. For example, Ceská sporitelna invites customers for an hour-long interview to review their transaction history, compare it to similar data for peer groups, and offer advice on savings on various products, including services. public, said Boček.

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Neobanks raise the bar

The big incumbent banks in Central and Eastern Europe cannot afford to miss a beat when keeping abreast of new technologies and changing customer preferences, as this could “put significant pressure on profitability or even threaten the viability of some banks’ business models, ”S&P Global Ratings said in its analysis. .

The growing strength of challenger banks places more emphasis on pursuing digital investments. Moneta Money Bank as is shaping up to be the main rival of traditional lenders, especially as it has announced its intention to merge with Air Bank as, which Duran says will create “a digital champion” in the Czech Republic.

“The Czech banking market remains very competitive … and as more and more customers are exposed to the convenience of online banking, the importance of digitization as a competitive dimension will only increase”, Moneta CEO Tomáš Spurný said in an email.

Since April, Czech citizens can use their bank credentials to identify themselves online, “which will greatly simplify KYC online procedures and pave the way for a new wave of innovation.” Disdain mentionned.

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