The Past Determines the Future - Bancassurance EUROPEAN Style

8th European Banking and Insurance Forum

The challenges lying ahead of the financial sector are the main stimuli for measures to mitigate the effects of the economic slowdown. The growing interest of the market in products alleviating the impact of the crisis is the driving force behind further dynamic development of bancassurance products and behind the creation of new business models for the banking and insurance sectors. 

Direction EUROPA

This year’s European Banking and Insurance Forum was attended by more than 100 representatives of business, academic circles and regulatory bodies. The conference was organised by the Europa Group.
The eighth annual meeting of finance experts was focused on the instruments for alleviating the impact of the crisis and on ways to ensure further effective collaboration and development of the banking and insurance sectors. 
“2009 will be a difficult year for the entire financial sector. However, the example of Europa shows that crisis does not necessarily mean a defeat,” said in his opening address Jacek Podoba, President of the Board of Towarzystwo Ubezpieczeń SA and Towarzystwo Ubezpieczeń Życie Europa S.A. "Already after the first quarter we have achieved record results, better than in previous years. We owe the above success to our exceptionally strong position on the bancassurance market which allows us to thrive not only in a bull market but also in a bear market. Currently, risk transfer is becoming more and more important for institutions offering insurance products and it is risk management which is our strongest competence area,” explained Jacek Podoba.

The two-day session of the 8th European Banking and Insurance Forum was inaugurated by Leszek Czarnecki, Ph.D., Chairman of Getin Holding Supervisory Board. Mr. Czarnecki pointed out to the main “critical errors” which determined the size and global impact of the crisis and stressed the key issues that should be taken into account to prevent similar problems in the future. He noted that the important thing is to concentrate not only on the basic determinants such as size of financial flows or size of capital but also on the key factor, i.e. the speed of changes.  Ideally, change should be regarded as a function of capital and the rate of capital turnover. Mr. Czarnecki also pointed out to the threat posed by the size of accumulated capital whose value, comparable to the size of the market it operates on, should be subject to particularly stringent control.  He also stressed the significance of globalisation which, on the one hand, hugely accelerates market development, but on the other hand multiplies the risk of implementation of a human or system error.

Poland and the spectre of global recession

Professor Leszek Balcerowicz, honorary speaker of this year’s Forum, stressed that the current global financial crisis has been the most serious since the end of WWII. He also noted that different countries have been affected differently. The main factors determining the impact of the slowdown include differences in the significance of trade for the development of individual countries, their economic policy and the size of investments of entities based in such countries in American securities. Professor Leszek Balcerowicz noted that Poland might be the only European country to have a real chance of avoiding a negative economic growth. The most important measure which will enable Poland to permanently accelerate its economic growth is to introduce reforms limiting unnecessary social expenditure and reducing the ratio of all public expenditures to GDP.

A similar thesis was proposed by Prof. Krzysztof Rybiński. If appropriate measures are taken, Poland has a chance to be the only country in Europe to avoid recession in 2009-2010. “Poland is less vulnerable to the crisis because it has a high share of consumption in GDP, low level of lending and a relatively closed economy,” said Professor Rybiński. In 2009, Poland’s GDP growth will probably be around zero which gives the country a chance to close 2010 with GDP higher than at the end of 2008, which would make us the only such country in the EU. Economic tendency surveys reveal signs of a moderate slowdown while companies run up against a barrier of demand and plan to limit their investments. The drop in the supply of lending much exceeding the drop in demand for loans is indicated as one of the risks to economic growth. Current demographic conditions and the expected high utilisation of EU funds for investment projects offer Poland a real chance for a “golden Polish decade” i.e. a dynamic economic growth in 2010-2020 reaching in some years as much as 7-8%.

“Bancassurance is the anti-crisis counteraction of the Europa Group,” stressed Piotr Sztuba, Ph.D., Europa’s Member of the Board. Being one of the Group’s competitive advantages, its extensive insurance portfolio offers an effective risk transfer mechanism for banks. A number of Europa’s products including a guarantee of real property value, interest rate insurance or exchange rate insurance not only ensure an additional non-interest income for banks but also allow them to mitigate the negative impact of macroeconomic factors on their loan portfolios.

Government support highly valued

Bolesław Meluch, Housing Funds Department Director at Bank Gospodarstwa Krajowego (BGK), mentioned the governmental “Rodzina na swoim” (Family’s Own Home) programme implemented by BGK. “There is a chance that the programme will produce supply and get the economy moving,” he noted. Only in the first four months of 2009, the number of preferential loans with subsidies granted under the programme was nearly a quadruple of the value of loans granted in the entire 2008. “New conversion factors introduced on 1 April 2009 are expected to make the programme more accessible for borrowers from the largest cities, even more so that the pressure on prices will increase,” forecasted Prof. Jacek Łaszek from the Institute of Economics at the National Bank of Poland.
When opening the Crystal Ball discussion panel devoted to trends on financial markets, Piotr Cyburt, Ph.D., President of the Board of BRE Bank Hipoteczny SA proposed a thesis that the outlook for the Polish housing market depends on the functioning and condition of the Polish banking system. Creation of conditions to enable increased liquidity of banks was in his opinion the key factor of change. Support for Polish banks from their foreign shareholders is not very likely. The current significant reduction in new residential lending will have an adverse influence on the market. The upcoming maturities of loans incurred by developers will increase a pressure on price drops, which will be to the advantage of buyers. However, the limited stream of new lending may bring about a halt in investments projects currently in progress. Customers will be looking for turnkey apartments. Commercial property market should be in a better shape than its residential counterpart but it will be dominated by medium-sized projects and transactions on the secondary market will become history. 
Mr. Cyburt said that 2010 will be a year of recession and for 2011 he forecasted stagnation in all market segments.  “The situation may improve,” he cautioned, “if the banking sector will be supported by the government in its liquidity enhancement efforts.”
Michał Handzlik, President of the Board of Getin Bank SA, stated that the prevailing part of the banking sector was guilty of the “sin of pride” by not noticing in time the signs of deteriorating economy. As a way to improve the situation he proposed maintaining sales levels targeted at own customers, tighter cost and risk control and measures aimed at stimulating counterparty cooperation in the interbank sector.

Loans worth their weight in gold
According to Agnieszka Drewicz-Tułodziecka, President of the Board of the Polish Mortgage Credit Foundation, the lowest ratios of the number of housing units to population and average flat floor area per person are a proof of the huge potential of the Polish real estate market. The issuance by banks of mortgage bonds on the basis of mortgage backed loans purchased or acquired by universal banks may become an alternative way of refinancing mortgages.
Kazimierz Kirejczyk, President of the Board of REAS Sp. z o.o., confirmed that the effects of reduced new lending can already be felt. Developers are reporting a increasing number of cash transactions and the number of turnkey flats is also growing. Adjustment of prices to indices to facilitate customer eligibility for preferential loans under the “Family’s Own House” programme would be a chance for the housing market. On the other hand, 2010 is expected to bring an equal number of housing units offered for sale and sold.

Time for changes
The last day of the meeting of the 8th European Banking and Insurance Forum  was started by Marcin Jabłczyński, analyst for DB Securities SA, according to whom the situation will not improve soon which is indicated by the analysed macroeconomic determinants of the way out of the crisis. Poland seems to be relatively safe compared with other countries of the region but in the perspective of 12-18 months it is better to be prepared for worst case scenarios. 
The challenges that need to be addressed by Polish banks and the Polish government in order to avoid the darkest scenario were discussed by Jacek Furga, Chairman of the Real Estate Financing Committee at the Polish Bank Association. He argued that residential construction financing is a way to counteract economic slowdown.
Wojciech Sass, Partner and Managing Director at the Boston Consulting Group, stressed that the crisis negatively reviewed certain bank models. However, he pointed out to challenges and opportunities lying ahead of the banking sector in the new market environment. When defining their strategies, banks need to consider cyclical and structural trends and they should take care not only of their P&Ls but should also remember about risk management and liquidity. When building the latter one, it is a good idea to focus on the so-called middle class. The sector needs to start from a better analysis of individual customer segments and their needs and use these data in product development.  In the opinion of Wojciech Sass, a distribution model consisting in building centrally managed “points of sale”, often specialised only in selected parts of the company’s offer and having the same approach to all customers should be replaced by autonomous and universal outlets fostering local-level relations. Like in the case of cooperative banks, a branch manager should become the “face of the bank” in a given area.

EUROPA does not end in Poland
Challenges, problems but also great business opportunities offered by the so-called Eastern markets were discussed by people born there and also by those getting to know these markets from the Polish perspective. 
Vadim Miroshnik, Director General of Balt Assistance, pointed out to the insufficient development of the Russian financial system, as a result of which, in the period before the economy deteriorated, many local companies had to borrow money from abroad to finance their development.  Now, in order to overcome the crisis, Russia needs to look for internal sources of growth. “Special challenges lie ahead of the real estate market," he said. According to the data collected, before the crisis, 40 per cent of transactions were financed by mortgages. Today – only a few per cent.
“The Ukrainian mortgage portfolio is called toxic,” noted Alexei Pilipets, Executive Director at the Ukrainian National Mortgage Association. As a result of a complete halt in new lending in Ukraine, mortgage debt level is falling down. Recession is a strongly politicized issue and no side of the political spectrum wants to be accountable for fighting the crisis (and for a possible failure).
However, in the opinion of Krzysztof Mędrala, Member of the Management Board of Alfa Bank Ukraina and Deputy Chairman of the Supervisory Board of Alfa Insurance Ukraina, Ukraine offers a huge potential for the development of the bancassurance market. It is enough to have an interesting product, although the hard part is overcoming the low level of integration between operating systems of banks and insurance companies and the still low awareness of benefits offered by bancassurance to both parties of the business.

The speakers at this year’s Forum were: Leszek Czarnecki, Ph.D., Chairman of the Supervisory Board of Getin Holding, Prof. Leszek Balcerowicz, Jan Grzegorz Prądzyński, Deputy President of the Board of the Polish Chamber of Insurance, Jacek Furga, Chairman of the Real Estate Financing Committee at the Polish Bank Association, Agnieszka Drewicz-Tułodziecka, Ph.D., President of the Board of the Polish Mortgage Credit Foundation,  Prof. Krzysztof Rybiński, Ph.D., Partner at Ernst&Young, Prof.  Jacek Łaszek, Institute of Economics at the National Bank of Poland, Bolesław Meluch, Director of the Housing Funds Department at Bank Gospodarstwa Krajowego, Piotr Sztuba, Ph.D.,  Member of the Board of TU EUROPA SA and TU na Życie EUROPA SA, Piotr Cyburt, Ph.D., President of the Board of BRE Bank Hipoteczny SA, Michał Handzlik, President of the Board of Getin Bank SA, Kazimierz Kirejczyk, President of the Board of REAS Sp. z o.o., Marcin Jabłczyński, analyst for DB Securities SA, Wojciech Sass, Partner and Managing Director at The Boston Consulting Group, Vadim Miroshnik, General Director of Balt Assistance, Alexei Pilipets, Executive Director at the Ukrainian National Mortgage Association and Krzysztof Mędrala, Member of the Board of Alfa Bank Ukraina and Deputy Chairman of the Supervisory Board of Alfa Insurance Ukraina.  The honorary sponsors of the 8th European Banking and Insurance Forum were: the Polish Bank Association, the Polish Chamber of Insurance and the Polish Mortgage Credit Foundation. The event’s media sponsors were: Puls Biznesu, Miesięcznik Finansowy Bank, Gazeta Finansowa and

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